Sense and Sensibility

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The Federal Health Care That’s Already on the Fritz

Since the beginning of the 21st century, health insurance premiums for families have soared 96 percent in Connecticut.

That’s more than seven times faster than income.

Every year the amount of money Medicare, the federal insurance program for seniors, pays doctors and hospitals also jumps [--] but not nearly so high. In a good year, Medicare increases its reimbursements to hospitals and doctors a meager 1.1 percent. That’s bad, but Medicaid [--] the federal and state program that provides health care for the poor and disabled, is even worse.

While Medicare only reimburses about 93 percent of what it costs to perform health services to health providers, Medicaid reimburses hospitals at anywhere from 60 to 72 cents for every dollar of health care. If you’re a hospital or doctor whose patient base is primarily Medicare or Medicaid patients, you’re behind before you start.

And if you’re in neither one of these programs, you are making up the difference.

Every year, Connecticut hospitals lose about $206 million because Medicare doesn’t pay them enough. With Medicaid, in which the state sets the reimbursement rates, it’s worse. Connecticut hospitals as a whole lose $300 million a year due to Medicaid under-reimbursement, says the Connecticut Hospital Association. Hospitals and physicians that provide service to large numbers of Medicaid patients are hemorrhaging money. Hospitals actually lost more money treating patients with Medicaid than they did treating the uninsured in 2007, the CHA reports. And if you’re a hospital with a hefty proportion of Medicaid patients [--] like Saint Mary’s Hospital in Waterbury, which, at 14 percent Medicaid payments, has the second highest number in the state [--] every day is a struggle to make up the difference.

“We start out every year with over a $15 million deficit,” said Chad W. Wable, president and CEO of Saint Mary’s Hospital. “We are in a very distressed urban area and we serve the lion’s share of Medicaid patients.”

 This is one of the main reasons hospitals [--] and many doctors [--] are hanging on by their latex gloves. And it is also one of the main reasons you are paying more for your health insurance every year.

That’s because the shortfall between what the federal and state governments reimburse hospitals and doctors and what it costs to treat those patients is made up by [--] you guessed it [--] insured Americans. Since 2001, the average cost of an annual health care premium for family coverage has nearly doubled, from $1,800 to $3,300, according to the Deloitte consulting firm. Co-pays have also soared, such that the percentage of the average American household’s income that goes to health care has jumped 12 percent in eight years.

In the industry, it’s known as the “cost shift.”

“The problem is that the government’s not paying its fair share,” said Mickey Herbert, CEO of ConnectiCare. “All of that loss gets cost shifted back to us and we have to pass it on to our members.” Herbert said hospitals often will open their books to demonstrate the loss they incur from Medicare/Medicaid payments. “For every single Medicare patient that goes into the hospital, the hospital ends up losing 10 cents on the dollar,” Herbert said. “The hospitals say, we can’t absorb this, so we need to charge you 120 percent of what Medicaid pay. And we say, we’ll pay you the 120 percent because we understand that you’re not getting what you need from the federal government.”

William S. Gedge, senior vice president of Yale New Haven Health Services, confirmed the shift. “Is your commercial insurance paying more? Absolutely,” he said. “We have to shift that other 40 percent” that the hospital loses in Medicaid payments “to those who have insurance.”

To be fair, low government reimbursements are not the only reason for soaring health-care costs. Insurance companies make tidy profits and have shareholders to answer to. Medical malpractice rates scuttle the honest practice of medicine and increase costs. But, says John Tobin, Waterbury Hospital President and CEO, cost-shifting is also factor. “We try to negotiate better-than-cost rates from the commercial insurers and then have it all come out even,” he said. About 60 percent of the patients Waterbury Hospital treats are Medicaid or Medicare patients, Tobin said. Medicaid patients make up 11 percent of the hospital’s patients. That’s a shortfall of $12.5 million just from Medicaid payments that don’t meet the hospital’s cost. At Saint Mary’s Hospital, that figure is $12 million.

If you are doing your arithmetic, you may have noticed that the average taxpayer is shouldering an unwieldy burden of the health care system. First, by paying taxes that support government insurance programs that don’t meet the cost of services. Second, by paying more in premiums to help health care providers make up the cost the government doesn’t pay. And finally, by paying more in co-payments. It’s a system that could make you sick. If you don’t go broke first.

