Health Care Costs Soar: What Are We Getting for It?

The Seattle Times is reporting that BlueShield is hiking rates 19% on 137,000 plans:

“Regence BlueShield on Tuesday began notifying 137,000 individual-plan customers that their premiums are rising an average of 19% in July in the steepest increase for individual plans this year by a Washington health insurer.

“And for 16,000 of those enrollees, the rate increase will total 40% because they also happen to be moving into an older, more expensive age group.

“The rate jump is a sharp change from last year, when Regence proposed — then rescinded — raising premiums by 5%. Regence has gained 30,000 new customers, bringing its total individual members to 137,000.

“The rate boost does not apply to people who buy their coverage through employer plans or small-group plans. But both Regence’s rate reversal last year and the size of this latest premium increase have outraged Washington Insurance Commissioner Mike Kreidler, who accuses the insurer of a bait-and-switch.

“‘I have serious concerns that consumers may have been whipsawed in an effort by Regence to increase market share,’ Kreidler wrote in a letter sent Tuesday to state legislative leaders.”

Cute. Hold off rate hikes, get 30,000 more customers, then jack up costs 19-40%. Inquiring minds might be asking if this is just a Washington state thing. So let’s take a look.

The Boston Globe is reporting, “Health Care Costs Soar out of Control”:

“A common refrain this spring in local town and city halls is that despite increased revenues, jobs or programs will have to be cut. The culprit, according to municipal officials, is an increase in fixed costs, which are rising faster than tax receipts…

“The major factor is health insurance…

“But per employee annual costs for health care to municipalities covered by City Weekly have almost doubled since [2000], according to officials in Boston, Brookline, Cambridge, and Somerville.

“According to a Boston Municipal Research Bureau report of November 2006, the city cut 1,176 employees between 2002-2006. But in that time, it also spent an additional $187.5 million on employees, two-thirds of which was to cover benefits, such as health care.”

According to Michigan Live, in the state of Michigan, “Inmate Health Care Costs Soar”:

“The cost of sending Michigan’s 51,000 inmates to hospitals and medical specialists outside prison walls has skyrocketed this year, with state officials predicting spending will run 61% over budget.

“Corrections officials expect the bill for specialty care and hospitalization to grow from $58.8 million to nearly $95 million by Sept. 30, the end of the fiscal year.

“‘It’s huge,’ said Barry Wickman, the Michigan Department of Corrections chief financial officer.

“In all, taxpayers will spend $281 million this year to cover physical and mental health treatment and prescriptions for prisoners, even as the state considers cuts to schools and local governments to deal with a deficit that’s pegged at $686 million…

“Driving the increase are more inmate referrals to specialists outside prison and more hospital stays. In 2004, inmates spent 9,612 days in hospitals, jumping to 13,039 in 2006. Similarly, the number of referrals to care outside prison rose from 18,777 in 2004 to 23,294 in 2006.

“Corrections officials say they have little choice but to pay the bills. A 1976 U.S. Supreme Court decision mandated health care to prisoners as an entitlement, including dental, vision, pharmaceutical, and mental heath treatment…

“The payment for outside care had been running $5 million per month, but jumped to $8.15 million during each of the first four months of the fiscal year starting in October, according to Corrections. Lawmakers appropriated $11.7 million for extra costs last fiscal year and $12.6 million this fiscal year. A request for an additional $23.3 million this year is pending.

“‘The increase in [health care] costs within the prison system far outstrips what we’re seeing in the rest of society,’ [State Sen. Roger] Kahn said. ‘This is much, much, much worse.’”

