How Should Americans' Health Care be Paid For?

[dex]

Quote:

Originally Posted by Independent Maybe a couple facts would help. Say A = (total private insurer's profits) / (total US healthcare spending), and B = (total private insurer's retention - that is the difference between premiums collected and benefits paid) / (total US healthcare spending). Do you have numbers for A and B?

I don't, but this might help.

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.).

[M Paquette]

Quote:

Originally Posted by Independent Maybe a couple facts would help. Say A = (total private insurer's profits) / (total US healthcare spending), and B = (total private insurer's retention - that is the difference between premiums collected and benefits paid) / (total US healthcare spending). Do you have numbers for A and B?

Profits... profits... Now, that's a tricky one. Nominally, that is revenue less expenses. Revenue is pretty well understood. Expenses, though... Operating expenses. One time charges. Bonuses. Recapture. Carry-forward. Shareholder distributions... I'm pretty sure a good executive team could figure out a way to pass out lots of cash, while holding 'profit' close to zero. That IS the goal, for tax purposes anyway.

So...
A ~= 0
B ~= (total private insurer's retention - that is the difference between premiums collected and benefits paid) / 2,300,000,000,000 (2.3 trillion for 2008)

Total private insurer's retention is fairly hard to get a good number for. Not all insurers seem to publish this information. (Surprise, surprise, surprise...) The lobbyists at America's Health Insurance Plans (AHIP) say the medical loss ratio (your benefits to premiums ratio) is 87%. Reed Abelson in the New York Times reports that in 2008 large employer plans had a ratio of 84%, small employer plans had a ratio of 80%, and individual plans had a ratio of 74%. The US Senate collected numbers that showed some plans with loss ratios at 66 cents on each dollar of premiums going to doctor and hospital bills.

Note also that a bit over half the care comes through a government plan such as Medicare, Medicaid, TriCare, VA programs, or SCHIP.

All that spending breaks down as follows:


Summary of Findings - Employer Health Benefits 2008 Summary


Trends in Health Care Costs and Spending, March 2009 - Fact Sheet

[dex]

Quote:

Originally Posted by M Paquette Profits... profits... Now, that's a tricky one.

All of that is available - see my previous posts.

Quote:

Originally Posted by M Paquette Total private insurer's retention is fairly hard to get a good number for. Not all insurers seem to publish this information. (Surprise, surprise, surprise...) The lobbyists at America's Health Insurance Plans (AHIP) say the medical loss ratio (your benefits to premiums ratio) is 87%. Reed Abelson in the New York Times reports that in 2008 large employer plans had a ratio of 84%, small employer plans had a ratio of 80%, and individual plans had a ratio of 74%. The US Senate collected numbers that showed some plans with loss ratios at 66 cents on each dollar of premiums going to doctor and hospital bills.

There is no mystery in numbers and I'm sure a good auditor and financial analyst could figure it all out.

e.g. 80% spent on paying claims
+Federal, state, city taxes
+Federal, state, city mandated costs - e.g. some states require insurance costs paid by hospitals for the uninsured.
+ Capital costs etc.
+ Profits

[samclem]

Quote:

Originally Posted by modhatter Can we go forward from where we are and pick apart the current plan, and get rid of the bad while bringing in the good (with it still making financial sense)?

Is there some particular reason that the existing legislation should serve as a starting point? In addition to all the practical flaws with the law and the underlying approach, it isn't even supported by the present Congress or the public. Is that a good place to begin?

Quote:

Originally Posted by modhatter From a Medicare type system that takes out 3% for all administrative costs . . .

This is extremely misleading, and typical of the kind of argumentation you have said you oppose.
In a nutshell: That very low Medicare admin cost number only counts the cost of the bureaucrats who send out the checks, it does not count the many other admin costs that are typically bundled into the %ages when looking at insurance companies. A fairly good apples-to-apples comparison would be the administrative costs of "regular" Medicare plans and Medicare Advantage plans. If you'd like more info on this issue, please take a look at this post by Martha and the several posts that follow.

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Originally Posted by modhatter The one most effective means of truly controlling costs is utilizing very large buying pools and the bigger the better.

I don't know why you would say this. A bigger buying pool, in itself, does nothing to lower costs. Example: The US government buys more airplane tickets than any private company, and pays more per ticket and per mile than just about anybody. The US government buys more commercial vehicles than any private business, and they do not get a good price.
What drives down prices is competition. That's the only proven way to do it--any other means (e.g. government caps on what can be charged for services) only serves to make a given good or service scarce. We don't want medical care to be scarce: that's inconvenient at best, deadly at worst.

