If the rising costs of medical care are driving insurance rates upwards, what are the effects on a public insurance program, such as Medicare? Given that many private insurance policies are paid for by employers, what effects do rising premiums have on the competiveness of American companies?
America's rich uncle, Warren Buffet, describes the rising costs we've discussed as a tapeworm.
There are two recommendations for treating this parasite when it resides in humans, niclosamide and praziquantel. Here are two recommendations for treating the tapeworm Mr. Buffet describes.
As previously mentioned, insurance is a financial derivative. The underlying product is medical care. The price of a health insurance policy reflects the expectations of where our medical system is headed.
There are several means for a physician to bend the cost curve down: strike the problem on the head, cut it across the middle, or grab it by the tail. At the head is the supply problem, a shortage of doctors and nurses. Even after red tape is cleared at our medical schools, there are still seven years of production time required to mint a new physician. Sounds too tedious, and this topic is already sufficiently dry. So, we’ll skip that for now.
Let’s look towards the other end, the tail. Here, consider the expenses of caring for a chronic disease, especially one growing in prevalence. To maximize our impact, we'll get specific. The predictions of a sharp rise in the number of patients with End Stage Renal Disease (ESRD) suggest lowering the cost of dialysis treatment would be a high impact win. If accomplished, the cost projections to care for renal failure would decrease and the premium to insure a patient with early ESRD could be lowered. Furthermore, those patients with risk factors for ESRD would also have lower cost projections. Quickly name two risk factors for kidney disease, "obesity...diabetes," and you’ll recognize two other growing demographics.
So my first treatment to bend the cost curve down is to focus on a single treatment which has enormous costs. Imagine a house of cards stacked high atop a table. The card at the top is the present. Moving down a spreading base, are all the future medical outcomes which may happen. Lowering the cost to care for dialysis patients is akin to pulling a bottom card out from underneath this house. If we lower the outlook on the total cost of dialysis, many other cost projections will come cascading down.
Dialysis technologies, already available, produce high quality outcomes when used by skilled practitioners. Because they cost less to administer, more extensive use would make ESRD more affordable to treat. Additionally, quality improvement informs physicians how to lower the peripheral costs of ESRD: the increased incidence of preventable infections, and the extensive use of lab tests which often overlap due to a lack of coordinated care.
That's a sketch of the first treatment strategy for rising health insurance costs. Specific medicine will be more difficult to determine and prescribe. This is why it's called: Quality Improvement research. We can also look at the middle of the problem, and target our patients teetering between two demographics: fit vs. overweight, pre-diabetic vs. diabetic. The logic for why this would be effective is the same as the house of cards analogy, but the tactics are a separate discussion.
However, when the improvements start to take hold, we can then cold-call those would-be executives of a non-profit health insurer; tell them to start scouting office space.
Monday, August 30, 2010
Sunday, August 29, 2010
Actuarial Forecasting
I’ve presented some factors an insurance agency must consider when it underwrites healthcare. That work is conducted by actuaries, weathermen of corporate finance. They determine how much an insurance policy should cost in order to meet future insurance claims. In a sense, the increasing cost of a health insurance policy is their weather report for our health care system.
We also compared and contrasted two forms of insurance, car and health. Car insurers have a constant forecast. Insuring risk always makes for a dreary forecast. But for car insurers, it’s akin to Seattle; not the Gulf Coast in hurricane season. It will rain tomorrow, and we will carry an umbrella. However, there's no need to begin boarding windows, hope the gas tank is full, and begin the congested drive out of town. No recent news suggests tomorrow's drivers will be wildly reckless. Or, at least, no more reckless than they are today. A fairly consistent rate of auto accidents maintains a claims process and actuarial calculations that is relatively simple. This simplicity makes for predictability and therefore an easier pursuit of the low-cost strategy which people would like to see in healthcare insurance.
The actuaries at MegaHealth Insurance, Inc. fret over a number of statistics: a growing incidence of obesity, diabetes, and other chronic, lifestyle diseases, as well as a major shift in our national demographics.
