A primer on medical insurance in the new era

obama_laughing_240453Since I am so familiar with it all, I think I talk over the heads of people as they muddle their way through the insurance exchanges looking for coverage. Here are some of the basics:

  • Premium: the monthly rent paid to the insurance company in exchange for their coverage of your medical expenses.
  • Risk: From an insurance standpoint, the basis on which they calculate the premium. Think of it as a bet. If you have more expenses than they collect in premium, they lose. With a large group of people, and employing actuaries, they minimize risk, since group behaviors are highly predictable. From your standpoint however, risk is the likelihood that you might get sick or be injured. None of us have a clue about that.
  • Medical loss: This is the term insurance company investors call medical claims paid by companies for their clients.
  • Medical loss ratio (MLR): the percentage of premiums collected that are paid out in medical losses by the insurance companies. According to Wendell Potter, the CIGNA executive who posed as an opponent to his own industry, Wall Street demanded a MLR of 80% or less prior to ACA. It is now fixed at 80%, and 85% for large group policies, exactly where it was before ACA. (Medicare: 95-97%*)
  • Obama 6Accountants: these are the people who calculate MLR. Be wary of them. While ordinarily boring, they can be very creative with numbers.
  • Co-pay: A flat fee paid at the time of a medical procedure, usually $25-50. This is done to eliminate pesky small claims from insurance company overhead costs. That’s legitimate, in my view.
  • Deductible: a flat amount that the individual must pay before the insurance company pays any medical costs, often in days past $1,000, now ranging much, much higher. Prior to ACA, many policies waived the deductible for office visits and diagnostic procedures, subject only to co-pay. That has changed now, and office visits are often not even covered in any form now.
  • Obama 5Co-insurance: that percentage of medical costs paid by the policy owner along with the insurance company after the annual deductible has been satisfied, usually stated as a percentage. Most of what I have seen on the exchanges are 30% co-insurance clauses, that is, after the deductible is reached, additional expenses are split 30%-70% until max-out-of-pocket (MOOP) is reached.
  • Waiver of deductible: In times past, clauses were put in insurance policies where the deductible would not apply in certain incidents. Most common was for accidents – if I were to cut off a finger with a chain saw, the insurance company would pay all costs from first dollar.
  • Mandatory coverages: These now replace waiver of deductible clauses, and are such procedures as annual physicals and certain diagnostic procedures like mammograms and a long list of others. Individual states often mandate certain coverages, such as maternity costs or substance abuse and mental illness coverage, which insurance companies do not like. For this reason, they often suggested we allow “portability,” meaning that we could all buy our insurance in any state, usually Arizona, which had no mandatory coverages.
  • Maximum-out-of-pocket” (MOOP): From the insurance company standpoint, this refers to total covered expenses that it does not pay because they are paid by the policy holder due to co-pay, co-insurance and deductible.
  • Obama left2Real-out-of-pocket (ROOP): Without regard to any other clause in the policy, this is all of your costs including premiums, deductibles, co-pays, co-insurance and non-covered expenses.
  • Prescription drug coverage: Usually subject to co-pays, modest for generic drugs (dirt-cheap to produce), and much higher for brand-name drugs, which are subject to monopoly pricing and patent protection.
  • Non-covered expenses: Things that insurance companies do not cover, and which are not subject to co-pay, co-insurance, deductible or out-of-pocket limits. For instance, when a policy states that physician and specialist office visits are not covered, they mean don’t even bother presenting your card to them. As far as the insurance company is concerned, that cost doesn’t even exist.
  • Contract: A document written by lawyers to protect their clients. Insurance policies are contracts written by lawyers to protect insurance companies. When you buy a policy, you must accept the contract as written, and cannot negotiate. However, laws are written to protect consumers, and so insurance policies are subject to oversight and regulation by individual states, and now the feds. These states disallow certain clauses, mandate certain coverages, and can boot a bad actor out of a state for fraudulent practices. Citizens, when buying an insurance policy, have only government regulators to protect them. The companies do not compete with one another, and view all clients as their enemy. Every dollar of claims paid is taken from their bottom line.

