Health care cost bubble

[nun]

Is eliminating medical services really addressing the underlying issue of cost? If so, health service costs could be brought to zero by eliminating all medical services at which time everyone could be covered.

Sure, not paying for gastric bands on the NHS would reduce overall cost, whether that should happen is another issue. The UK already bargains with drug companies and doctors (who are often self employed) just as US insurance companies do, so that should hold down costs. I just don't know why the US insurance companies and hospitals are so bad a holding down costs. Is it the demand from the patient for unnecessary tests, the fear of the doctor from being sued so they do unnecessary tests, the near monopoly and easy profits or the way we have become disconnected with our immortality so that a liver transplant might be given to a terminal cancer patient. These are very difficult issues and I don't think the US is facing them like the UK and other European and Asian countries are.

The US spends about 2x as much per capita on health care as European countries, yet we live shorter lives. Obviously the US system isn't working and it hasn't been copied by any other country. The thing that stops us from getting a better system in arrogance. Surely we could learn from other countries and come up with a better system. Some day soon we'll have to.

 

[ERD50]

In the US the UK approach to health care is derided as being "socialized medicine". However, the British love it, live longer that Americans, and it costs them far less.

.... the US system costs more and Americans have shorter lives that the British, and other Europeans.

It's interesting that Americans are scared of the UK system ...

Actually, what scares me is right in your own words - I fear that the US system will cost more and have poorer results. Both the US and the UK have 'socialized education', and we pay more and have poorer results. Why should I expect "socialized health care" to be different from "socialized education"?

Why should someone making $88k with a family of 4 only have to pay $8k/year for insurance while the person making $89k has to pay $25k? Sickening...

Because the family of four probably has two votes, and the single only one vote? I suspect that someone has done that math...

-ERD50

 

[M Paquette]

Those charts show 10-15% increases, but most individual policies my clients have were hit with 20-35% increases the past two years. My personal policy with Anthem went up 35% in one year.

Here you go. That $5,000/year policy becomes a nice round $100,000/year policy in ten years at a 35% annual increase, and after 30 years will run about $40,640,000/year. Hmm... Might have to adjust the Medicare payroll tax a smidge... Ahh, yeah, and you may have to work some Saturdays.

Annual increase|10 years|30 years
7% | 2.0x | 7.6x
10% | 2.6x | 17.5x
11% | 2.8x | 22.9x
12% | 3.1x | 30.0x
13% | 3.4x | 39.0x
14% | 3.7x | 50.1x
15% | 4.0x | 66.2x
20% | 6.2x | 237x
25% | 9.3x | 808x
30% | 13x | 2620x
35% | 20x | 8128x

 

[M Paquette]

Is eliminating medical services really addressing the underlying issue of cost? If so, health service costs could be brought to zero by eliminating all medical services at which time everyone could be covered.

Ah, the good old days, when we'd just drop by the barber shop for a shave and a bit of surgery, overseen by the local monk (forbidden by Papal decree from spilling blood, but with the education the barber lacked). Perhaps a nice trephination to treat those nagging headaches? And of course there's the Leech Lady just down the street, should we suffer from plethora as our humours stagnate.

This might also serve to mitigate those annoying Social Security draws on the Government's accounts. I do believe you are onto something!

 

[M Paquette]

The US spends about 2x as much per capita on health care as European countries, yet we live shorter lives. Obviously the US system isn't working and it hasn't been copied by any other country. The thing that stops us from getting a better system in arrogance. Surely we could learn from other countries and come up with a better system. Some day soon we'll have to.

Yup. I'm pretty sure the current system here is unsustainable. I don't see how institutionalizing the current model will lead to any sort of cost containment or improved cost/benefit ratios, but that is all that any of the mainstream proposals from the various political factions really do. (Note: debate on this should be in a new thread over on FIRE Related Political Topics.) I'm just noting that we don't have a real fix in sight for the health care cost bubble, and unfortunately, any fix would have to come from THAT direction.

 

[dgoldenz]

People in the US won't stand for rationing, I just can't see it happening. It goes against everything the US is built on, regardless of political issues. I have said many times that the single biggest cost driver in the US is THIRD PARTY PAYERS! When the insurance company foots the bill, nobody cares how much the service costs.

Talk to people who have an HSA policy and ask if they have ever called around to get prices on services and you'll almost always get a yes answer. Talk to people with a low-deductible plan with fixed co-payments and you'll almost always get a no. Why should people care when it makes no difference whether an office visit costs $75 or $180? They still only have a co-pay of ~$25 in either case. Who cares if an MRI costs $2500 or $1000? You still may only have a co-pay of $100 in either case. It's just common sense.

