Health Insurance Puzzle

An ignorant European has a question – even private health insurance in the UK costs considerably less than $10,000 a year (i.e. more like $1-2,000) – why is US insurance so expensive?

“It would cost her employer about $10,000 per year to provide us with this benefit. (On top of the $12,000 my own employer pays).”

I don’t understand that parenthetical because your post reads, to me, as if you were considering switching from one employer’s policy to the other employer’s policy.

Gabriel, is private insurance in Europe serving the same purposes that insurance in the US is serving? If not, I don’t know how you could directly compare them. Are people with private insurance still eligible for state-subsidized health care? Do they utilize it? What are the real costs associated with the health care consumed by the privately insured in Europe, and what are the same in the US?

I had sort of assumed that private health insurance in Europe would be pretty expensive, because I’d assumed that it would provide extravagent US-type health care, with no limits, at private hospitals, and the pool of the insured would likely be people that were relatively high-risk and affluent. But if it’s relatively cheap, then I think something else is going on.

Anyway, in general, US health insurance could be expected to be relatively high if for no other reason than that US health care costs have been for many years rising much faster than inflation. US health costs are very high.

$10-12,000 per person dollars seems astonishingly high, even for the US. When I was paying for my own coverage in Massachusetts it ran to about $250/month (3K/year) for essentially full coverage. (Right now, I’m only opting for catastrophic coverage, which costs less than half that.)

David: Most (but not all) American employers do offer sick leave and sick pay. However, what health insurance covers is not the foregone income from being too sick to work, but the actual fees that the person has to pay to the doctors and hospitals for medical treatment. From the perspective of an individual, you can think of medical care in the US as a professional service paid for just like legal advice, engineering or architecture. You can buy different levels of insurance, at differing costs, which offer different amounts of coverage. My current insurance has an annual deductible of $3000, but covers all expenses past that point. Essentially, what I am doing is insuring against the possibility of falling prey to an extremely expensive disease like cancer, while paying for regular medical expenses out-of-pocket. (This makes fiscal sense for me, since I’m still in my 20s. Other people can spend more and get more medical expenses covered.)

This is not true at the institutional level, though, which is why US healthcare is so expensive: the over-complex tangle of private provision and government regulation create a host of perverse incentives that drive up costs. American government spending on health is higher, on a per-capita basis, than the UK, for a vastly lesser result. (And yes, I am perfectly aware of the parlous state of the NHS — the US government does worse.)

Keith, that’s a rather surprising story, I hadn’t heard of that. If it’s true, I’d say it’s an example of how the current health care system essentially encourages any party to get whatever they can when they can. As a consumer in this system, I’d say Harry and his family should take the edge they can get.

(Of course, if Harry’s wife’s employers were rational, they’d offer a small pay premium for not using the insurance, as many employers do)

Keith’s story is rather surprising to me because when I worked in a pharmacy (about six years ago), when we billed insurance, we had no say at all in how much they paid us. They each had their official pay scales, and we had to either accept them or not do business with that insurance company, and refuse patients. Several insurance companies paid below our cost, so we had to send our patients away. The insurance companies can get away with it because grocery stores accept losses from the pharmacy to get people in the door.

extravagent US-type health care, with no limits, at private hospitals

Like this exists? Get really sick, then see how “unlimted” that health insurance really is.

I remember during the 92 election, the republicans decrying national health care saying it would let the government pick your doctor.

As opposed to the current system where the insurance company picks my doctor.

Yeesh, if doctor choice is really an issue, design the ^&(#^%& system so that it’s not an issue.

Hoodie is confusing Medicare with Medicaid.

Medicare is the health care insurance/benefit associated with the national retirement program, Social Security (which also handles permanent disability benefits, as well). Medicare is a huge portion of the federal budget.

Medicaid is a health plan for _a very small portion_ of the poor—specifically children, pregnant women, people on welfare, and other qualifying individuals. (The “people on welfare” part might confuse people, even Americans, since there’s an erroneous belief that American welfare is simply needs-based and all poor people qualify. They do not. The real name of the welfare program is “Aid to Families with Dependent Children”, which tells you much more about who’s eligible and who’s not. This is not at all like the “dole” in other countries.) Medicaid forms a substantial portion of the federal budget, but is much smaller than Medicare, I believe. (Note that Medicaid covers prescription drug benefits, while Medicare does not, although this is the legislative topic of the year.)

