Is Sanford the "Walmart" of healthcare?

[Cratter]

When I tell my auto body guy I had insurance the cost to fix a vehicle is $3,000. When I tell him I don't have insurance and I'm "getting quotes" its $2,000. I'm sure health care is the same way. Insurance companies are loving ObamaCare. Just got done filing my taxes. I was told by H & R block if I don't have insurance next year I will have to pay a fine of $300. And the year after that the fine jumps to $600.

[yzerman19]

When I tell my auto body guy I had insurance the cost to fix a vehicle is $3,000. When I tell him I don't have insurance and I'm "getting quotes" its $2,000. I'm sure health care is the same way. Insurance companies are loving ObamaCare. Just got done filing my taxes. I was told by H & R block if I don't have insurance next year I will have to pay a fine of $300. And the year after that the fine jumps to $600.

Its the opposite in healthcare- you pay list price (or if you're lucky a slight discount) without insurance. WIth insurance the total payment is significantly less. That is the biggest benefit to having insurance- you are paying significantly less for healthcare services than you would if you were to just stroll into the hospital or doctor's office. Billed charges are pretty much irrelevant in healthcare- "allowed" amounts are what drives the payments.

Other important things to note. Most insurance (60%-70%)is ASO (administrative services only) or what your employer would call being self-insured. In this regard, your employer sets the benefits and takes the risk on claims costs- the insurance company simply processes claims, prints membership cards, and gives you access to their discounted payment rates within their network. In this space, the insurers make very little to no margin. This is a great benefit to the employer, and was created by federal law. It takes the profit out of insurance in that space. Benefit changes under Obamacare which will require coverage for certain things will not benefit the insurer- it will simply cost your employer more.

On the fully-insured side, insurers take risk and still make profits (think of this like the casino). However, Obamacare is requiring "community rating" meaning that the insurance company has to bet the same whether or not you are a good bet or a bad bet. In healthcare, like everything, the 80/20 rule exists. 80 percent of people drive 20 percent of healthcare costs and vice versa. Now if you have to bet the same, you split the middle, meaning costs go up for 80 percent of people and down for 20 percent of people. This money will not go into the pocket of the insurance companies, but rather through the insurers and out to providers (hospitals, clinics, etc). The required medical loss ratios (MLR) require this. MLR is the percent of premium paid out in claims, and is also governed under the affordable care act.

As for your penalty for no insurance, that is NOTHING- when's the last time you heard someone was in the hospital and it cost less than $10,000? At that rate it would take 20 years (time value) to break even on that $600. One of the problem with the affordable care act is that the penalties are way less than the cost of an insurance policy...incenting people to not buy insurance until they are sick, and just paying the penalty. WIth "guaranteed issue" you can do this, and in the process completely disrupt the function of insurance.

Health insurance is expensive, because healthcare is expensive. The brains on the knowledge workers in the industry, the devices, the imaging equipment, the drugs...it costs a lot of money. That money has to come from some where. 40 years ago it was common for people to die in their 60's, and 50's were old. We've easily added 10 quality of life years over the last 40, and that costs a lot of money.

[Oxbow6]

Let me try to dumb this down a little bit. If hospital/ clinic system takes/accepts (you pick a #) different healthcare plans and each plan pays a certain $$ amount for a procedure or clinic visit or ect... the "system" will find the highest payment "allowed" from all these plans and set the fee at a penny above as to not leave any money on the table that they could get reimbursed for by any plan they accept. This cause someone without insurance to really get drilled. That's the 101 version.

[Sioux-cia]

Good analysis, Yzerman. That being said, hospitals have found ways to be quite profitable; both of Mayo's hospitals in Rochester are among those. Closer to home, Altru is quite proficient in finding ways to be profitable. One of the most recent methods was preventing another hospital from opening in the Grand Forks area. After telling a few lies, they finally 'fessed up. Altru would lose milllions of federal dollars if they ceased being the only game in town. Over the years they forced the closure of private clinics and the independant practice of specialists. By assuming the specailty services and outpatient services, (areas where the most profits can be made) in the area, they were able to increase their profits significantly. It's only been in the past few years that specialists have started independent clinics in the area again.

