Minor Thoughts from me to you

Russ Roberts reminds me about the difference between health care and health insurance -- especially as it pertains to the elderly.

It's the wrong question because when you're 65 the problem isn't getting insurance. It's paying for health care. But the public debate has become so obsessed with health care insurance we've forgotten what the real issues are.

When you turn 65, the high cost of insurance isn't the problem. The problem is that you're old. A lot more things are going to go wrong. Yes insurance is going to be costly. But that's because so many things are more likely to break in your body. The high cost of insurance at that point is just a result of the problem. It's not the problem itself.

It's like saying that if you drive your car in a demolition derby, it's hard to get coverage for collision damage. No kidding.

What's needed isn't more insurance for the elderly but more savings. Providing savings through insurance is just a way to disguise what's really going on. It's not insurance, it's a subsidy for the savings that weren't done before or it's a wealth transfer from people with high incomes to people with low savings.

Mr. HIStalk recently did a great interview with Dr. Jordan Shlain, founder of Current Health. It was a fantastic read. Here's a sample:

I want to give you a softball question here, because I've seen your answer elsewhere, but I think it bears repeating. What's wrong with the average patient-physician-insurance company relationship that's common today?

All the incentives are all wrong. The insurance companies have an incentive to not pay the doc because its more money to them.

The fundamental problem is the patient walks into a doctor's office, kind of with someone else's credit card, and says, "I want this, this, and this". They're not paying for it. They are not accountable for it. "I want an MRI, doctor. I want a fancy blood test. I want all these things, but I don't want to pay for it. I want somebody else to pay for it."

So the fundamental problem right now is that there's no price transparency, so nobody knows what anything costs, really, number one. Number two is there's no accountability on the patient's part to bear some of the cost of what they either consume or use. I fundamentally believe that insurance, as a construct and a principal, is a financial instrument. It's not a healthcare instrument. Health insurance is no different than car insurance or life insurance. You put money in, and if something really bad happens to your car, your house, or your life, there's money on the other side of that.

Health insurance was never intended for, if you look at the old model, a sprained ankle or an eye exam or a physical exam or for minor surgery. You paid that by yourself, and if you hit your $5,000 or $10,000 deductible, you were covered. Therefore, car and home and health insurance should be and is personal bankruptcy protection. That's what's it's supposed to be. It's to protect you in the case of unforeseen catastrophic loss. ...

Go and read the full thing. You'll learn a lot.

Last month, in a meeting at work, I listened to a presentation about medical billing and denials. During the presentation, the presenter made an offhand remark at insurance companies denying claims "without ever seeing the patient or knowing what the needs are". The unstated assumption was that a government run health plan would do a better job of making sure that people got the healthcare they need. (At my job, that's usually the assumption, stated or otherwise.)

But is that really true? Well, not if you hold up Medicare as an example of well-run government healthcare. This week, Scott Gottlieb wrote an interesting op-ed for the Wall Street Journal: "What's at Stake in the Medicare Showdown".

First, there's a mistaken belief that Medicare is better staffed than private plans, and can therefore make better decisions about patients' clinical circumstances and the access to new therapies they should have. Yet at any time, Medicare has about 20 doctors and 40 total clinicians (including nurses) inside the coverage office, and fewer than a dozen in the office that sets the rates that doctors are reimbursed for the care they provide. Private insurers employ thousands of doctors, nurses and pharmacists, many experts in new technologies.

Aetna has more than 140 physicians and about 3,300 nurses, pharmacists and other clinicians across its health plans. Wellpoint has 4,000 clinicians across its different businesses, including 125 doctors and 3,180 nurses. That works out to one clinician for every 9,000 people covered. United Healthcare employs about 600 doctors and 12,000 clinicians across all of its health plans and various health-care businesses.

Private plans use clinically trained people to establish access to new technologies and services, but they also consult with doctors on a case-by-case basis, determining whether a product or service should be covered. Competition for beneficiaries means private plans need to provide better access for appeals, modern services and more personal considerations than what's offered by Medicare, a monopoly supplier.

