Four things you might want to consider when thinking about paying for healthcare.

People and money, especially when not actually their money, generates some interesting points of view and confusion. It sometimes seems to bring out the illogical. 

Health care and health insurance are especially volatile topics. I spend a great deal of time writing about health care on my blog and I spent most of my working life dealing with health insurance and related health care issues. I helped organize three HMOs. 

The cost of healthcare is a significant issue for most people and yet finding a workable solution is greatly hampered by misinformation and what people want to believe. Here are a few examples that derail efforts at improving our situation. 

Number 1 is defining “affordable.” When it comes to healthcare there are different ways of thinking about it. Most people focus on premiums because in any given year, that is all they actually spend. Spending significant amounts on health care is concentrated in relatively few people. For example, the bottom 50% of the population (by spending) only accounted for 2.8% of total healthcare costs.

Also, around 14–15% of people have zero healthcare expenditures in a given year. 

Number 2 is the role of insurance companies and their profits. Many people see the premiums they pay as going directly into insurer’s coffers. Of course that is not true. In fact, the percentage of premium revenue that can be retained for all purposes and expenses is limited by law. It’s called the MLR or medical loss ratio. It’s either 20% or 15%. 

In addition, insurance company net profits are low – 5% or less on average. Lower in most cases than regulated electric and gas utilities – another vital service. 

Also, insurance company premiums are reviewed and approved by state or federal agencies. It’s hardly a matter of charging what you like. 

CEO pay is often mentioned as a cause of high premiums. That is not the case. First, most CEO compensation is equity not cash. If you take the cash or even total compensation and divide it by the number of policies in effect, it’s clear the impact if minimal. One calculation I did came to about $10.00 per year, per policy. 

Some people are convinced insurance companies intentionally deny needed care to make money. Are claim denials? Are there wrong denials? Of course, but they most often occur through error in submission by the provider or insurer claim examiner. If you look at your coverage you will see words like “medically necessary, appropriate,” etc. related to care that is covered. There is plenty of room for interpretation, but the tendency is for the patient to demand what their doctor orders and want no questions asked. At the same time we and doctors know there is a significant amount of unnecessary care provided. 

The issue is more focused on managed care plans and Medicare Advantage Plans.  When I think about this I often wonder how many people, including health care professionals, it would take to willingly subvert their integrity to intentionally deny a valid claim payment.

Initial denial rates vary by type of plan, but 14% is a reasonable average-some denials are reversed. Given most large employers (covering 60% of American workers) are self-insured, they have control over the process and can and should assure fair claim processing. In this case, the claim administrator does not have a financial incentive to deny claims. Workers often don’t understand this because they may still receive an ID card from an insurance company. 

It’s a conundrum.  The thing is, without any review, premiums and fraud will be higher. Medicare audits have criticized its lack of concurrent review and delays in identifying fraud. 

Number 3 Mention Medicare-for-All and socialized medicine pops up, even though that is far from the truth. I had someone tell me recently that doctors are employed by Medicare. Another said “many” doctors don’t take Medicare. Less than 2% of doctors have opted out of Medicare, but because of low fees, the number is increasing. The other claim is that it would cost trillion$ and taxes will increase. Of course it would cost Americans trillions over a decade, not the government, but that is half the equation. 

Employers pay on average 8% of payroll to fund health insurance, employees pay about 20% of premiums, some pay more. States and the federal government pay for Medicaid and CHIP. Everyone pays out-of-pocket costs, some quite large. 

All that would be diverted to M4A. If captured correctly, there would be significant administrative savings for doctors and hospitals – and many employers. 

In other words, there is no reason for M4A to have a significant net cost increase. 

Number 4 Nobody thinks they should spend their own money on healthcare. It’s just not a pleasant thing to do. We want spending money to be a positive experience. Forty dollars is $40, but not really. Is it taking someone to the movies or a prescription co-payment? One is “affordable” and the other not. 

Will we ever have a better health care payment system? I am not optimistic, not in my lifetime, but in the meantime we will complain loudly about what we have-likely looking in the wrong places for a solution.