This Is How Screwed Up Our Concept of Health "Insurance" Has Become

Kevin Drum quotes favorably from Chad Terhune at the LA Times

Some insurers are chasing after much smaller customers with new plans designed to limit employer payouts for big claims using what's called stop-loss policies. This guarantees that businesses won't be responsible for anything over a certain amount per employee, perhaps as low as $10,000 or $20,000, with the rest paid by an insurer. Regulators and health-policy experts say this arrangement undercuts the notion of self-insurance since employers aren't bearing much of the risk, and it allows companies to circumvent some state insurance rules.

"This is not real self-insurance. This is clearly a sham," said Mark Hall, a professor of law and public health at Wake Forest University who has studied the small-business insurance market. "Regulators have good reason to be concerned about the potential harm to the market."

Self-insurance is attractive for many reasons, particularly the prospect of lower costs. It's exempt from state insurance regulations such as mandated benefits, granting employers the flexibility to design their own benefit package and the opportunity to reap some of the savings from employee wellness programs. A federal law, the Employee Retirement Income Security Act, or ERISA, governs self-funded plans. Some aspects of the Affordable Care Act do apply to self-insurance, such as the elimination of caps on lifetime benefits and some preventive care at no cost.

Drum agrees

Yeah, it's a scam.

In a reasonably sane world, and in all other contexts outside of health care, insurance is obtained at relatively low prices to cover only catastrophic events that would be potentially bankrupting.  Car insurance does not cover oil changes and home insurance does not cover oven repairs.  So why is it that Drum is arguing that we should ban insurance policies that only cover catastrophic losses and not routine costs?   After all, the second sentence in the first paragraph from the LA Times sure seems to define exactly what insurance should be (and is similar to my personal policy, which has a high deductible attached to a health savings account).

The problem is that when Drum and the Left use the word "health insurance" they are actually referring to a bundle of four items

  • Traditional catastrophic insurance against large, unexpected, bankrupting charges
  • Third party payment / capitation for entirely routine and expected health expenditures, from physicals to contraception
  • Crony payoffs for favored constituencies, mainly via mandated benefits rules.  This payoff may be to consumers, e.g. young women like Sandra Fluke who have the rest of us pay to maintain her sex life; or it may be to corporate cronies, who are able to get their particular device or procedure or service included in the mandated benefits, guaranteeing a large stream of customers who don't care a bit what the product or service costs because it is now paid for by a third party.
  • Social engineering, in the form of embedded incentives to promote certain favored behaviors like seeking preventative care or eating better.  And when the government is paying the bill, the policy becomes a Trojon horse for government micro-management of our lives in the name of health cost reduction.

The second item seems to be a paradigm embedded in the mind of everyone in the US today, that health plans somehow need to cover every imaginable health-related expense.  Outside of an HMO model where these expenses are managed, this is a recipe for a cost explosion.  If we all had pre-paid car policies that bought our cars for us with low deductibles, no one would be driving a seven-year-old Nova.  The third and fourth items are Trojan horses for state control and cronyism that politicians are desperate to preserve.   So it is not surprising that efforts to roll back insurance to just be, well, insurance is met with anger by would-be authoritarians.  The question is, why do we listen to them?

  • me

    No kidding, healthcare in the US is foobared.

    Fundamentally, there are a number of causes - too much regulation complicating doing business in the field and intentionally restricted markets. All care being handled under one umbrella (from elementary care anyone trained in first aid or nursery can provide to highly specialized procedures). And a black and white approach (people will need to face that life ends at some point and cannot be infinitely prolonged)

  • Ted Rado

    Me:

    Your comment that people need to face the end of life is right on. Most of our medical expenses come in the last few years of life. They only prolong life a short while, as nobody lives forever. I am 83 and have told my doctors that I want no more invasive surgery or, in the event of cancer, radiation or chemo. I would rather die peacefully next year than live miserably a lot longer. It is appropriate to spend big bucks on a younger person who has many years of productive and pleasant life ahead of him. It is not only a waste of money, but cruel to prolong life when the quality of life is very poor and one spends half their time in and out of hospitals. It also is financially ruinous for the whole country.

    I have a friend whose 90+ year old father had open heart surgery, but died a year or two later anyway. Was that a good idea, either financially or personally? This obsession with keeping old folks alive at any cost and with an increasingly unpleasant life is horrible.

  • NL_

    What's the point in all these beautifully crafted regulations if any petty merchant can simply circumvent them and make his own choices?

  • The issue here, I think, is that there are certain regulations regarding employee health insurance that don't apply to companies which self-insure. What they're saying isn't that these policies should be banned, but that they shouldn't be considered self-insurance, and shouldn't qualify companies for exemption from those regulations. I don't understand the details, but I get the distinct impression that there's some regulatory arbitrage going on here.