U.S. Is Dead Last

“Mirror, Mirror on the Wall: An International Update on the Comparative Performance of American Health Care” shows that you can find much better care, but you can’t pay more:

“Despite having the most costly health system in the world, the United States consistently underperforms on most dimensions of performance, relative to other countries…Compared with five other nations — Australia, Canada, Germany, New Zealand, the United Kingdom — the U.S. health care system ranks last or next to last on five dimensions of a high-performance health system: quality, access, efficiency, equity, and healthy lives. The U.S. is the only country in the study without universal health insurance coverage, partly accounting for its poor performance on access, equity, and health outcomes. The inclusion of physician survey data also shows the U.S. lagging in adoption of information technology and use of nurses to improve care coordination for the chronically ill…

“The most notable way the U.S. differs from other countries is the absence of universal health insurance coverage. Other nations ensure the accessibility of care through universal health insurance systems and through better ties between patients and the physician practices that serve as their long-term ‘medical home’…

“With the inclusion of physician survey data in the analysis, it is also apparent that the U.S. is lagging in adoption of information technology and national policies that promote quality improvement…”


Health Care Stats

  • The much-touted Canadian system comes in second to last and is the second most expensive, but has a cost about half that of the U.S.
  • The U.K. reportedly has the best health care system. at well under half the cost of the U.S.
  • New Zealand is the low-cost provider at just about a third of what one pays in the U.S.

Most seem to think we should do something about this. But what?

Competing Plans

  1. President Bush announced his plan for Affordable, Accessible, and Flexible Health Coverage in the State of the Union address.
  2. California Gov. Arnold Schwarzenegger has his own health care plan.
  3. Democratic Sen. Ron Wyden has a health care plan.
  4. Families USA, the self-proclaimed “voice for health care consumers,” pans Bush’s health savings account approach, while offering its own plan.

Hospice Care Anecdotes

There were a couple of interesting posts recently on the Market Traders about personal experiences with hospice care. The first is by WilsonsJulie on Odyssey Hospice:

“My dad has Alzheimer’s. He qualified for hospice care several years ago and has been under the care of odyssey hospice since 2004. Hospice is a service aimed at comfort, mainly for the last 6 months. My dad is a tough, sweet guy, so he’s chosen to keep hanging on 😉 There are clients who have had this care for 5-6 years, in some cases, where the health decline is steady but serious.

“Odyssey was sued in a whistle blowing case a couple of years ago for giving services to people who didn’t qualify and they had to pay the government millions of dollars

“I just recently got notice that my dad no longer qualifies for hospice. It is ironic because the guy is very much bedridden now and he is literally wasting away as the disease progresses. However they consider his condition ‘stable.’ They have a new feature to call and contest it. I did, and the person was very sympathetic, but my dad was denied services. I then got a three-page letter about the denial of services…

“I contacted another hospice provider who hasn’t been sued by the government for fraud and they did an initial evaluation of my father and will return in a month to chart any changes. I fully expect my dad to requalify for hospice…

“I just wanted to give the heads up in case anyone else is involved with hospice or will be considering hospice. I think the government might just be shifting the burden of end of life care back onto the families, despite past promises.”

In response to Julie’s post, PeterTribo responded with his story on hospice care:

“Part of my skeptical attitude toward all things ‘official’ and ‘bureaucratic’ comes from my caring for my mother for three years while she was in a nursing home. This occurred in Massachusetts 1993-96 and I was a naive layman with no experience dealing with either the Healthcare or the Legal System. I did a lot of research on both at that time and what I found horrified me.

“One of the first books I read at a Probate and Family Court Law Library run by the MA government was a tome titled The Lawyer’s Guide to Medicare. I had read a few ‘civilian’ books about Medicare by that time but this book was a real shocker. I can only describe it as a ‘nudge, nudge, wink, wink’ guide to scamming Medicare. It described in detail methods to hide assets and get Medicare to pay fraudulent legal bills. This book really sat me up in my chair as to the state of affairs in the U.S. since it was written by a Law Professor!

“One of the techniques used by the nursing home to raise additional revenue was quite a shocker. My mother had to be hospitalized two times outside of the nursing home. When that happens, the nursing home gave me the choice: do you want to reserve your mother’s place if she returns from the hospital? If not, we do not guarantee that she can return to the facility. So for each day that you pay, you may or may not be paying for a place that might have been empty anyway. Only the nursing home knows their occupancy rate. This is classic double billing.

“Another shocker was that the nursing home dealt with only one drug supplier. At one point, they changed the supplier and the cost of a drug my mother was taking was tripled!

