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The Cost of Having Healthcare Choices

Throughout our lives, each of us must make choices between unpleasant options. For example, our backyard deck is due for a major overhaul since many boards have rotted.  Should we hire a reputable carpenter to replace our deck, which can be very expensive? Or, should I perform the work myself, which may take longer and not look as great? Given my lack of carpentry experience, neither choice is desirable, yet a new deck must be built.

In healthcare, given the paucity of price and outcomes information, we frequently face unpleasant options between the providers (physicians and hospitals) we use and the health plan coverages available for purchase.  Both provide uneasy choices that test our abilities to become full-fledged ‘consumers.’

To become knowledgeable consumers, Americans want to have numerous options available before making a purchase. This is the nature of a market-based economy that allows transparency to keep vendors honest and accountable for their products and services. In a functional marketplace that allows for cost and quality transparency information, sellers are nudged to provide the best possible ‘product’ at the most competitive cost – a winning recipe for delivering ‘high value.’

Cost of Healthcare

According to a recent article, “Healthcare Costs are Bankrupting Us,” by H. Gilbert Welch and Elliott Fisher, among the 54 prescription drugs commonly-used by Americans age 65+, Medicare pays “nearly twice as much per dose as do the government systems in Canada, England and Norway.” Open heart surgery costs 70 percent more than the next highest country, while an appendectomy is over two times more. We pay five times as much in our hospitals than other developed countries. Why? According to the authors, we have a complicated insurance system that requires “an army of billing clerks – employed by hospitals and physicians on one side and private insurance companies on the other.” Because of this, U.S. employer-sponsored health costs continue to outpace other developed countries.

Similarly, another article written by Elisabeth Rosenthal, MD, “Those Indecipherable Medical Bills? They’re One Reason Health Care Costs So Much,” paints the picture of a costly “coding war” between healthcare providers who hire legions of consultants to find ways to “upcode” procedures in medical bills. Not to be outdone, insurers hire their own coding consultants to protect their interests. Meanwhile, the patient gets lost in the complicated claims process – another reason why prices are not transparent to the public.

Cost of Health Insurance

As we all know, rising health insurance premiums have eaten into take-home pay over the years. In Iowa, the 2016 premium for family health coverage was $15,743, which is 186 percent higher than the family premium in 1999 ($5,508). This family premium is 28 percent of the Iowa household income (adjusted for inflation). In the next 10 years, using the average five-year premium growth rate in Iowa (7.7 percent), the family premium would climb to $33,056 – growing to 52 percent of the household income (assuming a 1.5 percent annual increase).

About two-thirds of the Iowa family premium is paid by the employer. Because of high-premium growth over the past decades, incomes of workers are suppressed. After paying for health premiums, take-home money is then used to pay for escalating health-plan deductibles, copayments and coinsurance. This financial tension contributes to personal bankruptcy and emotional stress – not to mention impairing the overall health and well-being of the workforce – a primary purpose for employers offering health coverage.

The Premium Dollar

In March, America’s Health Insurance Plans (AHIP), a national association of health insurers, released a simple chart showing where the premium dollar has been spent during 2014. This chart is based on national data for insured patients under age 65 for commercial and nonprofit health insurance companies. The breakdown of the premium dollar is as follows:

  • Prescription Drugs – 22.1 cents
  • Physician Services – 22.0 cents
  • Outpatient Services – 19.8 cents
  • Inpatient Services – 15.8 cents
  • Operating Costs – 17.8 cents
  • Net Margin – 2.7 cents

Aside from Medicare and Medicaid, which have lower operating costs compared to private (commercial) insurance, almost 80 cents of the premium dollar for private plans is used for medical expenses, while the remaining 20 cents flows to operating costs and net margin. The operating costs for private plans in the U.S. are about twice as high as the overhead costs in other less-complex healthcare systems around the world.

Medical Loss Ratio Status?

Prior to the passage of the Affordable Care Act (ACA) in 2010, many insurers who sold individual health policies admitted that between 55 – 65 cents of the premium dollar was spent on medical expenses, and the remaining amount was retained by the carrier. The ACA established the “medical loss ratio (MLR),” so that at least 85 percent was spent for medical services by large insurers and at least 80 percent was spent by smaller insurers. Of note, should the ACA be repealed, replaced or repaired, whether the MLR remains intact or not is yet another issue to be addressed.

When it comes to health insurance, Americans ‘appear’ to be willing to pay for the privilege of having choices among health insurance carriers and the multitude of plans offered by each carrier. But will having these choices really provide the added ‘value’ in the care we seek? In some cases, thanks largely to limited provider networks, we may (unknowingly) give up the freedom to choose among healthcare providers, such as physicians, hospitals and others. Will this undermine the competition we wish to have among our market providers?

As I ponder the unpleasant choices we have in healthcare, I must also focus on the backyard deck that awaits my attention.

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‘Why Not’ Concept
A Good Mantra for Organizations?

During the holiday break of my freshman year in college, I joined a few dozen other students on a three-day ski trip to Steamboat Springs, Colo. At the time, I had never skied before. Additionally, I was only six months removed from having knee surgery from a high school football injury. This surgery to repair meniscal tears occurred during the summer of 1978, when arthroscopic surgery was still in its infancy stage and not used by my Ottumwa-based surgeon.

Looking back, especially as a novice, I had no business barrelling down a mountain with a tender knee that was still fragile and sore. But as an 18-year old, I considered myself invincible, and besides, I could rely on a knee brace for added protection.