Insurance companies manage to have high profits rates by increasing their rates, placing ceilings on how much they will pay out, charging higher deductibles, etc. Anyone remember BlueCross/BlueShield raising their rates significantly while crying about no profits? That same year they took their Fargo staff to Hawaii as their bonus.

[Cratter]

Can you explain to me how preexisting conditions have to be covered now? I can't be denied coverage they say, but if I have cancer and go get insurance what's my payment $2,000 a month?

They take out retirement for me. Make everyone buy insurance or get fined by the government. Might as well just take it out of my check like the others.

[yzerman19]

Good analysis, Yzerman. That being said, hospitals have found ways to be quite profitable; both of Mayo's hospitals in Rochester are among those. Closer to home, Altru is quite proficient in finding ways to be profitable. One of the most recent methods was preventing another hospital from opening in the Grand Forks area. After telling a few lies, they finally 'fessed up. Altru would lose milllions of federal dollars if they ceased being the only game in town. Over the years they forced the closure of private clinics and the independant practice of specialists. By assuming the specailty services and outpatient services, (areas where the most profits can be made) in the area, they were able to increase their profits significantly. It's only been in the past few years that specialists have started independent clinics in the area again.

Insurance companies manage to have high profits rates by increasing their rates, placing ceilings on how much they will pay out, charging higher deductibles, etc. Anyone remember BlueCross/BlueShield raising their rates significantly while crying about no profits? That same year they took their Fargo staff to Hawaii as their bonus.

So here is the insurance company dilemma- hospitals and clinics demand hefty payments or they go out of network (non-par), so insurers continue raising reimbursement rates to maintain the network (would you buy an insurance policy in Fargo with neither Sanford nor Essentia?). Then large employers say its too expensive, so they build benefits (usually with the assistance of highly paid consulting houses) that "cost-shift" to the subscriber- i.e. raise the deductible, so that the subscriber has more out of pocket liability. This move manages the employer's health care cost trend, but jacks up the employee's share. For many, many years insurers have taken these arrows, when really this was all about the employer and the consultant, the insurer was really a silent partner in that regard.

On the fully-insured side, once one plan moves to a high-deductible, and creates the product with the lower premium, all the competition will move there too, because people are price sensitive, and that is the single biggest lever you can pull in insurance design, you now have a race to the bottom on benefits. Adding to it is the risk-selection bias, where you really like healthy folks who tend to be fine with high deductibles.

As for insurer "profits" be sure not to confuse revenue and profit. Insurance is not a high margin game, especially in ND/Minny with the dominance of non-profit plans...no Wall Street to please means lower prices and lower margins. We in the upper midwest are fairly insulated to the healthcare crisis in other parts of the country. A trip to Hawaii isn't that great a bonus...$5000? Not a ton for an incentive for hard work. It isn't charity.

You are correct that the sole community provider impact to medicare reimbursement from the Feds would've substantially impacted Altru. Their response would've been to negotiate higher rates with the private insurers, raising costs. Furthermore, a limited amount of healthcare services would've been split between two entities. Neither hospital would've been viable as a result...too much overhead, not enough revenue- unless, again, they negotiated astronomical payment amounts. The economics of healthcare are perverse. Competition tends to raise healthcare costs.

At the end of the day in the US, we already have a two-tiered healthcare system and it is only going to get more divided under Obamacare...

[yzerman19]

Can you explain to me how preexisting conditions have to be covered now? I can't be denied coverage they say, but if I have cancer and go get insurance what's my payment $2,000 a month?

They take out retirement for me. Make everyone buy insurance or get fined by the government. Might as well just take it out of my check like the others.

You would be pooled with everyone- healthy, unhealthy etc. The premium (if you don't qualify for a subsidy) will likely be somewhere between $500 and $1500 a month depending on the benefits you choose.

