What If Broccoli Were Like Buying Health Insurance?

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Some Food for Thought

Source: Jen Sorensen via Austin Frakt PhD of the Incidental Economist.

Assessment

Many a true word hath been spoke in jest. [c 1665 in Roxburghe Ballads (1890) VII. 366].

Conclusion

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The Great Health Care Challenges [A Slide show]

The US Health Care Crisis and the Complexities of Reform

By Austin Frakt PhD

Dr. Austin Frakt blogs over at The Incidental Economist which contemplates health care with a focus on research, and an eye on reform. It is about economics, health policy, health services, health care and – yes – politics. And, Austin is a health policy wonk that we admire here at the ME-P

 www.TheIncidentalEconomist.com 

Last fall he created a slide show on the challenges presented by our health care system. He has updated it circa March 11 2011 and has now allowed us, and others, to post freely. We appreciate him for this educational gesture.

Thank you.

Ann Miller RN MHA

[Executive-Director]

Link: Frakt Great Healthcare Challenges

About Austin Frakt PhD

Austin is the creator, manager, host, and primary author of The Incidental Economist. He is a health economist with an educational background in physics and engineering. After receiving his PhD in statistical and applied mathematics he spent four years at a research and consulting firm conducting policy evaluations for federal health agencies. Austin now has a joint appointment with the Department of Health Policy and Management at Boston University’s (BU’s) School of Public Health and Health Care Financing & Economics (HCFE) at the Boston VA Healthcare System, U.S. Department of Veterans Affairs. He studies economic issues pertaining U.S. health care policy with a recent but not exclusive focus on Medicare and the uninsured. He has authored numerous peer-reviewed, scholarly publications, many relevant to health care financing, economics, and policy. His papers have appeared in Health Care Financing Review, Health Affairs, Health Economics, International Journal of Health Care Finance and Economics, Journal of Health Politics, Policy and Law, among other journals. For over a year, he has been a regular columnist for Kaiser Health News and he has contributed commentary for the New York Times’ Room for Debate forum.

Austin’s interests include economics and health care, of course, but also politics, personal finance, and the amusements of family life. Outside of his principal work duties, he manages his household’s finances, is CFO of a small business, and looks after his two children.

You are welcome to “friend” Austin on Facebook, follow the blog via his Google Buzz feed, and subscribe to his Google Reader bundles. Austin does not have a personal Twitter account. When he has something to communicate he does it on this blog. If you wish, contact Austin with anything on your mind via the contact form. (The views expressed in Austin’s posts are his own and do not necessarily reflect the positions of the Department of Veterans Affairs or Boston University.)

Conclusion

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Is There an “Efficient Frontier” for Medicare Payment Reform?

An Essay on Financial Health Risk Self-Selection

By Dr. David Edward Marcinko MBA CMP™

http://www.CertifiedMedicalPlanner.org

[Publisher-in-Chief]

Health economist Austin Frakt PhD, of the Incidental Economist, alerted us to this recent publication “Achieving Cost Control, Care Coordination, and Quality Improvement through Incremental Payment System Reform”, by and from: (Averill, et al., JACM, 2010). The paper describes various Medicare payment reform methods.

The Abstract

The healthcare reform goal of increasing eligibility and coverage cannot be realized without simultaneously achieving control over healthcare costs. The reform of existing payment systems can provide the financial incentive for providers to deliver care in a more coordinated and efficient manner with minimal changes to existing payer and provider infrastructure. Pay for performance, best practice pricing, price discounting, alignment of incentives, the medical home, payment by episodes, and provider performance reports are a set of payment reforms that can result in lower costs, better coordination of care, improved quality of care, and increased consumer involvement. These reforms can produce immediate Medicare annual savings of $10 billion and create the framework for future savings by establishing financial incentives for long-term provider behavior changes that can lead to lower costs.

Patient Risk Sharing

Of course, the third dimension of risk [beyond traditional doctor/hospital provider and Medicare insurer] would be the risk borne by the patient insured (degree of cost-sharing or “consumer responsibility”). This relationship is represented diagrammatically right here:

Brief Review of MPT

Modern portfolio theory (MPT) attempts to maximize investment portfolio expected returns for a given level of risk by carefully choosing the proportions of various asset classes. As a mathematical formulation, the concept of diversification aims to select a collection of assets that collectively lowers risk [measured by standard deviation] more than any individual asset class. This pleasing point is known as the “efficient frontier.” And, it can be seen intuitively because different types of assets often change in value in opposite ways.

Is There an Insurance Efficient Frontier?

Health insurance [medical payment reform] econometric considerations may now be extended in this analogy to suggest that medical providers and CMS payers are the surrogates for two dimensions in the MPT. The third might be the risks borne by the patient insured (degree of cost-sharing or “consumer responsibility”), as above.

Assessment

Then, patients could self-select where they wish to fall on the health insurance “efficient frontier”, balancing all three dimensions as in MPT, along with lifestyle and moral hazard considerations, etc.

Conclusion

And so, your thoughts and comments on this ME-P are appreciated. Is there an “efficient frontier” for Medicare payment reform?