Recent data from Price Waterhouse Coopers found that private plans spend roughly four times more than Medicare on "consumer services, provider support, and marketing," which includes money spent answering the telephone to adjudicate individual issues. Smaller health plans use one clinician for every 10,000 beneficiaries. Medicare would need 4,500 clinicians to keep pace.

One place where the clinician disparity is most obvious is the delivery of cancer benefits. Medicare doesn't have a single oncologist on staff, yet since the year 2000 the program issued, by my count, 165 restrictions and directives on the use of cancer drugs and diagnostic tools.

A second common refrain is that Medicare is more efficient than private plans, spending less money per beneficiary to administer health services. But a lot of the money that private plans spend is on clinical specialists charged not only with reviewing individual cases, but also with ensuring that doctors and beneficiaries comply with plan contracts. Far from a selling point, not having these functions is one of Medicare's shortcomings.

Medicare doesn't need to hire doctors to weigh individual medical cases because it uses formulaic rules made in Washington to set broad and inflexible restrictions on medical practice. Nor does the program need to hire clinical staff to monitor compliance. It passes costs for that on to the broader health-care system by backing up its rules with the threat of costly civil and even criminal sanctions. Providers and medical product developers spend hundreds of millions of dollars on systems, personnel and paperwork to ensure compliance with Medicare's sticky morass of regulations - tasks made more expensive by the fuzziness of the program's regulations and the arbitrary way they are enforced.

When you put it that way, I'd far rather have my expenses reviewed by private insurance than by Medicare. Instead of an example to follow, Medicare looks like a cautionary tale of what not to do.

I work with a lot of bright people. I wish they would question their assumptions more often and not just fall back on the tired rhetoric of "profit-seeking companies are bad" and "government programs really do help people".

I haven't been organized enough to write here for quite a while. I did, however, find some time to get into a discussion about health insurance over at Coyote Blog.

You may find it interesting.

State Children's Health Insurance Program. It's a program created by Congress to provide health insurance for children whose parents are too poor for private insurance, but too rich for Medicaid. It's set to expire at the end of this month and Congress is fighting with President Bush over the terms of its renewal.

The House wants to double funding from $5 billion a year to $10 billion a year and cover about 3.4 million more children. The President wants to increase funding by only 20%, to $6 billion a year, and only cover children whose parents earn less than $34,340 -- twice the poverty line.

Bloomberg reported a heartwarming story from New Jersey about a family that uses SCHIP to pay for private school and basic cable.

If SCHIP weren't available, Carlie's parents could cover only the teenager through a $230-a-month policy with Horizon Blue Cross Blue Shield of New Jersey, according to the Web site ehealthinsurance.com.

What are the Siravo's spending their money on instead?

There's also $352 a month on a home-equity loan the Siravos took out to send Carlie to a private Catholic high school. Tuition is $9,000 a year.

The family's monthly bills consume most of their take-home income. Pulling out her checkbook, Lori said there's the mortgage ($1,500), utilities ($743), phones and Internet service ($200), car insurance and gasoline ($205), property taxes ($230), basic cable television ($48), food ($600) and credit- card payments ($325) on an outstanding $11,000 balance. That's $46,212 a year, not including clothes, school books and extra- curricular activities for Carlie.

New Jersery better be expensive. Between Vonage, DSL, and a two-line family plan, we only pay a little over $100 for phones and Internet service. We also don't spend anywhere near $600 a month for groceries. I'll grant that our daughter is only 7 months and Carlie is 16, but I'd be shocked if our grocery spending really quadruples over the next 15 years.

The Siravo's have every right to spend their money as they wish. But they don't have every right to take tax-payer subsidies for healthcare, then turn around and spend their savings on luxury goods. Private school, cable, and gourmet food? Give me a break.

Reaping the whirlwind:

If prices are rising, that should be a signal to people and businesses to avoid settling in risky areas. The economic centre of the hurricane business is Florida, which is both the most vulnerable part of America and the most valuable. In 2004 the total value of insured coastal property in Florida was $1.937 trillion, compared with $1.902 trillion in New York. Unfortunately, the signal is not getting through to homeowners in Florida, because the government is cushioning the blow. Insurance companies in America may not set their own prices. The rates they charge customers (and indeed the models on the basis of which they calculate their rates) are regulated by state governments. "Communism survives in three parts of the world," says Mr Muir-Wood: "North Korea, Cuba and the American insurance market."