In the current world, a healthy person who is willing to take a very high deductible can buy a policy for $100 or less a month, a person with cancer would be denied. This was done to keep insurance affordable for the masses, not for profits. Community rating will drive those prices way up for healthy folks, but it will also create options for the otherwise uninsurable (although in some states like Minny a high-risk pool subsidized by the state already existed)

[Sioux-cia]

I see your point which is pretty much on target except for this "A trip to Hawaii isn't that great a bonus...$5000? Not a ton for an incentive for hard work. It isn't charity." I find the following obscene;

'Blue Cross Blue Shield of North Dakota used premium payments to fund $15 million in employee bonuses, cover $35,000 for a retirement party and pay for other questionable expenses, according to a state audit released Tuesday.' http://www.huffingto...x_n_281282.html

[yzerman19]

I see your point which is pretty much on target except for this "A trip to Hawaii isn't that great a bonus...$5000? Not a ton for an incentive for hard work. It isn't charity." I find the following obscene;

'Blue Cross Blue Shield of North Dakota used premium payments to fund $15 million in employee bonuses, cover $35,000 for a retirement party and pay for other questionable expenses, according to a state audit released Tuesday.' http://www.huffingto...x_n_281282.html

I appreciate your point of view and agree that ND Blues had some serious issues. $15 million in employee bonuses over 5 years is an average of $3 million per year...If they have 1000 employees that is an average bonus of $3,000 per person...that is pretty small. Even if I am misinterpreting and the $15 mil was one year, that is still only $15,000 per person- spread across all levels of staff, again that isn't that substantial. Although, I don't know what their total comp packages look like- lower salary, better bonuses or whatever. Of course it isn't a vacuum.

And again, I would guess some big chunks of that are paid through ASO fees (so not premiums) and through Noridian services (again not premiums)

[Sioux-cia]

I appreciate your point of view and agree that ND Blues had some serious issues. $15 million in employee bonuses over 5 years is an average of $3 million per year...If they have 1000 employees that is an average bonus of $3,000 per person...that is pretty small. Even if I am misinterpreting and the $15 mil was one year, that is still only $15,000 per person- spread across all levels of staff, again that isn't that substantial. Although, I don't know what their total comp packages look like- lower salary, better bonuses or whatever. Of course it isn't a vacuum.

And again, I would guess some big chunks of that are paid through ASO fees (so not premiums) and through Noridian services (again not premiums)

Bonuses are not a common practice for the majority of us in the work force.The money paid for 'perks' could go a long way in helping the uninsured. I see people who have waited too long come in for health care because they couldn't afford preventive care or 'early' care. That results in care many times more expensive than preventative or early treatment. That $15M paid to a company for health care should have been better spent. So, when I read that a company spent $15M in bonus, I was incensed!!! I'm in the wrong business that's for sure.

The article states' The report said that premium payments funded nearly $15 million in employee bonuses that were almost assured regardless of performance, a $3.5 million investment in a hotel in Fargo and sales reward trips to resorts totaling $1.2 million.'

[yzerman19]

Bonuses are not a common practice for the majority of us in the work force.The money paid for 'perks' could go a long way in helping the uninsured. I see people who have waited too long come in for health care because they couldn't afford preventive care or 'early' care. That results in care many times more expensive than preventative or early treatment. That $15M paid to a company for health care should have been better spent. So, when I read that a company spent $15M in bonus, I was incensed!!! I'm in the wrong business that's for sure.

The article states' The report said that premium payments funded nearly $15 million in employee bonuses that were almost assured regardless of performance, a $3.5 million investment in a hotel in Fargo and sales reward trips to resorts totaling $1.2 million.'

Yeah- I think one key thing is that I do not believe anywhere in their mission or charter or the mission or charter of any non-profit healthplans is there a goal about the uninsured. There is an incentive for insurers to want more people covered, as "charity care" that providers perform for those without insurance just gets baked into their cost structure and negotiated back into the rates they collect from insurers.

Sales folks are always incented with bonuses (a lot of them make really low salaries and earn a decent living through commissions/bonuses alone), and the financial services industry is built around bonuses. Insurance historically was more part of financial services than it was health, and bonuses are a big part of that industry's compensation.

I did read that the article claims premiums, but I am taking it with a grain of salt due to a bias that most reporters don't understand the nuances of the industry.

The hotel investment is an interesting move- the issue there is what was the goal and what funds were used? Insurers have to carry huge reserves (Risk Based Capital) in order to pay claims in an emergency. They are generally required by State law and the Blues also have by-laws requiring a certain level of solvency. Clearly you don't just leave the money in a savings account, so perhaps the hotel was part of a broader investment portfolio?

Again- Blue Cross of ND had issues- big ones. I think that they paid their CEO way too much for a plan their size. They also operated in a virtual monopoly.

[Cratter]

You would be pooled with everyone- healthy, unhealthy etc. The premium (if you don't qualify for a subsidy) will likely be somewhere between $500 and $1500 a month depending on the benefits you choose.

