The reports from consulting firms Segal and Aon that health benefit costs will jump more than ten percent next year shows exactly what we’re in for if reform efforts fail.
And by ‘reform’ I mean reform with strong cost controls.
When costs increase ten percent a year, they double every seven years. With current family premiums in the $15,000 range, employers and employees will be paying $30,000 per family in 2016. And that’s not including deductibles and copays, which are sure to rise.
If you’re relying on so-called consumer-directed health plans to stem the tide, good luck – their costs went up two points more than ‘regular’ HMO and PPO plans. Industry veterans aren’t surprised, as new insurance products almost always have good experience in the first couple years and as the block ‘ages’, claims creep up. As I’ve noted previously, CDHPs are not a panacea, in fact they may well drive up costs due to delayed care. (That said, with substantial changes CDHPs could be a valuable tool in cost containment.)
Eventually the US will reform its health insurance and health care delivery ‘systems’. Unfortunately I don’t see it happening this year due to the failure of the Democrats to put forth a program that controls costs, make a cogent argument and control the debate, and the decision by the Republicans to remain nothing more than the ‘Party of No’.
But when something can no longer continue, it won’t. When enough Americans lose their coverage, when cost-shifting gets to the point where those left with insurance are paying thousands in premiums to cover those without, when local taxes to pay for teachers’ and police benefits get so high that folks are losing their houses, when Medicare finally goes insolvent, when hospitals are collapsing due to the cost of indigent care, when big pharma and device companies are no longer making the gazillions they so richly deserve, then, and only then, will the screaming hordes at Town Hall meetings decide that any health care coverage is better than none.
What happens then?
Well, we may end up with single payer, or Medicare for All, or some version of the German or Swiss or French systems. The false patriots championing freedom and the American tradition of independence and all that other hooey will find themselves drowned out by the moms and dads desperate for insurance to cover their kids and parents.
While the opponents of reform may well win this battle, in the long run they will lose the war. Their best chance (which some seem to have recognized, albeit half-heartedly) is to engage now, get the best deal they can, and retool their business models to prosper without relying primarily on risk selection and underwriting to avoid unhealthy members.
What does this mean for you?
If you are an investor, look closely at the chronic care solutions offered by health insurers – the ones who are investing heavily will be the long term winners.
Aug
28
First off, I want to say I love your blog. I read it at least once a day and have done so for a couple of years. While I might not agree with you all of the time, I’ve always enjoyed your comments.
I believe wholeheartedly in your statement, “… when something can no longer continue, it won’t.” But you cannot extrapolate a rate of change out to infinity as you do when you say, “… employers and employees will be paying $30,000 per family in 2016.” If this extrapolation technique were logically sound, then by virtue of it dropping ten degrees tonight (because the sun went down), I could say, “Oh my, it’s going to be -20 degrees in ten days.”
Many vocal individuals are bemoaning the cost of health insurance today. Why doesn’t someone come up with a business plan that can offer acceptable coverage at, what these vocal individuals deem an acceptable cost? Might it be that that business plan doesn’t exist? If there is “excess” profit in the health insurance business, why hasn’t some entrepreneur come onto the scene with a lower cost option and eliminated this “excess” profit?
I don’t assume to know everything, so these are honest questions. I am interested in the answers. What are the real barriers to entry, other than capital, for the insurance industry? If they are regulation based, why aren’t we looking at removing some of those to allow these entrepreneurs into the game?
If the problems go down the supply chain, then why doesn’t someone open a chain of discount Hospitals if they can be operated as such and still remain viable? If local governments are controlling new Hospital construction with “Statements of Need” that are fought against (naturally) by the entrenched, existent facilities, why aren’t we looking at removing these arbitrarily requirements and allow these supposedly viable “discount” Hospitals to come to market?
It appears to me that when you look under the hood for the real reasons we’re in our present situation, you see arbitrarily placed barriers to potential solutions, placed by our governments or sanctioning bodies; local and Federal. If there truly is a way to deliver healthcare at a fraction of today’s cost, then why isn’t it being done so? For those that know how to do this, why aren’t you screaming for the regulators to get out of your way and let you make a living while providing the masses with something they need? What’s stopping you?
Keep tracing the problem backwards and don’t stop just because you’ve arrived at the most visible, most easily vilified group(s). As they taught me in Econ, keep asking, “what’s causing this” and “what’s this change going to affect?” There are always unintended consequences to even the most well-meaning of intentions.