There is also almost zero price transparency for services. Call around to 10 doctors offices and ask how much the office visit will cost with your network discount. You'd be lucky to get one person out of the 10 who can tell you, and they'll have to look it up and call you back. The other 9 will tell you "just look on your ID card, your co-pay should be on there." Hey lady, I don't have a co-pay....what's the negotiated charge for my network?! Should not be so difficult to get this info. Just think if a tow truck picked up your car, towed it to the yard, then said "that'll be $2,500 please"....this is how our healthcare system works.

 

[nun]

Is eliminating medical services really addressing the underlying issue of cost? If so, health service costs could be brought to zero by eliminating all medical services at which time everyone could be covered.

US health companies are constantly changing coverages. They ration coverage already, we just don't acknowledge that.

So I'm still waiting for constructive ways we can change the system to make it cost less. Would they be further rationing, cutting doctors salaries, cutting drug company profits, limiting the number of tests per year, making insurance companies and hospitals non-profits. I like the idea of increasing the insurance base by requiring insurance, but that will run into political opposition in the US....so what's to be done?

 

[lets-retire]

The US spends about 2x as much per capita on health care as European countries, yet we live shorter lives. Obviously the US system isn't working and it hasn't been copied by any other country. The thing that stops us from getting a better system in arrogance. Surely we could learn from other countries and come up with a better system. Some day soon we'll have to.

Actually once you consider the cost of living in an area the 2x figure is way off. The only countries that come close are Spain, Finland, and Greece. None of those are close to our society in terms of food or culture. Those countries spend approx 8-9% of their gross income on health care. Most of the rest of Europe spends approx 10-11% of their gross income while we spend approx 15%. That number sounds like a lot. When you also take into consideration the differences in society it really is not that far off. Which country has the highest rate of elective cosmetic surgery? The US. On the northern border several hospitals routinely take cardiac emergency patients from Canada, to the tune of several million dollars per year. Those expenditures are added to the cost of health care for US citizens. Whereas when we go on medical tourism it typically costs much less.

We live in the suburbs and drive everywhere, while most Europeans live in the city center an walk almost every where. When I used to live in Europe the wife lost 40 lbs just from walking everywhere instead of driving like we do here. Just about every sport you will find in other countries you will find here. In addition to those we have a large football, baseball, BMX racing, X-games, fighting sports, moto-cross, the list goes on. Our society is more violent than almost any other established country. We have the right to possess firearms and in many cases people use them against other people. My point isn't that we are the biggest/baddest country on the block. My point is we have a society that values danger and violence and with that danger and violence comes higher injury rates. Those higher injury rates result in higher medical expenses.

Comparing costs across countries that don't share common societal norms is irrelevant. You are concerned that our system is too expensive. Once you consider the differences in society and the cost of living our system is not that much more expensive than most other countries, like I stated earlier we spend within in hundreds of dollars per year of other industrialized countries. That works out to less than $10 more per month. For that $10 we get unrestricted access to health care. Fast service. We can choose which doctors we want to see or don't see.

Improvements can be made, but none are going to lower the costs of our health care system to lower than European prices, because of our societal differences. One big step would be to have price transparency and don't have insurance cover the day to day health care expenses. I looked at lowering my coverage to a higher deductible one last year. The difference in cost was about $50 per month. It didn't cover anything until we had spent something like $2-3k. So looking at it purely from a financial perspective. I get to save $600 per year in insurance premiums, but I will spend $2-3k more in doctor's bills. That makes no sense, since the DW has medical issues that will easily go through the $2-3k per year. For someone with no health issues it might make more sense, but not for me and my family.

 

[ziggy29]

Taxpayers making over the subsidy limits will also balk at the subsidies as the disparity gets bigger. Why should someone making $88k with a family of 4 only have to pay $8k/year for insurance while the person making $89k has to pay $25k? Sickening...

I'm pretty sure it doesn't work this way -- the subsidy phases out over an entire income range as I understand it, not all or nothing.

Still, that subsidy and its phaseout does resemble a 15-18% tax in the $50K-$90K income range for a family (more or less) and as such is a highly regressive middle class tax for those buying their own insurance. I do wish they found a different way to pay for it, as this will make the effective tax bracket for a self-employed middle class household feel like over 50% and closer to 60% in some states.

 

[dex]

Comparing costs across countries that don't share common societal norms is irrelevant. You are concerned that our system is too expensive. Once you consider the differences in society and the cost of living our system is not that much more expensive than most other countries, like I stated earlier we spend within in hundreds of dollars per year of other industrialized countries. That works out to less than $10 more per month. For that $10 we get unrestricted access to health care. Fast service. We can choose which doctors we want to see or don't see.