Pbama leftHow to judge an insurance policy: Insurance companies have to be licensed to operate in any state, and so must meet standards and offer mandated coverages set by that state. Since medical costs are out of control in this country, all of us need some kind of coverage. Even a minor illness or accident can wipe us out, at the very least cancel out savings and retirement goals.

Our costs of treatment are double, triple or more of what they might be in other countries. This is because of high administrative overhead, 31% of every health care dollar according to Harvard University. Other factors include lack of competition among insurers, self-dealing among doctors who refer their patients to their own subsidiaries for other tests and procedures, collecting exorbitant rent. Further, doctors and hospitals know that insurers will never pay a full claim submitted to them, and so inflate their charges so that what they net from the insurer is what they wanted anyway. Insurance companies, hospitals and doctors also have large staffs of people whose job is to find ways to dump costs on other insurance companies, doctors, hospitals, policy holders, and most often, government. And on and on.

From a libertarian standpoint, medical costs are high in this country because we have the right to sue doctors. They therefore want to limit lawsuit settlements, and have in many states. This is what I like to refer to as “nonsense,” or the strict legal term, “bullshit,” additional evidence that insurance companies regard ordinary people as their enemies.

Anyway, your best course is to analyze your own financial position: You should have enough savings to cover MOOP. In addition, you should have enough monthly income to cover ROOP on top of MOOP.

If you are typical of most Americans, you have no savings, and so need to dig down in the insurance exchanges, into what they call “gold” or “platinum” policies, and pay the freight, buying the best coverage and sucking it up. You have no viable alternative. We are trapped like rats. If you do not buy based on your real financial position, you’ll be severely under-insured and will be playing the lottery. (Even so-called “platinum” policies don’t begin to approach what is known as “basic care” in other countries.)

Here’s a basic primer for one policy that I found on the Colorado Exchange, offered by United Health for a person my age, non-smoker: $10,000 deductible, $3,000 additional max out-of-pocket, 30% co-insurance, no coverage for doctor or specialist office visits, monthly premium $207.

My costs: Minimum, if I have no medical expenses during the year, $2,484 premiums.

President Obama Laughs with Aides on Air Force OneMy costs – (MOOP): I will pay out $12,484 before they are liable for $1 in coverage.

My costs – (ROOP): Insurance company maximum of $12,484 plus $3,000 of the next $10,000 over and above the $10,000 deductible plus plus any additional costs of doctor visits and specialists. (Remember that when you visit a doctor’s office and have no insurance, which would be my position with this policy, there are no discounts allowed.)

Therefore, for this coverage to be adequate, I need to have something like $20,000 in non-retirement savings on hand every year for medical costs. If you use it up one year, you need to replace it for the next policy year. Frankly, the insurance company has done everything in its power to squeeze blood out of me without offering medical coverage. They are mere rent seekers, or to use the legal term: Blood suckers.

They also wrote (and named) the Affordable Care Act.
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*This can be deceiving – Medicare is subject to huge fraud by doctors, hospitals and equipment providers, as much as $500 billion per year. Adding this cost to their basic overhead costs, the “administrative” number is higher. If they were allowed to add another, just guessing, 3% for enforcement, they might have a huge payback. Unfortunately, Medicare, like all of government, is subject to regulatory capture, that is, insurance executives have infiltrated it. While it is far better than anything offered by any insurance company, it needs repair.

12 thoughts on “A primer on medical insurance in the new era

  1. Meanwhile, in single payer paradise.

    “A disturbing new revelation about the British government’s healthcare spending has come to light following a report by one of the most respected healthcare think-tanks in Britain.