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On Employer Based Health Insurance Premium Costs

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One Client’s Comparative Expense Analysis Experience

By Dr. David Edward Marcinko; MBA

[Publisher-in-Chief]

Hospital Costs

A colleague posted an interesting essay recently on his blog The Incidental Economist. Austin Frakt PhD is a health economist with an educational background in physics and engineering. After receiving a PhD in statistical and applied mathematics, he spent four years at a research and consulting firm conducting policy evaluations for various federal health agencies. Here is the post.

Link: http://theincidentaleconomist.com/index.php?s=Kaiser%2FHRET+

The Survey

In his essay, Austin reported these figures from a cited survey:

“The 2009 Kaiser/HRET employer health benefits survey found that employees pay 17% of the $4,824 annual premium for single coverage and 27% of the $13,375 annual premium for family coverage (all average figures)”.

Case Report Model

So, if the survey is correct, it got me thinking about how much a long-time client paid as a doctor-employer, when she last practiced in a certain medical group back in 2000. And, especially about how much she would be paying today if still in business with the same group. This brief case-report with comparative expense analysis [CEA} is the up-shot.

My Client’s Story

Her health insurance premium costs including doctor-partners, was about $13,500 annually, per employee. This was a sunk cost, but an above the AGI line deductible business expense to the practice and entirely employer paid as a fringe benefit [all valid corporate expenses are deductible as there is no AGI line on a business tax return]. She and her three partners were both very magnanimous to their employees, and naïve. They became virtually insolvent a few years later and were bought out by a larger medical group for a pittance. Today, they are grunt employee doctors in a 25 plus physician group practice.

My Numbers

Now, if I crunched the numbers correctly as an citizen economist, on my HP12-C calculator, using health insurance inflation rates of 3%, 5% and 7% respectively for a decade [low], she would be now be paying somewhere between $18,143 and $21,990 and $26,556 in 2010 [dangerously assuming linear economics]. Each of her 15-18 employees at the time was a female, head of household, with 1-4 dependents of their own; no singles. Her own family unit included a professional husband and young daughter in private elementary school. They were the most health conscious of the bunch.

Her Situation

So, she left the group in 2000, and we transitioned her to solo private practice with a HD-HCP indemnity-styled [better] plan that pays 100% after her $5,000, and later $10,000, deductible. She has 100% prescription drug coverage, no OB coverage and no networks, second opinions or pre-certification requirements. Today, she has more than $50-K in the savings portion [cash account earning 3.5%, tax deferred].

Her Reaction

As she just turned age 55, there as was significant jump in her family coverage premiums from about $1,350/quarter to $1,650/quarter! Of course, her carrier offered a ten percent discount to $1,485 quarter, when she pitched a fit, and completed a health and wellness survey which “they” verified.

My Intervention

So, I used my “insider” knowledge as a doctor, financial advisor and insurance agent and went back to the open market place for coverage. Her new direct halth insurance coverage [she used a non-fiduciary insurance agent intermediary previously] is better, and her premium is only $1,248/quarter or about $5,000 annually to age 58. Bye, bye insurance agent. Link:  www.CertifiedMedicalPlanner.com

Now, if we use the non-inflated [a conservative unlikely scenario] 27% employee premium contribution for the present value projections of $18,143 and $21,990 and $26,556 today – each employee would be responsible for about $4,898, $5,937 and $7,170 respectively [please again recall both our conservative nature and the repeat danger of linear economic assumptions].

Where Did the Money Go?

So, under the 3-5% health insurance inflation scenario, my client would have been contributing about $5,417 for her heath insurance. This is very close to what she is annually paying now! So, where did the much larger employer’s contribution portion of the money go? Probably to overhead costs, marketing, advertising, sales and commissions, HR, high-risk pool premiums, ie … down the drain?

What did my client do with the monetary difference? Well, she paid all family doctor and drug bills that were under the high-deductible threshold; some went to her annual family health club membership dues, covered extras and various “wants and nice-to-haves”, and the remainder of course, went into her savings account portion. In other words … not down the drain.

There is an additional $1.000 “catch up” savings provision for those over age 55. She paid it – to herself.

The Road Ahead – More Expensive

I informed my colleague-client that there likely will be another big premium jump when she turns 58, 60 and age 62 respectively. We will report back to ME-P readers on market competition and related health insurance pricing at that time, ceteris paribus.

Assessment

Does the competitive open marketplace find a way to reduce HI costs– sooner or later? High Deductible HealthCare Plans were launched as a temporary pilot project in 1997 and initially sold poorly. In the past few years however, there has been a boom in HD-HCPs and the pilot project was made permanent. What other HI innovations may be in the future?

Of course, President Obama was against them in his original healthcare reform plan. But, now in his weakened political position, they seem acceptable to him. So, go figure. Utility depends on political winds, not economic efficacy, I suppose. 

Conclusion

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Popular Healthcare Reform Articles

Aggregating Content – Disseminating Knowledge

By Ann Miller; RN, MHA

[Executive Director]Text Books 

Here are three interesting and related articles from The Incidental Economist:

 

 

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