In the current world, a healthy person who is willing to take a very high deductible can buy a policy for $100 or less a month, a person with cancer would be denied. This was done to keep insurance affordable for the masses, not for profits. Community rating will drive those prices way up for healthy folks, but it will also create options for the otherwise uninsurable (although in some states like Minny a high-risk pool subsidized by the state already existed)

$500 to $1500 a month. Basically not affordable to most Americans making under $40,000. People can't afford to buy that insurance no matter how you slice it. Just file for bankruptcy. I believe I read the average Minnesotan has $100 a month left to spend after bills are paid.

[Oxbow6]

Now throw in the fact that most big healthcare systems base their budgets on funny numbers, i.e. RVUs, and not real dollars and thing really get jacked up!!

[Sioux-cia]

I did read that the article claims premiums, but I am taking it with a grain of salt due to a bias that most reporters don't understand the nuances of the industry.

The information came from the insurance commissioners report. Bonuses regardless of performance?!?

The report said that premium payments funded nearly $15 million in employee bonuses that were almost assured regardless of performance, a $3.5 million investment in a hotel in Fargo and sales reward trips to resorts totaling $1.2 million.

In one case, the audit found that $34,814 was spent for a party for a retiring vice president.

"Health care premiums are for health care, they are not for expensive retirement parties, corporate jets, risky hotel investments or a compensation structure that rewards senior management regardless financial performance," Hamm said.

[Cratter]

Thought they didn't make such profits?

[yzerman19]

$500 to $1500 a month. Basically not affordable to most Americans making under $40,000. People can't afford to buy that insurance no matter how you slice it. Just file for bankruptcy. I believe I read the average Minnesotan has $100 a month left to spend after bills are paid.

40k will be subsidy eligible. Remember what I described about loss ratios though- don't blame the insurer, blame the healthcare provider. 85 percent of that premium is going straight through to hospitals and clinics, more like 90 percent plus on self-insured. So, the insurer could work for nothing, and assuming all else equal (in other word providers will still manage care and offer deep payment concessions) and your $1000 premium just dropped to $850-$900. In reality, that $100-$150 saved a ton in negotiated discounts.

Having $100 per month after bills are paid is a function of being too highly leveraged. This is a societal problem. It is also a function of asset inflation outpacing wages for twenty years.

[yzerman19]

Now throw in the fact that most big healthcare systems base their budgets on funny numbers, i.e. RVUs, and not real dollars and thing really get jacked up!!

So RVUs (relative value units) are tied to CPT (common procedural terminology) codes. Most healthplans pay providers based on RVUs times a conversion factor. RVUs are basically a representation of the amount of healthcare resources tied to a service- complexity, etc. This methodology is intended to better control costs than the old, old world of discounts off of billed charges (usual and customary). In the old world, providers determined their payment from insurers almost entirely through their chargemasters. If they were in a financial pinch, they just raised their charges, and the allowed amounts went up. RVU based payment helped change that, but resulted in volume driven and high-end specialty care driven practice, which also ended up raising costs. Neither system works very well. Global payment in managed care did help stem the cost growth, but it was unfriendly to consumers and good doctors/NPs/PAs

[yzerman19]

The information came from the insurance commissioners report. Bonuses regardless of performance?!?

The report said that premium payments funded nearly $15 million in employee bonuses that were almost assured regardless of performance, a $3.5 million investment in a hotel in Fargo and sales reward trips to resorts totaling $1.2 million.

In one case, the audit found that $34,814 was spent for a party for a retiring vice president.

"Health care premiums are for health care, they are not for expensive retirement parties, corporate jets, risky hotel investments or a compensation structure that rewards senior management regardless financial performance," Hamm said.

With you that bonuses regardless of performance are gross. I still don't know about the insurance commissioner's interpretation of "premium" it might be a convenient usage of the term.

As a monopoly, the senior execs and the board should've managed this better.