Competition works in every other area of our lives to improve the quality and value of services. It's a tremendous power for good. Health care is different from many other services in important ways, but it is not so unique that we need to throw away competition.

Quote:

Originally Posted by modhatter I so wish this health care issue could be brought out of the political arena and viewed in a united manner.

Your post and the thousands of others on this subject by all of us clearly indicate that there's disagreement on some very important fundamentals. If the government is going to be involved with solving the problem, then of course it will be a political issue. How else could it be solved? That's the means by which we address big problems in this country. Often, when folks say "I wish we could just leave politics out of it", what they really mean is "I wish people would just do things my way".

[donheff]

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Originally Posted by samclem I don't know why you would say this. A bigger buying pool, in itself, does nothing to lower costs. Example: The US government buys more airplane tickets than any private company, and pays more per ticket and per mile than just about anybody. The US government buys more commercial vehicles than any private business, and they do not get a good price. What drives down prices is competition.

Wait a second. GSA buys 50,000 cars a year and gets better prices than anyone in the universe. In multiple competitions over the years no private sector company could touch the US fleet costs. Federal airfare is as cheap as any big corporation and has no penalty for change in flights.

[RonBoyd]

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Originally Posted by donheff Wait a second. GSA buys 50,000 cars a year and gets better prices than anyone in the universe. In multiple competitions over the years no private sector company could touch the US fleet costs. Federal airfare is as cheap as any big corporation and has no penalty for change in flights.

And $700 toilet seats.

[donheff]

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Originally Posted by RonBoyd And $700 toilet seats.

Yeah and $20 ice cube trays. There is plenty of waste and corruption in government contracting (keep in mind the corruption is on both sides of the deal). There is just as much corruption in private to private sector contracting. Probably a lot more since most businesses don't have IGs sniffing around their every action. As for those toilet seats, if you remember that was a bit of a bogus sound bite. In actuality, it was not a toilet seat. It was a molded fiberglass cover for the sanitary tank on a P-3 with the toilet seat molded into the cover. Expensive? I don't know. But comparable to the item you pick up at the hardware store? Hardly.

[samclem]

Quote:

Originally Posted by donheff Wait a second. GSA buys 50,000 cars a year and gets better prices than anyone in the universe. In multiple competitions over the years no private sector company could touch the US fleet costs. Federal airfare is as cheap as any big corporation and has no penalty for change in flights.

The government airfare/city-pair/etc thing is crazy. Yes, they get fully refundable/adjustable tickets, but the price they pay is often twice what I pay (as a contractor) to accomplish the same travel, and I often have to buy tickets late. Still, I'll grant that it is hard to make a head-to-head comparison because they are buying a different (wasteful, IMO) version of the product, and the government program is supporting other things (inducing carriers to participate in CRAF, etc) totally unrelated to the the actual travel by a person. Which, I would guess, is exactly what will happen with health care.

[RonBoyd]

Quote:

Originally Posted by donheff In actuality, it was not a toilet seat. It was a molded fiberglass cover for the sanitary tank on a P-3 with the toilet seat molded into the cover. Expensive? I don't know. But comparable to the item you pick up at the hardware store? Hardly.

Yeah, I know. I was on my 1st cup coffee and my Brain Fuzz only gave me that to work with.

Doggoneit, now I've forgotten what point I was trying to make... maybe it was, "It ain't necessarily so." If it was, you had already made it so I was (am) agreeing with you.

[donheff]

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Originally Posted by samclem The government airfare/city-pair/etc thing is crazy. Yes, they get fully refundable/adjustable tickets, but the price they pay is often twice what I pay (as a contractor) to accomplish the same travel, and I often have to buy tickets late.

Yeah, I have to agree it is crazy. I have seen the national cost comparisons and the argument is it is a good overall deal for the government but at times it was a king size PITA. I can validate your contractor experience since I have flown to locations where contractors flying with me took different flights and paid way less than me. On the other hand I can remember more situations where we paid much more to fly our contractors to locations where the gov rate would have been far better. The Feds can't use the government rates for contractors flying on government business for a variety of reasons.

[Independent]

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Originally Posted by samclem The US government buys more commercial vehicles than any private business, and they do not get a good price.

Quote:

Wait a second. GSA buys 50,000 cars a year and gets better prices than anyone in the universe.

