Wednesday, March 18, 2015

Health Care Premiums and where they go

This is a follow up to the previous Health care divide and rule post; to read it first click here. It was first posted on tripod on 01/16/10 and expanded based partly on information from an economist from the New York Times.

Neither the major insurance companies, the Mass Media nor the government make much if any attempt to tell the public how the insurance premiums collected from the public are spent. If they did then it would be much easier for the public to know how to reform the health care system. Even without this information the public can do a lot to understand how to reform this just by setting up an organizational method to understand the break down. Once you look at this perhaps you may think it will be worth considering to require disclosure and open books from the insurance companies. As far as I know all the money for health care comes from the premiums collected from the public by the insurance companies but they have other expenses so all the money the collect can’t go to health care. A closer look at the break down of where the money does go could help the debate on health care reform.

The following numbers are just guesses. This isn’t intended to be accurate but it does give you an idea how the true figures can be broken down and how it could help understand how to reform health care. Even without credible numbers it will still help to look at the categories when deciding where expenses should be cut.

Medical expenses:
Outpatient care 10% or A%
Inpatient care 21% or B%
Major operations 15% or C%
Pharmaceuticals 20% or D%
Preventive medicine 4% or E%
Prevention education less than 1% or F%
Total  75% or G%
Percentage of health care going to children 10% or H%
Percentage of health care going to retired people over sixty-five 10% or I%
Percentage of health care going to adults up to age sixty-five 55% or K%

Non medical expenses:
Advertisements 8% or L%
Lobbying 2% or M%
Claims adjusters or claims processors 4% or N%
Commissions 1% or O%
Profits 8% or P%
Other expenses 4% or Q%
Total 25% or R%

One of the biggest arguments for the current system is that the free market should be allowed to compete to provide the best health care. They offer little or no explanation as to how they compete amongst themselves; however once you realize that the insurance companies don’t actually provide the health care they just finance it then you can tell that either they compete on the nonmedical expenses or they pressure the care givers to cut costs. If they pressure the health care providers to cut costs how do they do it? Do they pressure them to cut costs on the short term expenditure at the expense of the long term preventative health care?

If they cut costs on the non medical costs then do they compete by advertising less or more? Do they compete by seeing who does the most effective job convincing the public they provide good care whether or not they do or not?

From the point of view of a policy holder it should be clear that advertising dollars don’t do anything to improve health care but they do a lot to convince a lot of people that health care is better than it is if these people don’t take the time to think it through. The more money spent on administrative costs and other non medical costs like advertising and lobbying the less will be available for actual health care.

From the point of view of a stock holder the opposite is true. The more spent on effective advertising the more business they get regardless of whether or not the customer gets a good deal. This indicates a clear conflict of interest. Unfortunately the insurances companies seem to have much more influence with the Mass Media and the government than the public. Insurance companies spend a large amount of money on both advertisements and on lobbying. They also share a lot of stock holders with many other corporations including the major media outlets. This certainly seems to have an influence on the policies of the government and the reporting of the Mass Media.

If there is something that should be increased it is the amount of money spent on preventive medicine and educating the public about a healthy lifestyle. Prevention education is virtually non existent in the current system due to the fact that they can’t limit it to the people who pay the premiums. In a public system with full disclosure there would be a much better chance to set up a system where the public can be better educated since there would be no need to make sure people that don’t pay for education don’t get it. Education should be made available to the public in the most effective way possible. This would require a way to pay for it of course but many members of the public would be much more willing to pay taxes if they thought they would get their moneys worth.

We also need much more attention on child health care since this has a much bigger impact on the long term productivity of health care. If children get good health care it could dramatically reduce costs in the long run since it would mean catching problems before they get worse. In many cases it doesn’t seem as urgent when a child gets sick but the long term implications can be much worse. Elderly need care to of course and their problems often seem much worse but the impact can never be as big as the impact for children. Under the current circumstances we spend much more for elderly in the last few years of their lives than we do for children and it still doesn’t save their lives or in many cases improve the quality of their lives. More attention should be given to improving the quality of the lives of the elderly and reducing their pain when necessary. Spending an enormous amount of money to prolong the life of a few for a short period of time and neglecting the young is a form of rationing that is done unintentionally by neglecting to think things through.

Just because some of the categories are for legitimate health care concerns doesn’t mean all the money for these categories goes to legitimate uses. The same process should be repeated to see how the hospitals and drug companies spend their money. We should have some access to information about how profitable these companies are as well. If they are padding their profits by giving insufficient care or charging excessive prices that should be disclosed. For example the expenditures of the drug companies could be disclosed and we could find out how much goes into manufacturing these drugs and how much goes to research. Then we would have a better idea of how much of the price of drugs are because of excessive patent rights. In many cases the same drug costs half the price in Canada. This is due to different patent laws. We should have a more organized look at the way other systems are run so that we can compare them and find out which works the best. One of the biggest reasons many people believe the USA has the best health care system in the world is because of the massive advertising campaign and a sense of patriotism by many people. It doesn’t appear to be because we actually do have the best health care system in the world or even close. If there are some good things we do better than the rest of the world we should find them and keep them but get rid of the corruption.