Our scientific research continues to determine the health risks of obesity. Interpreting the evidence describes a patient thrown on a trajectory likely to strike diabetes, heart disease, or cancer. This corroborates what the actuaries expect: medical care for an aging society will become mighty expensive as 'obese' comes to describe half our population.
And, as baby boomers march on through the demographic tables, our population's average age has increased. We regularly hear that Social Security may dry up; how we lack sufficient funds to pay its obligations. Medicare may be a commitment five times greater. Whereas older cars are deemed less valuable and therefore decrease a car insurer's liability over time, we don't depreciate people. Rather, treating an older person is more expensive and more likely. Health insurers look upon the same frightful future as Congress. They too will be financially responsible for what shapes up to be frequent, expensive treatments, often complicated by severe ailments and obesity.
The forecast is a perfect storm--very many people with high medical bills and relatively few healthy, young workers.
It's comparable to auto insurers learning that Congress has done away with legal limits for Blood Alcohol Content. No longer able to offer low car insurance rates, the GEICO Gecko would be at a loss for words.
We also compared and contrasted two forms of insurance, car and health. Car insurers have a constant forecast. Insuring risk always makes for a dreary forecast. But for car insurers, it’s akin to Seattle; not the Gulf Coast in hurricane season. It will rain tomorrow, and we will carry an umbrella. However, there's no need to begin boarding windows, hope the gas tank is full, and begin the congested drive out of town. No recent news suggests tomorrow's drivers will be wildly reckless. Or, at least, no more reckless than they are today. A fairly consistent rate of auto accidents maintains a claims process and actuarial calculations that is relatively simple. This simplicity makes for predictability and therefore an easier pursuit of the low-cost strategy which people would like to see in healthcare insurance.
The actuaries at MegaHealth Insurance, Inc. fret over a number of statistics: a growing incidence of obesity, diabetes, and other chronic, lifestyle diseases, as well as a major shift in our national demographics.
Our scientific research continues to determine the health risks of obesity. Interpreting the evidence describes a patient thrown on a trajectory likely to strike diabetes, heart disease, or cancer. This corroborates what the actuaries expect: medical care for an aging society will become mighty expensive as 'obese' comes to describe half our population.
And, as baby boomers march on through the demographic tables, our population's average age has increased. We regularly hear that Social Security may dry up; how we lack sufficient funds to pay its obligations. Medicare may be a commitment five times greater. Whereas older cars are deemed less valuable and therefore decrease a car insurer's liability over time, we don't depreciate people. Rather, treating an older person is more expensive and more likely. Health insurers look upon the same frightful future as Congress. They too will be financially responsible for what shapes up to be frequent, expensive treatments, often complicated by severe ailments and obesity.
The forecast is a perfect storm--very many people with high medical bills and relatively few healthy, young workers.
It's comparable to auto insurers learning that Congress has done away with legal limits for Blood Alcohol Content. No longer able to offer low car insurance rates, the GEICO Gecko would be at a loss for words.
Saturday, August 28, 2010
Why So Costly?
Previously, I suggested that because health insurance is a derivative of medical care, physicians determine the direction of its cost. I also introduced the idea that an actuary, working to determine the price of an insurance policy, has to take into account considerations which differ from other insurance products.
One major difference between health insurance and car insurance is that the magnitude of a reimbursement is much less predictable for a health insurer than a car insurer. The value of your car and your driving record are excellent indicators of an auto insurer's liability. The value of your car is also plummeting, at a fairly steady rate.
Health insurance is much less predictable because the cost of medical care typically increases with each advent of diagnostics and treatments. A disease treated simply today, later warrants an expensive regimen of medications, procedures and tests. Innovation is inherently sporadic, which prevents an actuary from accurately calculating its value in the present.
Modern medicine would stun Dr. Frankenstein. We progress towards an ability to keep people healthy for so long that its becoming an ethical debate whether we should do so; when do we stop? The cost of the technology is unrelenting. No patient seeks the best care of yesteryear which has since become relatively affordable. This culture must also be accounted for by the actuary.