There are a lot of differences between Europe and the USA to explain the cost differences - number of automobiles, miles driven/year and resulting accidents; USA growth into suburbia, higher USA corporate tax rates - USA/Europe - not a good comparison.

 

[dgoldenz]

I'm pretty sure it doesn't work this way -- the subsidy phases out over an entire income range as I understand it, not all or nothing.

Still, that subsidy and its phaseout does resemble a 15-18% tax in the $50K-$90K income range for a family (more or less) and as such is a highly regressive middle class tax for those buying their own insurance. I do wish they found a different way to pay for it, as this will make the effective tax bracket for a self-employed middle class household feel like over 50% and closer to 60% in some states.

Nope, it definitely works the way I described. Here's a link to a subsidy calculator from the Kaiser Foundation:

Health Reform Subsidy Calculator

Try plugging in $93,000 in "2014 dollars" for a family of 4, age 55, in a high cost area. Subsidy is $14,865 and cost of coverage to the family is $8,835 (9.5% of income). Then try plugging in $94,000 as the income (equal to 401% of poverty level, just over the limit) and there is $0 subsidy and cost of coverage to the family is $23,700, or 25.21% of income. Where will these numbers be in 2020 when the cost of insurance has tripled and the limit on out-of-pocket for subsidized people is 9.5%? Family A still paying $8800 and Family B paying $60k? Not only is family B paying $52k more, they're also footing the bill for Family A's $52k subsidy! That'll go over well...

I'll bet you just got a whole lot angrier, didn't you?

 

[dex]

Health Reform Subsidy Calculator

Do you know if in line 2 - Enter annual income (Dollars)- is that is earned income (wages) only or can it be investment income. Also, is that adjusted gross income or just gross income.

In 2014 I will only have investment income.
Thanks

 

[jIMOh]

I think the tipping point happens when about 60% of people start having issues with the system. Before then its all just political propaganda.

People have small issues with the system now, whether w*rking, retired, unemployed or similar. But the type of issues are more inconvenient or "oh well" type things, when the type of issues which are bigger start happening to most of the people using the system, then the system will change.

The reason the system cannot be fixed is people are trying to modify the current system instead of designing a new one. Two or three examples of designs for a new one:

1) make health insurance like life insurance and car insurance. Purchase a 20 year term health policy, pay in $X per month, and as long as premiums are current, you lock in today's rates and today's costs for every service you need over next 20 years. The people which buy next year get higher rates than me, that's their problem and the general consenus will be to buy health care young... "permanent" health insurance policies could also be created and work similar to HSA's do now- heath care for life with underlying investments. If you "use" more insurance over a 20 year period, then that means your premiums the next 20 are higher than someone of same age which used less health care than you (similar to car insurance premiums).

2) Eliminate all insurance and make people pay cash, or something almost this severe. Routine doctor visits do not covered by insurance, only overnight hospital visits or surgeries type. This at minimum drives cost of primary care down.

3) force price disclosure on all procedures ahead of time.
a) for same procedure, the cost is the same, regardless of medicare, private insurance or paying cash.
b) within a given "geography" the cost of out of hospital procedures must also be the same within reason (meaning if one location had higher real estate/rental costs, that can be factored in, but no reason MRIs should cost different if its the same machine doing MRI at both locations).
c) People no longer pay for health care they do not receive- meaning the cost of me going to get a procedure done should not be higher because I have insurance to make up for the gap when the previous patient was on medicare and therefore paid less- remove this inefficiency.
d) in general focus on the price at point of service, and make that FAIR so all people pay the same cost regardless of insurance, then let business dictate how people pay. For example if I pay $300 for a test or procedure, and medicare will only pay $200, then tell the patient they pay the other $100. If not, they do not get the procedure, period. If they die, sucks to be them (this is the rationing aspect of it). The pressure is then on medicare to increase their reimbursement.
e) let people sue their insurance providers if they fail to make consistent decisions. For example my 2.5 yo is not talking yet, the insurance company confirmed verbally over phone he qualifies for speech therapy. The hospital submitted it, and it was rejected. I should be able sue the insurance company and make them liable for the payments we incurred because they lied.

 

[nun]

I think the tipping point happens when about 60% of people start having issues with the system. Before then its all just political propaganda.

People have small issues with the system now, whether w*rking, retired, unemployed or similar. But the type of issues are more inconvenient or "oh well" type things, when the type of issues which are bigger start happening to most of the people using the system, then the system will change.