Why Not

The first slope I encountered at Steamboat Springs was a black diamond, simply labeled, ‘Why Not.’ Based on skiing abilities, slopes are assigned different colors and shapes. A green circle may represent an ‘easier’ slope, a blue square may be ‘more difficult,’ and a black diamond is considered ‘most difficult.’ The slope name, I felt, clearly represented my philosophy about tackling difficult obstacles. I attempted to ski down ‘Why Not’ every possible way but the right way. The slope introduced two primary obstacles – steep terrain and heavy moguls that required technical maneuvers at increasing speed. My abilities were clearly overmatched.

After many failures of descending this expert slope, I decided to take beginner lessons on a nearby ‘bunny’ hill. Applying those lessons eventually allowed me to navigate ‘Why Not’ more prudently (though, not expertly!).

Taking Risks

Organizations and their teams are constantly looking for innovative ways to be curious and experimental while encouraging team members to develop fresh solutions for new products or services. Past management protocols typically allowed managers to take the safest and more predictable routes – similar to hanging out on a bunny hill. These practices many times ran contrary to allowing individuals to initiate a more creative ‘laboratory’ of experimentation.

An article in Harvard Business Review by Sara Critchfield does a great job of describing how organizations can develop new ways to train their cultures to foster ‘divergent thinking,’ which is different from creative thinking. Divergent thinking is not about finding one right answer to a problem, but rather, promote a more intense process of exploring many different possible answers that may include:

  • Coming up with 15 solutions to a problem the organization is currently facing.
  • Rearranging company space to make work more efficient with staff, from executives to interns. From this, make 20 mockups for every design change.
  • Managers must stop answering questions, and instead, respond with “What do you think?” Wait for a response, then ask, “What else?’ Repeat this five to seven times.

Critchfield believes that team members who come up with the ideas must not be segregated from testing these ideas themselves, which allows for experimental learning. Empowered team members have the support, structure and time to do thoughtful, careful, creative testing – a recipe that allows cultures to thrive. Setting baseline failure and success rates will help initiate realistic team member expectations. Knowing that failure is always a possibility will both cushion and promote creativity.

Making the analogy of an novice skier with organizations allowing team members to fail might be a bit extreme. Yet, it was only through adaptive learning did I finally make my way down a problematic slope – and live to write about it!

Allowing employees and their team members to exercise their God-given creative juices is not a new concept. But finding new and different ways to confront risks within the work environment just may improve the culture in which employees are required to perform.

What do you think?

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Why It Matters to Have Private Health Coverage

I should not be astonished, but I am.

In 1910, Dr. William J. Mayo wrote his view on making patients a central reason for his organization to exist: “The best interest of the patient is the only interest to be considered, and in order that the sick may have the benefit of advancing knowledge, union of forces is necessary.”

But 107 years later, the healthcare landscape has changed, running opposite to Dr. Mayo’s credo.

A March 15 article in the Star Tribune revealed a healthcare system truth that some have suspected for years – that it’s a tier-system of care dependent on the type of health insurance card you carry in your wallet or purse. If you are fortunate to have private insurance coverage through your employer or have personally purchased it through a commercial insurance company, you should feel somewhat privileged. However, if you have Medicaid or Medicare coverage, please step to the back of the line.

Dr. John Noseworthy, CEO at the famed Mayo Clinic, was videotaped speaking to his staff last fall about giving preference to patients with private insurance over lower-paying public coverage (e.g. Medicaid and Medicare). “We’re asking…if the patient has commercial insurance, or they’re Medicaid or Medicare patients and they’re equal, that we prioritize the commercial insured patients enough so…we can be financially strong at the end of the year to continue to advance, advance our mission…”.

It is important to note that, regardless of payer source, Mayo will always take patients when they’re unable to find medical expertise elsewhere. However, when given two patients who have equivalent medical conditions, the Mayo health system will “prioritize” the patient with private insurance – private plans pay Mayo (and all other providers) more than public coverages. Noseworthy continued, “If we don’t grow the commercially insured patients, we won’t have income at the end of the year to pay our staff, pay the pensions, and so on…so we’re looking for a really mild or modest change of a couple percentage points to shift that balance.”

Hospitals are not allowed to discriminate against patients seeking care in the emergency room. Outside the ER walls, however, providers can choose to accept (or decline) Medicaid and Medicare patients. Mayo recently indicated to Modern Healthcare that Medicare and Medicaid patients account for half of their services, but with more baby boomers becoming eligible for Medicare, coupled with Medicaid expansion, Mayo is looking to have higher-paying private insurance offset the shortfalls received from public health plans.

The ‘dirty little secret’ of establishing a pecking order of patients, based on payment sources, has not been widely known. In that sense, kudos to Mayo for their honesty, as it appears they are not attempting to sweep this fact under the rug. Yet, the Mayo acknowledgement that commercially-insured patients would get preferential consideration in certain situations should raise questions for those of us who are covered by private payers.

If the provider community establishes a pecking order between public and private payers, could special consideration also be given AMONG private payers? Think about it. If margins are so thin for world-reknown providers like Mayo, why wouldn’t other medical providers seek similarly-related practices with all sources of revenue?

For example, if insurer A reimburses hospitals at a higher rate over other private insurers within that particular market, would insurer A patients receive preferential consideration, much like what Mayo described? If so, are you better off purchasing health coverage at a higher premium from insurer A because their reimbursement rates will guarantee preferential service compared to other insurers within that market?

This raises questions about the potential practices initiated by the provider community. Having a particular insurance card provides a ticket of entry into our healthcare system. But does it also determine the level of care we ultimately receive?

What’s in your pocket or purse? In healthcare, it just might matter a great deal.

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