In another way, health insurance is very predictable. Most of us eventually grow quite ill. We prefer it to dying without a fight. Dr. Frankenstein might prefer our times, our villagers would descend upon his workshop brandishing consent forms, eager to qualify for his experimental research.
Quite differently, few drivers totally wreck their car. Even if they do, auto insurers face a limited obligation. Health insurers pay for treatments which quickly reach astronomical values. Sometimes without the patient perceiving added benefit. To maintain a level of predictability, insurers often limit the lifetime value of a health insurance policy, a practice tolerated in auto insurance but questioned in health insurance.
Because we prefer insurers remain in the business of finance and not manage care, physicians must take responsibility for improving access to care through affordable health insurance by lowering the costs of medical care. It is the natural burden of leadership.
One major difference between health insurance and car insurance is that the magnitude of a reimbursement is much less predictable for a health insurer than a car insurer. The value of your car and your driving record are excellent indicators of an auto insurer's liability. The value of your car is also plummeting, at a fairly steady rate.
Health insurance is much less predictable because the cost of medical care typically increases with each advent of diagnostics and treatments. A disease treated simply today, later warrants an expensive regimen of medications, procedures and tests. Innovation is inherently sporadic, which prevents an actuary from accurately calculating its value in the present.
Modern medicine would stun Dr. Frankenstein. We progress towards an ability to keep people healthy for so long that its becoming an ethical debate whether we should do so; when do we stop? The cost of the technology is unrelenting. No patient seeks the best care of yesteryear which has since become relatively affordable. This culture must also be accounted for by the actuary.
In another way, health insurance is very predictable. Most of us eventually grow quite ill. We prefer it to dying without a fight. Dr. Frankenstein might prefer our times, our villagers would descend upon his workshop brandishing consent forms, eager to qualify for his experimental research.
Quite differently, few drivers totally wreck their car. Even if they do, auto insurers face a limited obligation. Health insurers pay for treatments which quickly reach astronomical values. Sometimes without the patient perceiving added benefit. To maintain a level of predictability, insurers often limit the lifetime value of a health insurance policy, a practice tolerated in auto insurance but questioned in health insurance.
Because we prefer insurers remain in the business of finance and not manage care, physicians must take responsibility for improving access to care through affordable health insurance by lowering the costs of medical care. It is the natural burden of leadership.
Friday, August 20, 2010
Lower Health Insurance Rates: The Physician's Move
To test abstraction abilities in a mental state exam, the physician asks the patient to interpret a cliché, "He’s just trying to make a buck. What does that mean to you?"
Say Joe Six-Pack was an insurance company, looking to make a buck, should we blame him? What if he was pushing health insurance?
It certainly matters to many people who would like more affordable insurance. Various figures are quoted of the for-profit insurance industry, usually around 30%, to quantify overhead, 15% to describe profit margin. These numbers are Exhibit A and Exhibit B; they support an argument: non-profit healthcare is the key to fixing our healthcare system.
Taking a gander at history, we discover that non-profit is not without precedent. The concept of health insurance was originated as non-profit assistance to teachers who represented a significant portion of uncollected bills at a Dallas hospital.
The concept was termed Blue Cross. What started as a tax exempt organization would years later become a licensee, selling its good name to private companies looking to enter the health insurance market branded with a recognizable name. In fact, up until 1994, Blue Cross required its franchisees be non-profit.
1994: the year consumers wised up. We had seen enough of these non-profits. Rightly, we started demanding for-profit health insurance. Similarly, unsatisfied with 90% profit margins on Coca-Cola, we clamored for bottled water, and challenged beverage makers to conjure up a product that was pure, 100% profit.
We expect firms to maximize profit. However, unlike birds or Koi fish, we don’t like to feed them.
You’re not alone when you desire any product be more affordable. Oreos are in my pantry, in place of “Newman-O’s,” not because of any disdain for Paul Newman’s charities; Kraft simply has a cheaper cookie which I also enjoy.