So, which is it? I don't know. Does the gov't use its size to get pretty good prices on cars, or is it woefully inefficient and paying too much? Does anyone have any additional facts?

[M Paquette]

Quote:

Originally Posted by donheff Wait a second. GSA buys 50,000 cars a year and gets better prices than anyone in the universe. In multiple competitions over the years no private sector company could touch the US fleet costs. Federal airfare is as cheap as any big corporation and has no penalty for change in flights.

Yeah, maybe they get a good deal on cars, but the gummint pays full price for all those Medicare pharmaceuticals. Heck, they don't even try to dicker. That's the sort of inefficiency that Congress should be investigating. Maybe hold some hearings and find out who's responsible for giving away so much taxpayer money.

[donheff]

Quote:

Originally Posted by Independent So, which is it? I don't know. Does the gov't use its size to get pretty good prices on cars, or is it woefully inefficient and paying too much? Does anyone have any additional facts?

I will drop in one last opinion and the better drop out of this thread hijack since my info is 6 years old and anecdotal. Google isn't much help. I am only familiar with GSA's operations. They both manage a Fleet (GSA owned vehicles that other agencies use) and purchase vehicles on behalf of other agencies who then own those vehicles. In my time there studies of the GSA Fleet operation showed them as very cost effective. The easily retained internal operations through at least two contracting out efforts during periods when IMHO the contracting out decks were stacked in favor of the private sector (lots of room for argument here). GAO reports on Federal fleet operations nevertheless always found ways to improve efficiency -- but we were always far ahead of other Federal fleet operators.

I am not knowledgeable of formal cost comparisons on auto purchases although I used to see and marvel at the prices (my office managed the IT systems for them). The auto buying operation always bragged that they had the best prices on the planet and those assertions were never challenged at management reviews but still,....anecdotal evidence.

Over the years Congress made most of GSA's services optional to let other agencies compete. But they didn't touch vehicles purchases. GSA remains a mandatory source for other Federal agencies who want to buy vehicles. To the best of my recollection, they remained a mandatory source because their prices were unbeatable and the view was that balkanizing the purchases would reduce GSA's competitive advantage.

[FinanceDude]

Quote:

Originally Posted by donheff I will drop in one last opinion and the better drop out of this thread hijack since my info is 6 years old and anecdotal. Google isn't much help. I am only familiar with GSA's operations. They both manage a Fleet (GSA owned vehicles that other agencies use) and purchase vehicles on behalf of other agencies who then own those vehicles. In my time there studies of the GSA Fleet operation showed them as very cost effective. The easily retained internal operations through at least two contracting out efforts during periods when IMHO the contracting out decks were stacked in favor of the private sector (lots of room for argument here). GAO reports on Federal fleet operations nevertheless always found ways to improve efficiency -- but we were always far ahead of other Federal fleet operators. I am not knowledgeable of formal cost comparisons on auto purchases although I used to see and marvel at the prices (my office managed the IT systems for them). The auto buying operation always bragged that they had the best prices on the planet and those assertions were never challenged at management reviews but still,....anecdotal evidence. Over the years Congress made most of GSA's services optional to let other agencies compete. But they didn't touch vehicles purchases. GSA remains a mandatory source for other Federal agencies who want to buy vehicles. To the best of my recollection, they remained a mandatory source because their prices were unbeatable and the view was that balkanizing the purchases would reduce GSA's competitive advantage.

Also, the GSA has the IRS backing them up, so they BETTER get good deals...........

[donheff]

Quote:

Originally Posted by FinanceDude Also, the GSA has the IRS backing them up, so they BETTER get good deals...........

Yeah - they are tax free. But that was accounted for in the contracting out price comparisons.

[Independent]

Quote:

Originally Posted by donheff I will drop in one last opinion and the better drop out of this thread hijack since my info is 6 years old and anecdotal. Google isn't much help. I am only familiar with GSA's operations. They both manage a Fleet (GSA owned vehicles that other agencies use) and purchase vehicles on behalf of other agencies who then own those vehicles. In my time there studies of the GSA Fleet operation showed them as very cost effective. The easily retained internal operations through at least two contracting out efforts during periods when IMHO the contracting out decks were stacked in favor of the private sector (lots of room for argument here). GAO reports on Federal fleet operations nevertheless always found ways to improve efficiency -- but we were always far ahead of other Federal fleet operators. I am not knowledgeable of formal cost comparisons on auto purchases although I used to see and marvel at the prices (my office managed the IT systems for them). The auto buying operation always bragged that they had the best prices on the planet and those assertions were never challenged at management reviews but still,....anecdotal evidence. Over the years Congress made most of GSA's services optional to let other agencies compete. But they didn't touch vehicles purchases. GSA remains a mandatory source for other Federal agencies who want to buy vehicles. To the best of my recollection, they remained a mandatory source because their prices were unbeatable and the view was that balkanizing the purchases would reduce GSA's competitive advantage.

