Tilting at Windmills

Waiting for a delayed flight in Chicago's O'Hare Airport, I decided to walk the concourses. Challenging myself to do two things at once, I began to think. And that is when I ran smack dab into a quandary: why are we trying to change the world of health insurance for employers? Not even Don Quixote would be so foolish, would he?

Perhaps the three most powerful lobbying groups in the US are the insurance industry, hospitals, and pharmaceutical companies. Taking on one of these giants, much less all three simultaneously, would seem to fall into the "insane" category. Particularly for a small group of individuals with relatively light pockets and no groundswell of support from the very people they are trying to help. Yet someone has to try to do something to slow the cost curve growth that employers all across the country are facing, don't they?

The problem is that we have fallen into a trap of obfuscation. That's right, the insurance companies have made it beyond comprehension what healthcare actually costs. The patient's EOB only makes you scratch your head at how a $3000 charge can be "discounted" down to $200. The doctor doesn't know why he charges what he/she does, only that it has to be high enough so that the insurer's "discount" doesn't put him into the red. The employer does not know because BCBS will only disclose that they have the "best discount". And as the recent publication of the "Price Ain't Right" teaches us, the insurer's "discount" and the hospital's "charges" are linked together to create a pricing fiction. Meanwhile, drug costs soar for no apparent reason.

So how do you possibly make sense of what healthcare costs? First, recognize what the key drivers are. For the insurance company, the more claims that they pay, the more premium they can charge. Because the Affordable Care Act locks them into an 80/20 "medical loss ratio", the insurer's revenue is capped as a percentage of what they pay out for medical claims. Thus the higher their payouts, the more revenue they get. And while they may be "non-profits", don't tell that to their CEO making a seven-figure income. And why else would they pay their brokers through a for-profit subsidiary other then to off load that significant cost so it doesn't show up in that 20% allowable administrative fee? Makes you a little squeamish, doesn't it?

Second, hospitals have learned that to give insurers the sizable "discounts" that they demand, they have to gross up their "charges" to the stratosphere. That way Cigna's 50% discount looks really good, but the hospital is able to collect 180% to 300% of Medicare. Even though the uninsured are bankrupted with the fictional "charge", the hospital is able to pay its top executives more than a million dollars. Despite full knowledge of this shell game, these healthcare institutions, as employers, put their own employees in the very same insurance products that are based on a fundamental distortion. Feeling a little sick?

But it gets worse. Drug costs will make you cry. As one CEO of a pharmaceutical company recently stated when asked why the cost of one drug increased 1000 percent, "Because we can." Between the drug companies and the pharmacy benefit managers playing games with discounts and rebates, it is not a surprise that most employers are seeing their pharmacy costs rise fastest of all components. Nauseated yet?

And to top it all off, it is a dirty business that makes you fighting mad. The under the table commissions to the brokers that are supposed to be representing the employers, the rebates, the reclassification of costs that are hidden from the clients, all make you want to yell, "Stop!"

Windmill tilting anyone?

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