    The King’s Fund has showed that the UK is spending more than twice as much of its national income (nine per cent) on health and social care than it did 50 years ago. PMLive reports that taking into account economic growth and current levels of taxation and expenditure, this would mean 50 per cent of total public spending would be used within health and social care by 2060.”

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    1. Is this the argumentum ad ignorantiam … no. wait. That fallacy appeals to ignorance rather than spouting it. So here we go:

      Health care costs are going up everywhere due to aging populations in developed countries and better technology.

      In the US, we spend 16% of our national income on health care, compared to Britain’s 9%.

      Even with that remarkable number, we have poorer outcomes and manage not to cover 50 million of our citizens.

      The argument “if present trends continue blah blah blah” is nonsensical, since present trends never continue. In fact, that argument is only used by people with an agenda, and only against social spending programs.

      No one ever says “War spending currently consumes on third of our budget, and if present trends continue, it will consume the entire globe and eat the moon too.

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  2. Our costs of treatment are double, triple or more of what they might be in other countries. This is because of high administrative overhead, 31% of every health care dollar according to Harvard University.

    Things don’t add up here. After we’ve dug a trench and disposed of the administrators, we still have to get rid of half of what’s left. Who’s going to inform them they are no longer needed? What are they going to do? The favorite apocryphal saying today is that immigrants do jobs that Americans just won’t do. Maybe we need some immigrants to do the disposal here.

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    1. Transition out of out patchwork and overpriced system will take time. But the health care system should not be a jobs program. The health insurance industry especially is a surplus layer of nonproductive bureaucracy, most of them educated in bean counting, but none with medical skills. You make a valid point. What to do with them?

      Taiwan made the transition from private insurance to Canadian-style single payer. It was chaotic for a couple of years and there was a lot of grumbling. But as it settled in, things settled down, the new system worked, and apparently people in the health insurance game moved on to new activity, perhaps more useful.

      In Montana, for instance, there are always casinos.

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    2. But the health care system should not be a jobs program.

      Every other institution in the modern West is largely a jobs program. One advantage of a full on welfare state is that you can limit payments to five figures. Under the guise of being an Important Person Who Needs to Make Power Point Presentations such are getting six figures or more.

      If you chop off the private insurance administrative costs, I have full faith and confidence that the public sector will spool up and fill the gap in a robust way.

      Any serious health care reform has to deal with the cost of procedures and end stage costs. Just lopping off a few administrators here and there won’t cut it. But the cat is out of the bag; we are a compassionate society and like to signal it by having illegal aliens in line for their fourth liver transplant and street winos with million dollar bills tied to their toe. Good luck in dialing this back.

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      1. I have full faith and confidence that the public sector will spool up and fill the gap in a robust way.

        Again, that has not happened in those place that have adopted SP or even government-owned and run systems. But I leave you to your evidence-free environment.

        When I say “jobs program,” I do wish you’d look up rent-seeking

        http://en.wikipedia.org/wiki/Rent_seeking

        so as to distinguish between wealth-creation and wealth collection. Governmetn does job creation for the sole purpose as stated, to fill a gap when the private sector crashes. But even there, as with infrastructure, there is wealth creation.

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      2. In my experience, a bureaucracy takes care of its own. Any churn is an opportunity to gain share. I’ll be happy for it to be otherwise.

        We could argue a long time about what constitutes wealth creation, wealth collection, and wealth destruction. I think it all starts at conception.

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        1. Underlying products. There are no underlying products under financial instruments. They are best used to facilitate investment in productive activity. Financial products unhinged are bubble machines. That was the reason for Glass-Steagall.

          “Bureaucracy” is a buzzword. It does not convey useful information, but rather mere stereotype.

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        2. “Bureaucracy”: you know what I mean. Don’t be so coy.

          There are no underlying products under financial instruments.

          And yet it moves. Countries that quashed that sector have not done so well in the industrial era. But the game’s not over, and maybe all that growth just means a bigger fire in the end. But it is nice to have the stuff while it lasts.

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