This may be 6 years old, but it looks like pretty good information to me.

I'll agree with MP that the bigger money is in drugs. I think the comparison is interesting.

[M Paquette]

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Originally Posted by Independent I'll agree with MP that the bigger money is in drugs. I think the comparison is interesting.

Medicare Part D, the prescription drug benefit, has a FY 2010 budget of $68,000,000,000 (68 billion dollars). Unlike the VA or military programs, the government is by law not permitted to negotiate prices on drugs purchased with this 68 billion dollars. In addition, Part D drugs are exempt from "best price" rebate requirements mandated by the state Medicaid programs, which run around 15% of list price in most states.

There is the possibility that in the future, the 81 various private providers of Medicare Part D benefits may collapse or merge into a handful of larger surviving companies, and if most of these are not under the control of various pharma manufacturers, then they may be in a position to negotiate better prices and perhaps pass some of the savings along to the government.

Or not.

[Independent]

Quote:

Originally Posted by dex I don't, but this might help. 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%.

Quote:

Originally Posted by M Paquette Total private insurer's retention is fairly hard to get a good number for. Not all insurers seem to publish this information. (Surprise, surprise, surprise...) The lobbyists at America's Health Insurance Plans (AHIP) say the medical loss ratio (your benefits to premiums ratio) is 87%. Reed Abelson in the New York Times reports that in 2008 large employer plans had a ratio of 84%, small employer plans had a ratio of 80%, and individual plans had a ratio of 74%. The US Senate collected numbers that showed some plans with loss ratios at 66 cents on each dollar of premiums going to doctor and hospital bills.

Thanks for the research. I was replying to Modhatter who seemed to be saying that by far the biggest problem with our health care expenditures was profits/costs of private insurers, and who urged people to get the facts. I was hoping he'd post some facts, but he hasn't so far.

I think dex's number on profit/revenue is meaningful - 3.3%. And MP's numbers on total retention are also good - varying from 13% to 34%.

I went to the government's data source at: https://www.cms.gov/NationalHealthEx....asp#TopOfPage Looking at the first zip file, I got "Net Cost of Private Insurance" in 2008 as $92 billion, and premiums at $783 million. That gives about 12%, which is in the ballpark with MP, though it seems a little low.

As MP points out, lots of our expenses are covered by government plans. The oft-quoted 16% of GDP is $2,339 billion. So retention by private insurers (using the $92 billion) is only 3.9% of our total expenditures or 0.6% of GDP. I'm think we've got some other big issues with health care costs besides private insurers.

[FinanceDude]

Quote:

Originally Posted by Independent Thanks for the research. I was replying to Modhatter who seemed to be saying that by far the biggest problem with our health care expenditures was profits/costs of private insurers, and who urged people to get the facts. I was hoping he'd post some facts, but he hasn't so far. I think dex's number on profit/revenue is meaningful - 3.3%. And MP's numbers on total retention are also good - varying from 13% to 34%. I went to the government's data source at: https://www.cms.gov/NationalHealthEx....asp#TopOfPage Looking at the first zip file, I got "Net Cost of Private Insurance" in 2008 as $92 billion, and premiums at $783 million. That gives about 12%, which is in the ballpark with MP, though it seems a little low. As MP points out, lots of our expenses are covered by government plans. The oft-quoted 16% of GDP is $2,339 billion. So retention by private insurers (using the $92 billion) is only 3.9% of our total expenditures or 0.6% of GDP. I'm think we've got some other big issues with health care costs besides private insurers.

+1

[FIRE'd@51]

I voted for the government-provided plan for catastrophic plus supplemental. This way no health care provider should get "stuck" for a very large amount, so presumably there will be less cost-shifting. Also, presumably no one would go bankrupt because of a serious illness. Having individuals purchase supplemental or pay out of pocket for routine medical costs should help keep overall heathcare costs under control.

I guess the definition of catastrophic (i.e., the deductible) could be means-tested.