Wednesday, October 28, 2009

Why medical insurance is so expensive

My note is to share some facts about why medical insurance is so expensive:

+ Medical treatment costs e.g. MD visits, hospitals, out patient treatment, prescriptions, etc. have been increasing much faster than inflation since 1988!

+ Over 85% of each dollar that goes to pay medical insurance premiums is used to pay for the ever expanding amount of medical treatment people are receiving. A breakdown of how a dollar is spent is shown on this chart.

+ Here in Connecticut one of our health insurance companies has reported over 70% of treatment dollars are connected to conditions resulting from life style choices e.g. smoking.

What is being done in Connecticut's General Assembly or in Washington DC to respond to the things that have caused medical insurance to be so expensive? The answer - not much if anything at all! !

All most all health reform efforts have focused on getting access for more people and other things such as pooling. All the state and federal efforts, if they were to accomplish anything, would just affect costs which are a part of the 15% of the premium dollar that goes for administration.

Sunday, May 10, 2009

Update on COBRA and Conn's mini COBRA

The federal level COBRA changes, signed into law Feb. 17th, continue to create questions for employers as they implement the new requirements. Finding answers is not simple.

Some suggestions:
+ The DOL's model language published in mid March includes an error employers need to correct. The law's intent was to give a person, who has a COBRA qualifying event, 60 days from the last day of coverage to elect COBRA. The language in the model continuation coverage notification says 60 days from the date of the notice.

Thus, since many employers give or mail affected employee(s) notification and enrollment forms before the persons coverage terminates using the model letter language does not give them the correct date by which they must apply.

+ Don't just copy the model language and give it to a COBRA eligible employee. Why? There are numerous places in the 12 pages of model notices and forms where changes need to be made to make it fit the employers situation. This applies not only in the two notification pages, but in the pages with Q&A guidelines, and in the two forms a person needs to complete to enroll.

+ Some insurance companies want the person, who elects to continue coverage, to make the check out to their former employer. Thus, the employer has extra administrative work vs just sending the continuation check along with their check for the active employees.

+ The model letter for Connecticut's continuation coverage program was published by the DOI and it also needs to be modified to fit each employer.

Friday, April 03, 2009

Observations on the impact of implementing guaranteed issue on individual medical insurance plans in Connecticut.

The Connecticut General Assembly is considering legislation, in Senate Bill 1022, to require individual medical insurance plans to accept applicants without regard to their medical condition.

The state of New Jersey did this several years ago together with a requirement for individuals of all ages to have the same premium. Today there are only three companies offering individual medical insurance plans remaining in the marketplace. Their April 2009 monthly premium for single coverage on a plan with a $1,000 deductible followed by 80%/20% cost sharing is:

$ 2,544 - Aetna
$6,009 - Celtic
$ 3,457.97 - Horizon BCBS

Note: All available individual major medical plans in New Jersey and their monthly rates can be seen here:

The guaranteed issue and community rate experiment in New Jersey is proof of two things:
+ First - when younger folks end up with huge increases in their medical insurance there is a mass exodus from the market, which in turn puts significant upward pressure on the medical treatment loss ratios of the insurance companies and thus much higher premiums are required for the remaining older and sicker individuals.

+ Second - when a person can apply for medical insurance without regard to their medical situation they simply wait until medical treatment is needed. This is called adverse selection and thus the medical insurance plans find they only have the sickest individuals.

Is this what we want for individual medical insurance in Connecticut when rates are currently very high?.

What to do? Reforming the individual medical insurance market should begin at the federal level. Having just returned from a March 30 through April 1st conference in Washington DC I can state Congress, as part of the federal level discussion on health care reform, is actively considering significant changes.

One highly effective recommendation, developed by the health insurance professionals association, is a 10 point proposal to improve the individual medical insurance market so every person could obtain an individual medical insurance plan. Some recommended points:

+ The practice of evaluating health risks and the use of pre existing condition exclusions would be dropped.
+ Individual plans would still consider rating factors such as age and location, would give discounts for involvement in wellness programs, and increase rates for smoking.
+ To make this approach work and avoid high rates, such as in New Jersey, a way must be developed so everyone has medical insurance. The requirement to have coverage may for example be phased in such as starting with children.
+ Provisions must be included to provide financial assistance for those with lower income, through a government based program such as a refundable tax credit or perhaps premium assistance or both.