Medicare and Medicaid coverage may at one time have been less than average relative to other health insurance, but today it’s about average in terms of coverage, I think.

Basically there is no federal safety net for the poor without health insurance. This is a large number of people (not just the poor): in recent years, it’s estimated that as much as 20% or more of the US population has been completely without health insurance within a single year. I know that in my twenty years as a working adult, I’ve had health insurance for perhaps only a third of those years. This is true for most, or at least many, people under 40, I think; while it is much less true for people over 40. Because uninsured people still get sick, the slack has to be made up somehow. True, a lot of illnesses are simply untreated. Many states and many large municipalities have health care programs for the financially needy, the extent of coverage is usually pretty limited, although it can vary widely. I imagine, however, that most of those eligible are unaware of their eligibility. Finally, most hospitals, for at least liability reasons but also sometimes by law, will never refuse care to someone admitted into the emergency room. This isn’t “free”: costs and debts are incurred, it’s just the the hospitals can’t refuse care. Many people take advantage of this. I personally have for authentic or marginal emergency situations (like the five kidney stones I’ve had); but a not insignificant number of insured attempt to utilize ERs for general medical care.

So, this and the other messages above are a “Health Care in the US Summary” for European readers of CT. :) It’s a mess, isn’t it? It’s much worse than what’s been described, actually.

The national political mood about health care reform has changed considerably since the debacle at the beginning of the Clinton administration. All else being equal, I’d expect a major reform in the next eight years. However, the looming budget crisis complicates matters.

Just to confirm Keith: I’m thinking about adding my wife’s employer’s insurance to my own employer’s — even though mine will start costing me a good deal out of pocket, we feel its worth it for keeping our own primary care provider (GP). So the point of getting the other insurance as well is to save us a little bit of the new costs we shall be incurring.

I’m glad the non-Americans find it all so perplexing — makes me feel saner.

IN response, though, to the comment about potential reform — the ballooning deficit is a major problem, not just for that but for any sensible future reforms.

One last thing though — I know a number of small entrepreneurs who bemoan the non-portability of health insurance, believing (I suspect rightly) that it limits the talent pool they have access to as employers. Is there a case that US arrangements are inefficient not only because of the absurd market power they give to drug companies, etc, the hihg levels of bureaucracy, the annual costs incured by the insured who have to revisit and revise decisions, but also because they make labor markets less flexible than they otherwise would be?

Keith, thanks for the link. Here in my home town, too! I think I can explain some of what’s going on. Officially charged prices are not necessarily what insurance companies will pay. We would give all drugs a “price,” which was always based on our cost, plus a reasonable markup (almost always under 30%). This is what private payers would pay, and a few insurance companies payed us what we said was our price. Actually, I only remember one insurance company that would pay us that amount consistently, and that was the insurance plan for retired longshoreman (who have one of the most powerful unions around).

So, it would work like this:
Drug X cost us 85 dollars for a month’s supply.
Our “price” would be about 110. About 1/3 of our customers would pay this price. The rest would just pick it up for free or pay a co-pay (generally 5-10 dollars). We’d then submit a claim to insurance company #1 and they’d offer to pay us, say, 95 dollars. If an insurance company began to lower their rates such that they were paying us five dollars or less on average, we’d tell the customers we couldn’t accept that insurance plan anymore. And we’d take it. This is also how government payers (AFDC, Indian Health) also worked, and they were even stingier.

Now, many–perhaps most–of those who paid cash had insurance, they just did the billing themselves. In fact, some customers had charge accounts for their prescriptions, and would bring in the endorsed checks from their insurance companies when they came in. These insurance plans tended to pay what the customers asked.

As you might have discerned, those with generous insurance plans or those who paid cash were subsidizing those with less generous plans. This was an independent store, and I worked their for the last two years it was open. It was still profitable, but the insurance company squeezes were getting worse, and the owners were in their late 50’s and wanted to retire soon. So they sold their inventory and files to Safeway, took jobs there for five years, and then retired. In the small town where this took place, there were six independent pharmacies a decade ago. Now, there is only one. All the other five sold to grocery stores for the same reason–the insurance company squeeze was too great to withstand.

So, getting back to Walgreens. I suspect that most insurance companies are not actually paying these prices. I suspect that instead, they (Walgreens) are taking advantage of the private payers and the few with insurance that pays what they are asked to. At those kind of markups, this seems highly unethical, but people are so trained to not question high prices that if they just go to one pharmacy all the time, they wouldn’t know what was happening. But I don’t see insurance companies paying these rates.