“Another time I received a call from someone who said they were my mother’s ‘audiologist.’ My mother had never had any trouble with her hearing. I did some research on this and found out that a private company was allowed into the facility to examine patients and sell their wares. I was never consulted on this. It sure looked like a revenue raiser for both the hearing aid company and the nursing home via fees paid to them.

“On four occasions, ambulances were used and I thought the fees for these rides were exorbitant.

“I can only imagine a room full of Healthcare Beancounters examining every nook and cranny of Operations and devising schemes and methods to maximize profits. In short, I am rather amazed that more Americans working in this vast system are not whistleblowing. Like many institutions in American society, one must ask if the corruption and venality are not beyond critical mass…

“(One might simply substitute the Mortgage Industry with its crooked appraisers, mortgage brokers willing to falsify paperwork, Wall Street ready to slice, dice, bury the paper and regulators turning a blind eye to all. It would seem that much of the American Economy is predatory.)”

Plans are floating everywhere, but little attention is focused on fraud, waste, paperwork, the right to die, liability costs, or health care rationing. Is it any wonder costs are soaring?


At every step of the way, there is every incentive to milk the system for as much as possible, and conditions for fraud run rampant. Insurance Journal is reporting, “Three California Doctors Arrested in Outpatient Surgery Center Scam”:

“The California Department of Insurance and the Orange County District Attorney’s Office have arrested three doctors for medical fraud. The doctors are the latest charged defendants in what’s being dubbed the Unity Outpatient Surgery Center scheme, and are accused of performing unnecessary surgical procedures and fraudulently billing more than $30 million to medical insurance companies…

“According to the Department of Insurance, the doctors participated in a $96 million billing scheme that recruited 2,000 healthy people from all over the country to receive unnecessary surgeries in exchange for money or low-cost cosmetic surgery. The recruitment of patients, or ‘capping,’ is illegal in California. Insurance companies paid Unity more than $17 million during a 10-month period.

“The Unity cappers, or recruiters, targeted employees from businesses in more than 32 states and covered by PPO insurance plans, as preapproval from the insurance company would not be a requirement for surgery. More than 1,600 employers were affected by employees who were involved in this scheme. The cappers arranged transportation for the patients, scheduled the surgeries, and coached the healthy patients on what to say. In exchange for undergoing surgery, the ‘patients’ would receive a cash payment, usually between $300-1,000 per surgery, or credit toward a free or discounted cosmetic surgery…

“[Dr. Michael Cheeluen] Chan is accused of performing procedures on 208 patients, which resulted in more than $9.5 million in insurance billing with more than $1.8 million collected for the unnecessary and fraudulent work…

“[Dr. Mario Z.] Rosenberg, on staff at Cedars-Sinai Medical Center and affiliated with Herbalife, primarily performed colonoscopies and esophagogastroduodenoscopy (EGDs). Rosenberg is accused of performing 646 procedures on 554 patients, which resulted in the fraudulent billing to insurance companies of more than $9 million, for which Unity was paid more than $2.3 million…

“[Dr. William Wilson] Hampton is accused of performing 180 procedures on 178 patients. He primarily performed thoracic sympathectomies, also known as sweaty palms surgeries, which is a highly unusual and dangerous medical procedure.”

Arguing about competing health care plans and health savings plans or even mandating insurance as Massachusetts is dumb enough to do (see “Massachusetts Marks Health Care Milestone: Insurance Required of All Residents”) is a waste of time unless those plans deal with fraud prevention, paperwork reduction, the right to die, liability costs, and some reasonable discussion about health care rationing. In other words, the whole system probably ought to be scrapped, not patched.

Instead of figuring out what the real problem is (and what we can really afford), in typical bureaucratic procedure, we have states and the federal government mandating solutions, and most of those solutions just waste more money. I would recommend that we take a look at New Zealand and start all over from there. Reducing expenses by two-thirds and improving care dramatically at the same time has to be a good start.


May 24, 2007

The Daily Reckoning