Good afternoon everyone. I know it has been a while but I wanted to finish the overview of what is driving our health care cost increase. I will try not to get too wordy here but want you to have a good foundation and although this list is not all inclusive, it is, in my opinion, the primary drivers in today’s health care landscape.
To recap, we have discussed the following items so far:
- Baby Boomers
- Medicare’s Impact
- New Technology
- Copay Camouflage
Today we will address :
- Tort Reform: Physicians are required to purchase Medical Malpractice insurance to protect them finacially should they be sued related to services that they have provided. However, with no limit on malpractice awards, the rates for this coverage continue to skyrocket. But how bad is it? In 2002, St. Paul Insurance, one of the major providers of malpractice insurance, got out of the malpractice insurance business. Why? They found that more than 50% of the insurance claims were for jury awards of $1 million or more. In 2000, a Philadelphia jury socked four physicians and two hospital defendants for $100 million for bad outcomes suffered by a baby born at 26 weeks of gestation. According to a recent article, malpractice insurance for OB/GYNs is reported to have one of the highest premiums for medical malpractice, with some areas reporting premiums of $100,000 per year for OB/GYN coverage. Premiums in major metropolitan areas can be as much as $250,000 per year. There is some debate as to the impact that this on health care cost increases but there is no doubt that the cost of this coverage must be passed on to the consumer of health care.
- Benefit Plan Leveraging: Benefit plan leveraging refers to the impact that a stable plan design has on cost born by the insurance carrier. A simple example of this would be if a service cost $100 and the employee had a $10 office visit copay, then the employee would be paying 10% of the cost of this service. If the cost of this service increases to $120 and the employee still has a $10 copay, they are now paying slightly more than 8% of the cost. As the insurance company continues to cover a larger percentage of each service, they have no choice but to pass this increase on to consumers.
- Government Mandates: Each time the government mandates a new benefit be covered, (chiropractic is a state mandated benefit in Wisconsin), the cost is passed on to you and me whether we want that benefit or not. In Wisconsin there are a number of mandated benefits. A list of them can be found at http://oci.wi.gov/pub_list/pi-019.pdf.
- Transparency: I have often heard people say, “why can’t I shop for health care the way I shop for a new car?” Although this is nice in theory, it is much more difficult in reality. When purchasing health care services, there are two major considerations; quality and price. Unfortunately, quality in health care is not measured consistently across specialties or services provided and price is hidden due to insurance company network discounts. The network discounts are proprietary and can not be released to the general public. Of course, you can see the price after the service has been received but then it is too late.
So, that is my list. Each of these items has an impact on the cost of health care and there is some debate on what that impact is. The following chart shows the role each has a percentage of total health care trend.
I hope this background was helpful to you as you continue to listen to the debate on health care. In future entries, we will discuss current proposals and their benefits (or lack thereof).