  • Mark2

    @Ted and me, Maybe at 83 it would not be advisable to do some surgeries, but what about 65, 70, 75?

    The problem with the "most medical expenses occur in the last 6 months of life" observation, is that it is observed after the fact. It is really easy to go to charts of dead people and tally the costs.

    The problem is predicting the costs. In many of these cases, six months prior, I would bet most doctors or patients would not know that the end of life was just 6 months away, and the costs just pile up.

    I had this happen with a cat. Spent about 1 grand on the cat in the last 4 months of life. And this was in the days, when people thought spending a lot on animals was silly, about 20 years ago. And if you had told me I would spend $1000 trying to save a cat in its last months, I would tell you, you are crazy, but we didn't know, cat seemed sick, and we took it to the vet. Then the next time the wasn't feeling better we took it again, and the vet found a lump - 150 bucks to remove, OK no biggie. Now the wounds wouldn't heal ... and 4 months later, the cat has cancer, lets not spend any more and the cat died in two weeks after spending 60 more bucks to put her down.

    So the point is it crept up. If the Vet had told me at the beginning it would cost $1500 in today's money to take care of the cat for 4 months for an unsuccessful outcome, we would have put the cat to sleep, cost 60 bucks. But now it is very easy for some analyst to look with hindsight and say wow we spent that much on the cat, that was stupid.

  • Frank Waleczak

    Well said Mark2

  • me

    Ah, Ted - don't die on me, I'd miss your contributions.

    That said, I think the observation is spot on. Not because it's too costly (it is that, and there is a resource allocation problem we're totally messing up by bunching everything into one category), but there's also a problem of dignity.

    Ordering lots of costly procedures that tie someone into the hospital system and care, with reduced mobility and pain is not always a good choice. And the system perfidiously tends to take that choice away. I fondly remember my $40k appendicitis, during which I was the unwilling recipient of a CT scan. I'll probably get some real ugly cancers twenty years hence thanks to that. Why didn't I protest? Well, after a night spent awake being seen by various teams of doctors diagnosing over and over that, yes, my appendix was inflamed and some heavy doses of painkillers, it didn't occur to me until too late what was happening.

    My preferred recipe would be to have a national cheap basic level of care (disperse antibiotics, simple blood tests, casts) - don't care how it's handled, free care centers or deregulation so that walmart could do it - plus actual insurance that comes with blind acceptance and very simple cost/age-range criteria. I believe the key there is to keep it really simple in terms of both regulations and contractual obligations (none of that "sign this fifteen page thing here, just boilerplate, don't worry about the language).

  • Ted Rado

    Mark2:

    You are right. No one can tell when that "last six months" has arrived. It is up to each individual to deal with their doctor on the subject. In my own case, I have decided to err on the side of stopping major medical procedures too early than too late. I have a friend who is doing the opposite, sparing no effort to eke out a few more months of life. A doctor friend tells me that I am in the minority. Most hang on to life with an iron grip. Also, their families say "don't let grandpa die". It is a decision that only the patient can make. No one else wants to pull the plug. Meanwhile, medical rsearch keeps coming up with more wonderful but expensive ways to prolong life, further adding to the cost. It has to stop somewhere or the total GNP will go to medical care. Health care is a finite resource.

    There is no end to this debate. No one wants the elderly to suffer. But, we can't spend a million dollars on everyone in their old age. What to do? Passing new laws or insurance programs doesn't solve the underlying problem: How to limit costs when the possible expenses are almost limitless. As I pointed out, in many cases you are creating misery for dying people at huge expense. I have my own views on how I want to manage my old age health situation. I am sure everyone else has their own views as well. It surely is not up to me to tell someone elst what to do, or vice versa.

  • Nate Ogden

    Problem is Drum is as big of an idiot as Terhune who wrote the article. Terhune's article is filled with errors they won't fix. For example this is factually incorrect;

    "Some aspects of the Affordable Care Act do apply to self-insurance, such as the elimination of caps on lifetime benefits and some preventive care at no cost."

    I administer these plans and we are required to eliminate lifetime caps just like fully insured. The only plans not required to comply with this are those that received exemptions from HHS. How can a major paper butcher facts like this and not fix them?

    You have a group of people that have zero knowledge of the industry running their mouth. Small group self funding has been around since the 1980s. It was actually huge in the 80s and early 90s and had carriers that specialized in it. Groups seldom self fund to avoid State Regulation, they just aren't expensive enough to make enough of a difference. On the rare occasion it does then usually its rules that require them to cover dependents till age 28 or something like that.