Contact: TraceyOSh@traceyosh.com

Audacity, Audacity, Audacity

What kind of a business would raise its rates 32 percent in a recession? Answer: The health insurance industry, where the normal rules of supply and demand do not seem to apply.
 Anthem Blue Cross, whose parent company raked in profits of $3.3 billion in 2008, wants to raise its premiums by an average of 23 percent. This in an economy where bottle returns can be considered a significant source of income for many.
—- While $3.3 billion might sound like a lot of dough to you, it’s a 26 percent less profit for the company’s shareholders — almost the exact same percentage Anthem wants to raise its premiums. Anthem is not necessarily any more rapacious than any other health insurance company. Aetna, for example, is raising its rates on individual policies an average of 12 percent this year. This is after a 16.5 percent jump last year.
—- In the last 10 years, health premiums have multiplied at four times the rate of inflation. What’s worse, even though we’re paying more, our deductibles are higher. So, more comes out of our paycheck — and we’re still paying more at our doctors’ offices. The percentage of employees in small companies paying deductibles of $1,000 or more shot up from 16 percent in 2006 to 35 percent last year, according to the Kaiser Family Foundation.
—-

The doctor’s office, alas, has become the epicenter of an epic battle between insurance companies, which reap rewards by denying coverage; and doctors, who try to wrest more reimbursements from providers who want them to move faster for less money. In the middle of this donnybrook is the patient, who can’t understand why they can scarcely get a moment with their doctor and instead spend more time undergoing diagnostic tests.
—- It’s a simple but ugly answer.
—- Though it’s generous to call it a “system,” the health care system we have now is a fee-for-service model, which, in plain parlance, means that the more tests the doctor does on you, the more he or she takes in.
—- An eye-opening report in The New Yorker last month revealed that McAllen, Texas, which spends more per person on health care than any other U.S. municipality, also gets more tests, treatment and surgery than any other area of the country. Doctors have figured it out; more procedures pay.
—- In a recent New York Times essay, Dr. Sandeep Jauhur bemoaned the financial com
—-
—- putations he goes through when a patient comes in with chest pains. “Palpitations? Get a Holter monitor — and throw in an echocardiogram for good measure. It is not easy to ignore reimbursement when prescribing tests, especially in a practice where half the revenue goes to paying overhead.”
—- This might be marginally tolerable if all those tests were doing us any good. But are they? The Congressional Budget Office estimates that less than half of all medical care is supported by evidence that it works. The more we spend on health care, the less good it seems to do us. The U.S. spends twice as much on health care as other developed countries; a full 17 percent of its GDP. And yet, the U.S. ranked highest of 19 industrialized countries in preventable deaths, the Commonwealth Fund reports.
—- In that same survey, the U.S. had the highest rate of infant mortality and tied with New Zealand and the United Kingdom for the lowest average healthy life expectancy. These are dismal figures for a country that spent $2 trillion on health care. Why do we shell out so much for health care? One killer is the $98 billion a year this country spends in administrative costs —which includes things like marketing and advertising. And we haven’t even come to pharmaceuticals.
—- The rage in the current political climate is to extend this lousy system to more people, which is a bit like saying that you believe everyone should have a car and begin by giving every citizen a Yugo. If the problem is that the health care system stinks, how is giving it to more people the answer? If we’re really serious about fixing health care, it might be wise to repair the clunker we have before we all start breaking down by the side of the road.

c. Republican-American,  July 19, 2009

What About This Hospital Bill, Dear?

On Aug. 13, my son, 8, was rushed to Yale-New Haven Hospital with a broken right femur. Within about six hours, he was in the operating room, where six metal, dowel-like “pins” were run through his bone and secured to an external steel frame via an assemblage of clamps and rods.

Twenty-eight hours and a wheelchair later, we were on our way home with a temporarily disabled boy.

The cost? According to Yale-New Haven Hospital, $29,738.16.

I won’t pay that [Dash] and neither will my insurance company, ConnectiCare. In fact, virtually no insured Americans will pay anywhere near what doctors or hospitals charge [Dash] a fact hospitals know because they’ve already negotiated how much insurance reimbursement they’ll accept. But that doesn’t stop doctors and hospitals from charging exorbitant fees [Dash] often three to four times the actual cost [Dash] even though most health care experts say those fees are laughably inflated.