Talent is mobile, and if you can't provide a commensurate comp package, you will lose talent. Would we rather have BCND be in Fargo or get rolled into Wellmark or Blues of Minn or HCSC (like Montana)? If you want to keep it local, you have to provide the comp to do it. Otherwise you lose the players and the business-

[Oxbow6]

So RVUs (relative value units) are tied to CPT (common procedural terminology) codes. Most healthplans pay providers based on RVUs times a conversion factor. RVUs are basically a representation of the amount of healthcare resources tied to a service- complexity, etc. This methodology is intended to better control costs than the old, old world of discounts off of billed charges (usual and customary). In the old world, providers determined their payment from insurers almost entirely through their chargemasters. If they were in a financial pinch, they just raised their charges, and the allowed amounts went up. RVU based payment helped change that, but resulted in volume driven and high-end specialty care driven practice, which also ended up raising costs. Neither system works very well. Global payment in managed care did help stem the cost growth, but it was unfriendly to consumers and good doctors/NPs/PAs

And this is why the anology of this thread holds water...and not just at Sanford. RVUs drive the bus and are a "measure" of work done. Doctors are compensated now on RVUs produced times a $$$ given to 1 RVU value. Carrot in front of the nose...produce more RVUs, i.e. see more patient, make more income.

[Cratter]

40k will be subsidy eligible. Remember what I described about loss ratios though- don't blame the insurer, blame the healthcare provider. 85 percent of that premium is going straight through to hospitals and clinics, more like 90 percent plus on self-insured. So, the insurer could work for nothing, and assuming all else equal (in other word providers will still manage care and offer deep payment concessions) and your $1000 premium just dropped to $850-$900. In reality, that $100-$150 saved a ton in negotiated discounts.

Having $100 per month after bills are paid is a function of being too highly leveraged. This is a societal problem. It is also a function of asset inflation outpacing wages for twenty years.

I'll take your average. Say my insurance coverage is $1000 a month. How much subsidy will the government provide? Probably not much? Without assistance that's half of Americans monthly take home. It's simply not sustainable.

Secondly, if my medical self insured bill is only a hundred a month. Can and how much will mine increase if I get cancer? Could it increase to a $1,000 a month?

I'm not sure the math. But what does the average person use in health care costs, even before they are forty? $15,000. A women on average has what two kids. How much is a baby? $6000? My mom and my bro both had appendix taken out. That's $36,000 for my mother. Plus other costs. My brother was under 18 at the time so my mother's insurance paid it.

[yzerman19]

And this is why the anology of this thread holds water...and not just at Sanford. RVUs drive the bus and are a "measure" of work done. Doctors are compensated now on RVUs produced times a $$$ given to 1 RVU value. Carrot in front of the nose...produce more RVUs, i.e. see more patient, make more income.

Physician comp models were very often based on production as you describe- ever wonder why their are so many MRI machines out there...

This is why the hope is around ACO type arrangements based on total cost and shared savings models.

[Oxbow6]

Physician comp models were very often based on production as you describe.

Trust me...I'm very well aware of this!

[yzerman19]

I'll take your average. Say my insurance coverage is $1000 a month. How much subsidy will the government provide? Probably not much? Without assistance that's half of Americans monthly take home. It's simply not sustainable.

Secondly, if my medical self insured bill is only a hundred a month. Can and how much will mine increase if I get cancer? Could it increase to a $1,000 a month?

I'm not sure the math. But what does the average person use in health care costs, even before they are forty? $15,000. A women on average has what two kids. How much is a baby? $6000? My mom and my bro both had appendix taken out. That's $36,000 for my mother. Plus other costs. My brother was under 18 at the time so my mother's insurance paid it.

You're getting into actuarial science now...there are probabilities tied to every scenario. The $100 per month probably has a $10,000 deductible and an 80/20 coinsurance arrangement.

It is more than just averages in the actuarial rating tables, but to answer your question, the "average" commercial population annual cost for healthcare is about $4000 per person per year. Remember there is a ton of variation around that number. Some people get cancer and run $1 million, ortho surgery and hit $30k, cardiac surgery hit $100k

[yzerman19]

Trust me...I'm very well aware of this!

Sounds like we should go out for a drink sometime : )

[Cratter]

Can insurance companies massively increase ones health care cost if they insure individual? This is a massive shift in this country that has never been seen before in our lives so there's a lot of unanswered questions. And it will be affecting me if not now 365 days from now.

My point is most people claim bankruptcy because of doctor bills. Will this really slow that rate down? Say I owe a hospital $10,000 I'm likely to say. Sorry I'm not going to pay you. For right or wrong.