The health insurance company association also supports dropping health risks and pre existing condition exclusions when there is a requirement to have coverage.

Bottom line – when everyone has coverage rates will be lower.

Tuesday, March 17, 2009

What's really behind the cost of medical insurance?

Written and other media frequently blame the high cost of medical insurance on the compensation of company executives. These reports however do not bring out medical insurance premiums are simply a reflection of the high cost of medical treatment. Just as auto insurance companies charge more to cover a Jaguar vs a Honda Civic continually increasing medical treatment costs cause medical insurance premiums to go up.

Repeated reports, and there are many, about something that is not a real factor and which are constantly brought up, tend to be perceived as true. Thus, I want to bring out some of the real facts from a December 2008 survey.

+ For some years different organizations have reported 85% of medical insurance premiums go for costs associated with medical treatment. This new survey indicated it was 87%!

The survey also found:

+ Physician and clinical services accounted for 33% of all medical treatment expenses.

+ Hospital inpatient costs were 20% of the premium dollar

+ Hospital outpatient costs were 15% of the premium dollar

+ Prescription drugs amount to 14% of the premium dollar.

+ Other medical services were 5% of the premium dollar

+ Government payments, compliance costs, claims processing, and other
admin costs account for 6% of the premium dollar.

+ Consumer service, provider support and marketing were 4% of the
premium dollar

+ Insurance companies pocketed just 3% of the premium dollar.

A couple points about the just 3% finding:

+ Would any venture capital firm give financial support to a new business that said they planned to make 3%? I do not think so!

+ If some action were taken to change the 3% profit would it solve the problem of increasing medical insurance premiums? I certainly don’t think anyone would say yes.

The survey brought out the real issue behind medical insurance costs with words to the effect - continually increasing utilization of medical treatment plus new, more expensive treatment and increasing costs for current treatments are the things that have been the real cause of higher medical insurance rates.

Bottom Line: I want to encourage everyone who hears a statement – my medical insurance rates went up because of executive compensation – to say. What is really going on is people are using more medical treatment and the cost of these services have been increasing much faster than normal inflation.

Everyone is also encouraged to talk to medical treatment providers about the importance of making the real cost of their services available. Why? Only when we have what is called price transparency will we begin to have real competition among medical providers and thus achieve lower costs.

For example, in one part of the medical treatment world – laser eye surgery, which is normally not covered by medical insurance but is very open about treatment prices these rates have been falling. Proving that competition in the medical treatment field will work.

Sunday, March 01, 2009

Employees laid off Sept.1st or after can receive COBRA & mini COBRA coverage for 35% of the rate.

In summary new federal regulations will:

+ Allow individuals, laid off September 1st or after, to receive COBRA or Conn mini COBRA coverage for 35% of the normal rate.

+ Mean individuals enrolled in the new COBRA option will make their 35% payment to their former employer.

+ Enable COBRA employers, 20 or more employees, to be reimbursed for their 65% of the premium by taking a deduction from their next payroll tax payment.

+ The reimbursement for individuals enrolled in Conn mini COBRA will be done by the employers medical insurance company.

Some frequent questions:

+ How long can coverage for 35% be obtained? Nine months.

+ When can an individual start to receive coverage for 35%? March 1, 2009.

+ What if the laid off employee did not elect coverage when it was offered? They will receive a new notice of eligibility to elect coverage.

More details will be released soon by the Department of Labor.

Monday, February 16, 2009

Federal changes may mean parents using Husky can receive premium assistance so the kids can be on their employer plan

Recently passed federal legislation to extend the program, which provides funds for Connecticut's Husky B plan also made some changes.

There is a premium assistance program in the expanded plan. A couple points:

+ Funding can be given to Mom or Dads employer plan to cover the cost of enrolling children in their plan which has lots of providers vs being on Husky with its limited providers.

+ The employer plan must meet certain qualifications such as paying 40% of the premium.

More details will be provided as they become available.