“One of the dirty little secrets in our industry is that there is this extreme difference between what a hospital charges and what it ends up accepting from insurance or the federal government,” Mickey Herbert, CEO of ConnectiCare told me. “It’s almost irrelevant what the hospital or physician charges.”

“It’s a sham,” Merrill Matthews Jr., director of the Council for Affordable Health Insurance, told me. “The cost is completely fabricated.”

Not exactly, said William S. Gedge senior vice president of Yale New Haven Health System. “Every hospital determines its own charges and everybody gets the same charge regardless of what kind of insurance they have, or do not have.” On the other hand, he said, “We have virtually no one” who pays full charges.

So why bother? Particularly when everyone knows, as Glenn Melnick, a health economist at the Rand Corporation, asserted, “These billed charges do not have any relation to reality. The hospital can make them up and can raise them to any amount they want.”

Most industries, said Melnick, a professor at the University of Southern California, charge 120 percent (or less) of the actual cost of their product —– leaving them a 20 percent profit margin. In hospitals, that ratio is close to 300 percent. In Connecticut hospitals, only 40 cents out of every dollar covers the cost of care.

In my son’s case, ConnectiCare paid Yale $7,784.59. I kicked in another $500. That left Yale with an unpaid balance of $21,453.57. That seems like a lot of money to lose, particularly if you multiply that by the number of patients Yale sees daily.

But, according to the Centers for Medicare and Medicaid Services, most hospitals charge roughly two to three times their actual cost to provide care. So when private insurers offer to cover a third or two-thirds of the cost, the hospital makes out. “It’s like the old maxim where a store goes in at night and bumps up its prices by 100 percent and has a 50-percent-off sale the next day,” Matthews said. “That’s essentially what happens.

Of course, somebody is paying those charges[Dash] if not to the last dime, at least to an amount far above what it costs hospitals to provide the service. Who? The uninsured, those who have coverage that will pay as much as 80 percent of the billed charge [Dash] and, ultimately, you and I.

“There are people who pay 100 percent of that charge because they don’t know any better,” said Melnick. “They’re good, solid Americans. The hospital took care of them. They’re going to pay them back.”

It’s hard to believe that an uninsured American with a bill for nearly $30,000 would pay it back, but one study estimates that nearly 95 percent do. Most hospitals, at Yale, will negotiate a discounted fee for uninsured patients. Yale, of course, was part of a class-action lawsuit, settled back in 2004, in which uninsured plaintiffs claimed they were being charged “substantially more”than Yale charged its insured patients for the same services.

Yale's new Cancer Center, scheduled to open in October 2009.

The lawsuit charged that Yale used “aggressive, abusive, and humiliating practices, including lawsuits, liens, and garnishments, to recover this inflated medical debt.” In one case, reported in The Wall Street Journal, a Bridgeport man was indebted more than $40,000 to the hospital, which had treated his wife, in spite of the fact that his wife had been dead nearly 10 years.

Now you might ask yourself: What difference does it make to me, an insured American, and my son? After all, I’m responsible for the same co-payment regardless of what the insurance company’s arrangement is with the hospital. But ultimately, I and the rest of the insured will bear the brunt of increasing hospital charges through increased premiums.

“Health care premiums are going up because hospital charges are going up,” said Melnick. Large insurance companies with Cadillac plans that still pay 80 percent of these charges will pass those increased costs on to consumers. “All hospitals [Dash] not just Yale-New Haven [Dash] have figured out that without doing anything else [Dash] all they have to do is raise their charges because they’re going to get more money from them. Everybody does it. The charges are not real market prices. They’re fictitious prices [Dash] unless you’re uninsured.”

To be fair, however, many hospitals struggle to get by financially. That’s not because they’re charging too much. It’s because Medicare and Medicaid, which accounts for 42 percent of revenues to state hospital, is the stingiest insurer around. Its reimbursements have scarcely budged since 1986, leaving hospitals with deep losses [Dash] and private insurance companies forced to pick up some of the slack. If you’ve done your arithmetic, you can guess what that means [Dash] higher premiums for you and me.