Another argument against a public run system is that the government is incompetent. This has been true in many cases but not all. In many cases it depends on how they are held accountable or if they are held accountable. What we need is an open system where the public can understand how things are run whether it is public or private. Then the public can find problems and fix them. Also in many cases the people that accuse the government of being incompetent work for the same corporations that finance the campaigns of politicians who appoint incompetent people to run certain departments. If the corporations corrupted the politicians and then the politicians appointed incompetent people to regulate the corporations then it would be the fault of the corporations. This is like letting the fox guard the henhouse. Direct evidence for this may be hard to find but there is an enormous amount of circumstantial evidence to indicate this may be happening.

In at least one case they have advocated a policy that is clearly designed to charge more for those who aren’t paying attention or have a hard time affording health care coverage. They have proposed a penalty for those who don’t buy mandatory health coverage. I think this may have been put into practice in Massachusetts already. In most cases these people are less likely to pay attention to elections either. They are clearly trying to increase profits at the expense of the people who are less politically active.

The fact that there is little or no discussion about how the premiums are spent and the lack of disclosure should raise some major red flags indicating that the way health care is being handled including the current debate on health care reform is insincere. It should also raise major questions about the credibility of both the Mass Media and the government. If neither of them explain the most obvious basics while trying to reform health care then it would appear as if they may be trying to avoid accountability and they may not deserve the trust they ask for.

In order to address this the public needs to take the lead in reforming health care. The public needs to do what it takes to educate themselves since it is clear that the most powerful institutions are unwilling to do it. In order for this to be successful there also needs to be reform of the election process and the Mass Media as well. The fact that none of the major Media outlets are informing the public of the basics indicates that we don’t have the free press that is necessary to have a true democracy. The Mass Media has often complained that they deserve the right to free speech and rightly so but that shouldn’t give them the right to drown out the right to free speech for the majority of the public. The Mass Media doesn’t tell the public about many issues and even when someone tries to buy advertising in some cases they reject it for one reason or another. Under the current system free speech for the majority means they can talk to a very small percentage of the public but the Mass Media can get their messages across to the vast majority of the public and they can repeat it so often that it has the effect of indoctrinating a significant percentage of the less educated members of the public.

The insurance companies shouldn’t be allowed to withhold the most important information about how premiums are spent from the public.

The following is an excerpt from Economix that could provide an example of how this is reviewed. It clarifies some things and at the same time raises more questions at least to those not familiar with the accounting practices of businesses and insurance companies.

‘The Health Benefit Ratio (alias Medical Loss Ratio): WellPoint’s payments for health benefits in 2008 equal the sum of what it calls “health benefits” ($47,742.4 million) and the “cost of drugs” ($468.5 million).’
‘Together these health benefits came to $48,210.9 million. As a fraction of total premium revenue of $57,101.0 million in 2008, total health benefits amounted to 84.4 percent of premium revenue.’
‘Traditionally, actuaries had called this fraction the medical loss ratio (M.L.R.), because it represents what insurers “lose,” so to speak, to doctors, hospitals and other providers of health care. Because that terminology comes across as indelicate, however, the preferred term now is the mellower health benefit ratio (H.B.R.).’

‘Marketing and Administrative Expenses, or S.G.&A.: The firm’s total marketing (selling) expenses for 2008 were $1,778.4 million. General administrative expenses were $7,242.1 million. The sum of these two items goes by the acronym “S.G.&A.” One should relate these S.G.&A. expenses not just to premium revenue, but also to total revenue. In this case, S.G.&A. expenses amounted to 14.7 percent of total revenue in 2008.’

‘The Profit Margin: WellPoint’s net income (profits) after all expenses and the provision for income taxes in 2008 was 4.07 percent of total revenue. In accounting jargon, it is called the “profit margin.” In 2007, that margin had been 5.47 percent. In 2006 it was 5.42 percent.’

In some ways they indicate that more money from the insurance premiums than I guessed is going to the medical care; however this could be misleading since the profits for the hospitals and pharmaceutical companies and other administrative costs are included in the medical care portion of the premiums. The money that goes to health care is what they call “Medical loss,” from their point of view this may be accurate since they are not able to keep the money but from the point of view of the consumer this is the product they’re paying for. Since it didn’t sound good to call it this they changed the terminology to make the insurance companies look better. This is done because the system is controlled by the insurance companies; they have much more control over the way this is presented to the public than either the medical providers or the patients. This alone should raise questions about the credibility of the current system.

Another problem is the fact that the numbers don’t seem to add up. The medical expenses (84.4%), the profits (4.07%) and the combined cost of advertising and administrative costs (14.7%) add up to 103.17%. They don’t present this in as clear a fashion as they could have, so perhaps I am misinterpreting something; however that is part of the point. Why don’t they present this in a way that the average person can understand? By allowing the private industries to control the health care system in our current form of capitalism they allow them to present their information is a confusing way which many of us can’t understand. The private industry is often protected by proprietary information laws which enable them to keep large aspects of the way they conduct business secret. This means the consumers and the workers are not entitled to all the information they need to make their decisions but the business owners are. There is no reason to think that the insurance industry is any different and it is easy to see some of the manipulation tactics they use if you know what to look for.

For additional information on alternatives see “Single-Payer National Health Insurance” at Physicians for a National Health Program which was pointed out by Liberal Libby in her blog about “Jesus Would Be an Advocate for Single Payer” along with other links and her input on the subject.

For complete article from Economix and further information see the following:

Stupidparty Myth #1—USA has the best healthcare system; thus, why reform? 06/24/2015

(For more information on Blog see Blog description and table of context for most older posts.)

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