The reason the system cannot be fixed is people are trying to modify the current system instead of designing a new one. Two or three examples of designs for a new one:

Thanks, at last an answer that offers some ideas, rather than either defending the US system or attacking foreign systems.

When Thailand was designing a new insurance system it looked at those from around the world and came up with a Universal Coverage system that had both public and private elements. I contend that there are ideas that have been implemented abroad and why don't we use some of those and adapt them.

 

[lets-retire]

I contend that there are ideas that have been implemented abroad and why don't we use some of those and adapt them.

Because if we wanted to be like those countries we would have joined those countries or patterned our government after those countries. From the very beginning of this country we have had a desire to forge our own destiny and make something entirely our own. Some still believe in those principles and will do just about anything to keep our country it's own independent idea and not join the idea of other countries. Objectively, it doesn't make our country any better or worse than other countries, just different. Personally, I don't think any other country has done any better than this one. If I did, I would move there in a heartbeat.

 

[jIMOh]

Because if we wanted to be like those countries we would have joined those countries or patterned our government after those countries. From the very beginning of this country we have had a desire to forge our own destiny and make something entirely our own. Some still believe in those principles and will do just about anything to keep our country it's own independent idea and not join the idea of other countries. Objectively, it doesn't make our country any better or worse than other countries, just different. Personally, I don't think any other country has done any better than this one. If I did, I would move there in a heartbeat.

Health care does not make a country
but it could financially break it

I would not move somewhere just to get better health care- if other aspects of life- like quality of life- did not exist, why live there?

For example if Antartica had the best health care on the planet, would you move there?

 

[dex]

With double digit health insurance costs each year we are obviously in a bubble. The increases are unsustainable and when it bursts there will be a lot of real and financial pain for everyone.

In the US the UK approach to health care is derided as being "socialized medicine". However, the British love it, live longer that Americans, and it costs them far less. So at what point would you move to the UK, if you could, and use their system....

With US permiums going up so fast my question remains: At what point (cost, %age insured) would you be more comfortable with a UK type system that is funded through taxation, but is free at the point of delivery and covers everyone.

If I ER I can get a $350/mth plan with big deductibles and co-pays. If the cost of that plan continues to increase at 10% per year I'll be unable to afford it. I just see spiraling costs and reduced services in the US with nothing being done about it. At least in the UK they are realistic that there is a finite pool of money and that needs to be spent wisely so everyone can be well cared for.

Obviously a 10% per year increase is unsustainable, what are the hospitals, doctors and insurance companies going to do to control costs? Where are the cost saving mechanisms in the US system or will the price and deductibles just keep going up until we can't afford them any more?

The US spends about 2x as much per capita on health care as European countries, yet we live shorter lives. Obviously the US system isn't working and it hasn't been copied by any other country. The thing that stops us from getting a better system in arrogance. Surely we could learn from other countries and come up with a better system. Some day soon we'll have to.

US health companies are constantly changing coverages. They ration coverage already, we just don't acknowledge that.

So I'm still waiting for constructive ways we can change the system to make it cost less. Would they be further rationing, cutting doctors salaries, cutting drug company profits, limiting the number of tests per year, making insurance companies and hospitals non-profits. I like the idea of increasing the insurance base by requiring insurance, but that will run into political opposition in the US....so what's to be done?

What is your and criteria for cost cutting?
For example:
-Must everyone be covered?
- Would you be OK with eliminating the law(?) that anyone that enters an emergency room, must be treated regardless of their ability to pay, or their nationality?
-What kind of system - individual pay, government pay, combination?
-What about increasing the national debt; is that OK?
-Can services be cut as in the UK? What are examples that you would approve?
- How would you describe an acceptably level of cost to the consumer?

It appears, that you are OK with the UK system and their cuts, so why is not an answer for you?

 

[lets-retire]

Health care does not make a country
but it could financially break it

I would not move somewhere just to get better health care- if other aspects of life- like quality of life- did not exist, why live there?

For example if Antartica had the best health care on the planet, would you move there?

My comments were meant as an overall comparison, not just health care. Sorry I wasn't more clear.

 

[Martha]

I agree, people have a natural bias in favor of their own country. It is home. It is our tribe. So it is natural for us to say what we have is the best.

Plus, it isn't so easy to move. Canada doesn't want me. Even within the US it is tough for many to move to a new area. There is a cost, both economic and emotional.

Just because the US likes to make its own way does not mean that we can't learn something from other countries. It is incredibly egotistical for us if we believed we always come up with the best solutions. I think that it is wise to see what works and what doesn't work elsewhere and pick and chose ideas that might work for us.