If the US Government we’re to discover an unlimited supply of gold tomorrow and decided to make healthcare free for all citizens (good intention), what’s going to happen to the Doctor/Patient ratio? It’s going to increase, probably to unacceptable levels (unintended consequence). How’s that going to be addressed? You could use some of the money for to train and hire more Doctors and build more Hospitals. Sooner or later you could return the ratio back to where we are today. One thing won’t change, though; the value of the services rendered. Right now, the market demand has valued that service at, and I’m using your figures, $15,000 a year. We’d just be shifting who was paying for the value, from the consumer to the “authorities.” Of course there is no unlimited supply of gold going to be found tomorrow. There is no free lunch. Someone’s going to have to pay for the services. The value of these services is not going to change just because someone else is paying for them.
I would love to have health insurance for $1/mo. I just don’t want anyone else to have to pay for it. And conversely, I don’t want to pay for someone else’s insurance. If someone could offer me a unsubsidized policy for $1, I’d take it!
Excellent post, and excellent points.
You’re right, of course. It’s because I am part of one of the organizations you’re referring to in your closing post that I am so passionate about reform – not to mention why I’m able to sleep at night as an employee of the “healthcare industry.”
The non-profit managed care organization I work for is part of an integrated delivery system.
Yes, we have to have margins to compete.
Yes, we have to spend money on marketing and advertising.
Yes, we do sometimes deny claims and refuse to underwrite policies for people – not because we want to, but because we have to to exist in a market dominated by for-profit companies and/or virtual single-payer organizations that are technically non-profit but dole-out executive salaries equal to our entire hourly payroll.
Unlike those organizations that post an annual loss and then give their CEO a raise, at the end of the day we operate on a shoe string.
We don’t pay dividends; we invest our margins back into our core competencies.
We don’t fund golden parachutes; we fund clinics and hospitals in the urban core as well as in the suburbs.
We don’t buy airtime to scare the hell out of people; we invest in value-based benefit design and medical home delivery models to control costs and deliver actual HEALTHCARE to our members.
Nice post. I don’t think you can just project out the current 10% rate of increase, even without reform, but it’s pretty safe to say that the rate would continue to be unsustainable.
For your conclusion, I would add wellness programs to chronic care management. Those are the companies that are really thinking long term.
Instead of moving to a single player system where the player would try to squeeze costs by limiting treatments why not give the choice to the customers.
If the customers themselves are paying the bills, it will bring down the costs as the companies cannot charge what people cannot afford.
Why are costs in developing countries significantly lower than the US:
Obamacare vs Indiacare
I’m an economic conservative coming to your blog looking for some answers about how we can afford the further-ballooning entitlement deficit that is sure to occur if a public option passes.
I have a hard time following you when every other paragraph has a backhanded swipe at people like myself who are worried about the public option for a number of reasons.
It’s unfair to call Republicans the “Party of No” when they have proposed their own legislation (HR 3400) and their own amendments that are ignored by Democrats.
Calling people like myself, who are worried about increased reliance on the federal government for our survival “false patriots” is insulting.
(And I can’t stand to listen to 15 seconds of Rush Limbaugh, these are my own thoughts. I haven’t screamed at a town hall meeting either, and I’m not screaming now.)
I came here to try to learn the other side and just came away angry and frustrated that the left is too cynical to have an honest debate about economics and the role of government in the lives of Americans. It’s no wonder we can’t get anything accomplished in this country anymore.
Michael – welcome to MCM.
I’m glad you came to MCM for answers, and puzzled that you haven’t found any. I’ve over fifteen hundred posts about managed care and health policy, many of which specifically address how to control cost. I suggest you search more deeply.
I have ‘swiped’ at public plan advocates repeatedly on this blog; I suggest you read those posts for more.
I don’t believe you are correct that the deficit will increase if the public plan option passes; my sense is it would not attract many members, for reasons described in detail herein.
I find it interesting that you refer to me as the ‘left’ and are angry and frustrated that I’m too cynical to have a debate, when in reality you just didn’t read enough here. I would welcome counterarguments to my ideas, but you make none. Perhaps you have become too jaded to expect those who you think are on ‘the other side’ to have credible opinions.
I’d respectfully suggest that before you label people you first determine what they truly believe. The people I referred to in my post were indeed the worst of the reform opponents; McCaughey, Palin, Beck and Limbaugh and their followers are at best misled and at worst jingoistic know-nothings manipulated into fighting against their own best interests – and those of the country as a whole.
Paduda