Lack of demand doesn’t explain the scarcity of non-profit health insurance. In a country of 300 million people, certainly we can scrounge up a few dozen business leaders who’d take a shot at running a non-profit health insurer. A non-profit health insurer could enjoy benefits such as raising capital by issuing tax-exempt bonds. Given investor concern for rising tax rates, these issues would be popular and provide a large source of capital. Wall Street could even join the party, and profit from underwriting the lot. Without a shortage of human talent or capital, the absence of affordable, non-profit health insurance isn't a supply side problem either.
So then, why haven’t we seen a non-profit health insurer? Clearly, the demand and the supply are present. Insurance is a financial derivative. To understand why it's become so expensive, consider the underlying product, medical care. The future costs and likelihood of medical care drive the current price of a health insurance policy.
Over time, the health insurer must collect premiums which exceed the present value of future obligations to its policy holders. These obligations are estimated, by actuaries—math-magicians of sorts. Actuaries are employed by all types of insurers. However, the considerations taken into account for health insurance are very different from other insurance products. These differences are important as they explain why health insurance has become so unaffordable.
Wherever doctors lead the practice of medicine this derivative product, health insurance, follows. Physicans must consider where we lead medicine. By heading in the right direction, we can call on those would be non-profit health insurance executives and ask them why they don’t get up off their lazy butts to make us some affordable insurance.
-Mark Cooper
Say Joe Six-Pack was an insurance company, looking to make a buck, should we blame him? What if he was pushing health insurance?
It certainly matters to many people who would like more affordable insurance. Various figures are quoted of the for-profit insurance industry, usually around 30%, to quantify overhead, 15% to describe profit margin. These numbers are Exhibit A and Exhibit B; they support an argument: non-profit healthcare is the key to fixing our healthcare system.
Taking a gander at history, we discover that non-profit is not without precedent. The concept of health insurance was originated as non-profit assistance to teachers who represented a significant portion of uncollected bills at a Dallas hospital.
The concept was termed Blue Cross. What started as a tax exempt organization would years later become a licensee, selling its good name to private companies looking to enter the health insurance market branded with a recognizable name. In fact, up until 1994, Blue Cross required its franchisees be non-profit.
1994: the year consumers wised up. We had seen enough of these non-profits. Rightly, we started demanding for-profit health insurance. Similarly, unsatisfied with 90% profit margins on Coca-Cola, we clamored for bottled water, and challenged beverage makers to conjure up a product that was pure, 100% profit.
We expect firms to maximize profit. However, unlike birds or Koi fish, we don’t like to feed them.
You’re not alone when you desire any product be more affordable. Oreos are in my pantry, in place of “Newman-O’s,” not because of any disdain for Paul Newman’s charities; Kraft simply has a cheaper cookie which I also enjoy.
Lack of demand doesn’t explain the scarcity of non-profit health insurance. In a country of 300 million people, certainly we can scrounge up a few dozen business leaders who’d take a shot at running a non-profit health insurer. A non-profit health insurer could enjoy benefits such as raising capital by issuing tax-exempt bonds. Given investor concern for rising tax rates, these issues would be popular and provide a large source of capital. Wall Street could even join the party, and profit from underwriting the lot. Without a shortage of human talent or capital, the absence of affordable, non-profit health insurance isn't a supply side problem either.
So then, why haven’t we seen a non-profit health insurer? Clearly, the demand and the supply are present. Insurance is a financial derivative. To understand why it's become so expensive, consider the underlying product, medical care. The future costs and likelihood of medical care drive the current price of a health insurance policy.
Over time, the health insurer must collect premiums which exceed the present value of future obligations to its policy holders. These obligations are estimated, by actuaries—math-magicians of sorts. Actuaries are employed by all types of insurers. However, the considerations taken into account for health insurance are very different from other insurance products. These differences are important as they explain why health insurance has become so unaffordable.
Wherever doctors lead the practice of medicine this derivative product, health insurance, follows. Physicans must consider where we lead medicine. By heading in the right direction, we can call on those would be non-profit health insurance executives and ask them why they don’t get up off their lazy butts to make us some affordable insurance.
-Mark Cooper
Subscribe to:
Posts (Atom)