From the reading I have done I have come to the conclusion that the primary reason health care costs are so much higher in the US than just about anywhere else is simply because they can be.

 

[dex]

From the reading I have done I have come to the conclusion that the primary reason health care costs are so much higher in the US than just about anywhere else is simply because they can be.

If the numbers below are correct, the health ins. business in not very profitable compared to others - see second link. Eliminating their profit from the insurance premium equation would not reduce the premium very much.


Health Insurance Industry's Profit Margins Rank #86 -- Seeking Alpha

As the table above of Profit Margins by Industry shows (click to enlarge, data here for the most recent quarter), the industry "Health Care Plans" ranks #86 by profit margin (profits/revenue) at 3.3%. Measured by profit margin, there are 85 industries more profitable than Health Care Plans (included Cigna (CI), Aetna (AET), WellPoint (WLP), HealthSpring (HS), etc.).


Just How Profitable are Healthcare Insurers? « Thinking About Thinking

Here is some info for Hospitals.
http://www.usatoday.com/news/health/2006-01-04-hospital-profits-usat_x.htm

Median operating margins, which don't include investment income, were 2% in 2004, according to Lisa Goldstein, a senior vice president at Moody's in New York. The median overall margin for the same year was 4.5%.

 

[FinanceGeek]

Nope, it definitely works the way I described. Here's a link to a subsidy calculator from the Kaiser Foundation:

Health Reform Subsidy Calculator

Try plugging in $93,000 in "2014 dollars" for a family of 4, age 55, in a high cost area. Subsidy is $14,865 and cost of coverage to the family is $8,835 (9.5% of income). Then try plugging in $94,000 as the income (equal to 401% of poverty level, just over the limit) and there is $0 subsidy and cost of coverage to the family is $23,700, or 25.21% of income. Where will these numbers be in 2020 when the cost of insurance has tripled and the limit on out-of-pocket for subsidized people is 9.5%? Family A still paying $8800 and Family B paying $60k? Not only is family B paying $52k more, they're also footing the bill for Family A's $52k subsidy! That'll go over well...

I'll bet you just got a whole lot angrier, didn't you?

dgoldenz is correct, the law is worded in such a way that if your income is under the threshold, your cost to buy health insurance is capped at a % of that income. But make $1 over the threshold, and you pay full freight.

It leads to a huge singularity in marginal tax rates. We've discussed this on the forum before, it creates an enormous incentive for early retirement, living in low COL areas, paying off debt to avoid needing high incomes to service debt, etc.

 

[dex]

dgoldenz is correct, the law is worded in such a way that if your income is under the threshold, your cost to buy health insurance is capped at a % of that income. But make $1 over the threshold, and you pay full freight.

I don't understand the plan very well at all and I really can not anything about it, so I can wait until 2015 to plug in the number into a 1040.

I am getting the sense I will not be paying Federal income taxes for quite some time.

 

[lets-retire]

Just because the US likes to make its own way does not mean that we can't learn something from other countries. It is incredibly egotistical for us if we believed we always come up with the best solutions. I think that it is wise to see what works and what doesn't work elsewhere and pick and chose ideas that might work for us.

Getting back to the health care debate...Since costs are comparable across different countries, why make huge changes to our system to favor another system, which really isn't that much better? I can see and understand tweaking our system to make it better, but that is not what our congress critters seem to be doing. It seems the majority in Congress want to make huge changes to health insurance that does little to control costs, which was one of the primary reasons to make the changes in the first place.

 

[Martha]

Dex, health insurance is just one piece and I know about the profit margins. We do little to contain costs. One piece of this problem of doing nothing is shown by huge regional cost differences. I've linked to a couple of studies on this issue before. This letter from a couple of the researchers summaries the issue:

There are marked variations in spending observed across hospitals and regions that are largely due to how much time similar patients spend in the hospital, how many specialists they see and how many diagnostic tests they receive. On average, health systems that spend more on these services are less likely to deliver safe and effective care.
The key point: It’s not how much you spend. It’s what you spend it on. And all thoughtful scholars agree that the United States has tremendous room to improve the quality and costs of care.

http://www.nytimes.com/2010/06/11/opinion/l11health.html

 

[chinaco]

Some commonly accepted drivers of cost and some differing opinions.

Health Care Costs: the Biggest Drivers - ABC News

BCBS has some interesting info on what they think drives cost.

http://www.bluecrossmn.com/bc/wcs/g...ments/public/mbc1_healthcare_cost_drivers.pdf

http://www.mass.gov/Cago/docs/healthcare/Investigation_HCCT&CD.pdf