Thanks to subsidised insurance, the risks of living on Florida's coast are not reflected in property prices. In 2005"”the year after the most damaging hurricane year ever"”six of the nine metropolitan areas with the fastest-rising house prices in America were in Florida. The state's population is expected to rise by 52% between 2003 and 2030, as against 21% for the country as a whole. The insurance industry is not impressed. "You've got to send a proper price signal," says David Unnewehr of the American Insurance Association. "You can't subsidise development through insurance."

What would Florida look like if the price signals were getting through? More like Grand Bahama, probably, which is covered by the British insurance market. The Queen's Cove canal estate in north Grand Bahama, which has been flooded three times in six years, is no longer insurable. People are moving out and new houses are being built on stilts.

According to FoxNews, Mayor Ray Nagin said that New Orleans residents should be allowed to rebuild anywhere -- as long as they do so at their own risk. Quoth the good mayor I don't recommend you going in areas I'm not comfortable with. I'm confident that the citizens can decide intelligently for themselves..

Actually, I am too. Unfortunately, I'm afraid that citizens will intelligently decide to rebuild in dangerous areas. Why? Because apparently poor decisions no longer have harsh consequences. President Bush's Gulf Coast Rebuilding Coordinator, Donald Powell, recently announced that President Bush would seek $4.2 billion for uninsured home owners that lived in the flood plains of New Orleans. The home owners that lived in that flood plain risked being flooded out. Many of them chose to accept that risk even without flood insurance. No matter. The federal government is now promising to cancel out any of the painful consequences of those decisions.

With consequences like that, I'm sure many citizens will choose to live wherever they please. It would be an intelligent decision too. After all, if the government's bailed them out once, it's likely to do it again. And we'll pay for it. How's that for living in the land of freedom and opportunity? Our government is guaranteeing that you can have the freedom to live wherever you want and your fellow citizens will have the opportunity of paying for your choice.

Geico is being sued because of their actuarial policy:

A leading U.S. consumer group Monday accused Geico Corp. of using consumers' education backgrounds and occupations as criteria in setting auto insurance rates, resulting in discrimination against minorities and lower-income people.

Geico, a unit of Berkshire Hathaway Inc., the insurance and investment company controlled by billionaire Warren Buffett, rejected the charges. It called them "an offensive attempt to link fundamentally fair and actuarially sound industry practices with invidious discrimination."

"There is clearly a disparate impact on minorities and lower income people," Hunter said in an interview. "If it isn't violative of the law, it should be. It strikes me as very unfair."

Life is unfair. Get over it. From an insurance and statistical standpoint, people with college degrees (and graduate degrees) probably are safer drivers. Therefore, it's cheaper to insure them. Geico, thankfully, passes that savings along to the driver. If you want to complain about it, first prove that -- on average -- a person with a high school degree drives just as safely as a person with a graduate degree.

Bringing charges of racism into the picture is growing increasingly tacky. It just reeks of an attitude of "I don't have a better argument to make, but I want sympathy anyway".

Life in Iraq may be dangerous right now. But at least you can be insured against the threat of terrorism:

Last month, Mr. Said, a slim, baby-faced 23-year-old, did what a small but growing number of Iraqis are doing: He walked into the offices of the Iraq Insurance Company and bought a terrorism insurance policy. It looked like an ordinary life insurance policy, but with a one-page rider adding coverage for "the following dangers: 1) explosions caused by weapons of war and car bombs; 2) assassinations; 3) terrorist attacks."

It cost him 125,000 dinars, about $90. Mr. Said paid more than most people because of his risky occupation. The payout, if he dies, is five million dinars, around $3,500, or about what an Iraqi policeman earns in a year.

(Hat tip to Marginal Revolution for the Markets in Everything concept.)