    Most of these employers already self fund, they just do it under a high deductible fully insured plan. What they find is once they start taking risk and see what is really going on in their plans they want to assume more risk and manage claims more aggressively. If your now getting some claims data and see your fully insured carrier is wasting 20-30% of your premium who wouldn't want to get rid of them?

    If you want to aggressively control cost you can't do that with a fully insured carrier. You can't design your own slim network. You can't design your own wellness program. You can't customize your drug plan. Large self funded plans are the most efficient in the country, why shouldn't smaller employers be able to implement those same proven ideas?

    "The advantage to insurers is that small companies tend to be young companies."

    Statements like this show what a clueless idiot Drum is. Self Insurance doesn't work for young healthy companies. We don't even bother to quote the young healthy companies. There is no premium to work with. A bunch of young healthy guys paying $150 per month doesn't have any potential savings. Best case scenario they break even with their fully insured claim. If Dumb knew even the first thing about self funding he would know the group usually assume 125% of expected claims as the risk. Why would a group take a 25% risk to save a couple dollars at best.

    The groups that self fund are those that have problems not being solved by the fully insured carriers. In the fully insured market Drum advocates the carrier won't give you claims data, won't tell you how to get healthier, won't work with you to improve your rates. Every year they tell you your rates are going up double digits and that is it. The groups self funding are those sick of that game.

  • Mark2

    @Ted,yeah it is a difficult debate. Unfortunately when government gets involved, it can only get worse - like not giving a 100 year old a new hearing aid, when the old one breaks, due to cost benefit analysis. Or forcing an old lady to go to a different doctor to save on her carbon usage. Is that savings really worth it? Then there are middle ground items. New hip replacement? That is semi-serious. What age would you start/end that?

    I have to say though, even if you don't want to be invasive can get caught up. You feel under the weather - go to the doctor, go again. Doctor suggests something relatively tame (Physical therapy) then test .... So Ok at the end we just give you the glass of water and a pill (there may only be enough pills under Obamacare for Grandma though) and we aren't doing chemo - but you went through a lot of cost just to find out you (hypothetically)have cancer.

  • D Miller

    While I agree with most of your post, I feel obliged to point out that the benefit of birth control coverage far outweighs the expense. Especially when you consider that the women who would otherwise forgo protection are probably also the least capable of raising healthy, productive children.

    You do yourself a disservice by repeating Limbaugh's commentary.

  • Ted Rado

    Mark2:

    You are right. Things can escalate from a few tests to recommendations for more serious procedures. In my own case, after my quad bypass surgery and a couple of minor strokes, I got back to hiking and backpacking until I was 75. Then, shortness of breath set in which put a stop to hiking. In the last 2-3 years, I have had an increasing frequency of problems, such as knee surgery, divericulitis, kidney stone, etc. The time comes when you realize that things are going downhill fast. It is like an old car. One thing after the other goes wrong. At some point one has to make a decision as I have done. Do you want relative peace and quiet or do you want more and more medical procedures? I currently have a backlog of things the docs want to do that I have refused. I feel OK and enjoy life, except for the occasional medical episodes.

    It is sort of an engineering problem. How to manage my demise to the best advantage. I have long ago made detailed financial arrangements, made lists where everything is located, given away lots of things I no longer use, etc. I can sit back and watch others wrestle with the health system problem with detachment. I have already thought through and planned my own situation. I am sure not everyone looks at their own impending demise in the same way as I have been able to do. Each person must face the situation as best he can.

    The bottom line is 1) we are all going to die, and 2) there is a limited amount of health care available. How to best manage this situation is the question. The idea that we can create a system where everyone can get unlimited health care and be kept alive to the last minute is nonsense. We must face reality.

  • ErisGuy

    I have noticed that I have shopped for cars that modestly expensive sedans come with maintenance packages that do include routine maintenance. Several of the packages come with loaner cars, home pickup, oil changes, etc. The comparison with "health insurance" is obvious. If it works for auto makers....

  • Ted Rado

    Erisguy:

    Cars are predictable. They need certain things done at prescribed intervals. When they get old and maintenance costs are high relative to the value of the car, the car is junked. The problem with health care is that we do not want to "junk" old people. Thus the costs go up and up. Medical science comes up with new (expensive) ways to keep old people alive longer, thus exacerbating the problem. There seems to be no solution to the problem that is both financially feasible and humane. Thus we are in the bind that we are in. It will become mandatory to accespt some sort of medical care rationing for the elderly. In the UK and Canada, old folks go to the bottom of the pile except for emergency. The money made available for health care is fixed by the government, thus limiting it. That's one way to do it.