Why was the situation becoming so rapidly intolerable for independent pharmacies in the US? First of all, because grocery stores are willing to operate at a loss (looking at that article, there is simply no way Costco is making money on the price they’re charging). Secondly, larger chains are able to negotiate better prices from drug wholesalers. Third, back then (I don’t know if this is still the case) some insurance companies were invested in mail order drug enterprises, and there was some cross ownership with insurance companies and generic drug manufacturers. (I don’t know for a fact if this last point is true; that’s what the pharmacy owners thought, and they were rather sensible and not prone to conspiracy theories in their politics).

Just thinking about this one small slice of the health care structure here in the US is depressing and confusing. If I were from a sane country, I’d be hard pressed to believe this nonsense.

Part of the problem with health care in the US is programs like Medicare. For example, Medicare will pay $50 for a general practicioner’s appointment. Now, a full-priced appointment is, I would guess, around $200. So every time a doctor sees a retired person he loses $150. Where does he make that money up? He charges everyone else more. Government health care programs actually caused the rate of increase in prices to double! Now, there are a lot of retired people who go to the doctor frequently, and due to the Baby Boomers, that number is going to jump even higher. There was an article in the NYTimes recently on the use and abuse of Medicare by retired people. It was shocking to say the least. I hate to say it but they’re like vultures. Any excuse to go to a doctor. Especially an expensive specialist. For some of the people the interviewer spoke with, it’s their entire lifestyle. I don’t begrudge the retired their health care, but this was ridiculous.

I think that employees should be able to opt into a program with the insurance company where they pay a little extra every month and, in the case they lose their jobs, the health insurance will continue covering them for free until they have another job with benefits, at most 6 months.

Also, I’m for privatizing Social Security and Medicare. All the money the government takes from your paychecks would go straight into a medical savings account and a social security account. You could cap the med account at something like $1 million. Everyone, even billionaires, would be required to pay in. People who don’t have enough money in their accounts because they’re poor, etc would have their accounts filled to a certain level every ten years starting at age 50. There are lots of ways to work it.

Also, another problem with health care in the US is that the health care companies have an anti-trust exemption! I’m all for keeping the free market system but the current structure is sheer lunacy.

It’s not quite as simple as switching dilemna based on costs of “health care packages” provided by different GP networks sponsored by different employers at different levels of cost-shifitng(copay and coins). The issues of wage-shifting and plan-membership may be key…
There are certainly costs of insurance passed on to the wage structure. These are more burdensome to occupations whose negotiations are lower priority to the employer (translation: lower wage jobs will get screwed on healthcare first). If the position that provides the family’s insurance is less than full-time this is coverage at risk of being reclassified. Employer changes job classification, insurance terms altered.
If you switched and then realized this scenario was unfolding and move back, there may be costs to that move as well. There may be screening periods that prevent immediate access to certain plans. You may have to wait to get back on your preferred doctor’s roster. Other close calls on coverage may not be approved with a record of switching out of plans.
Sooooooo, it’s really not a pretty picture but you must try to assess how the employer’s choice of dilemna design signals their credibility on not changing the terms at every adverse insurance cost shock. Not an easy task…but the intent of the employer is undoubtedly to shift some of the risks of employer-provided health insurance to the workers. There is no way around that with double-digit premium cost increases as frequent as they’ve been.
One thing is for certain. If most of these burdens are falling disproportionately on the low-wage occupations, there is something undeniably wrong with the tax-deductible status of employer-provided health insurance contributions. Continued subsidization of a system whose existence is founded on expanding coverage opportunities for low-income workers (see ERISA language), when the incentives produce the opposite result, is a mockery of a sham of a travesty, or something like that.

To add to the whole health insurance mess is this: I have adequate health insurance through my employer, which is not expensive for me and my family. However, I do not have the flexibility at my job to take time off to visit the doctor. I have a minimal amount of paid vacation time, which I mistakenly used for an actual vacation, and now I can’t go to the doctor until next year, when I get more vacation time, because not only do I not have any more paid time to take off, we are so understaffed that they won’t let me take unpaid time off.

I know that isn’t really anything to do with insurance, I just wanted to throw in a typical experience for a lower middle class wage earner such as myself. Have insurance: don’t have the time to actually use it.

Maureen,

You had a paid vacation? Wow. I’ve never had one that wasn’t called “unemployment.”