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FROM THE PRESIDENT, “ The
Health Care Conundrum”
By: Jim Ginger
 A tremendous debate is raging around healthcare and how to pay for
it. Being in the insurance business,
we see a great deal of information both for and against various
proposals. As a business that
provides health insurance for our employees, we at KPD have firsthand
knowledge of the price increases inherent in the system. We also help our clients deal with the
struggle of weighing increasing insurance premiums against options including
higher deductibles and reductions in coverage to control costs.
The
system needs change, but the problem is complex. As you listen to the debate and
formulate your opinions we encourage you to consider a few thoughts:
Insurance is a transfer mechanism
It is
easy to blame insurance for increasing premiums, but please remember that the
ultimate purpose of insurance is to gather premiums from the many to pay the
claims of the few. The real
reason insurance premiums increase is because underlying claims costs
increase. The rate of medical
inflation has far exceeded the rate of increase in the consumer price index
over the past decade and these costs are ultimately “transferred”
to the people that pay premiums.
Pay attention to administrative expense
We have
taken a look at the operating expenses of our health insurers. According to A.M.Best, the health
insurers we represent have operating costs, including broker commissions, of
between 8 and 13 percent, or 8 -13¢ of the premium dollar. We do not know how to find the
bureaucratic operating costs of programs such as Medicare or Social Security,
but we wonder how the costs of managing a government run program would
compare to the costs of a private sector program. Even if you believe the government
could run the system more efficiently, say cut costs by a dramatic 30%, the
expense reduction would amount to a one time savings of three percent of the
premium.
There is a “soft tax” in place right
now, and those insured are paying it
In
healthcare today, those that can pay carry the load for those that cannot pay
or those that underpay. Provider
(doctors, hospitals, clinics, etc) charges are based on collecting enough
from those that pay to cover their costs including under-reimbursed or
uncollected bills for treatment.
This means that the insured and other private payers cover the
expenses of the uninsured plus the shortfall between what Medicare and
Medicaid pay and the actual cost of the care provided for patients under
those programs.
Is there an end to medical inflation?
People
want more and better treatment, and choice in their medical decisions. Drug companies
research and market more drugs to combat ailments. Doctors and clinics order more tests
and procedures to validate their diagnoses. The plaintiff’s bar keeps a
watchful eye out for malpractice and pushes the envelope with regard to
damage awards. Sympathetic juries
issue high awards. Doctors and
providers require more money to cover costs and achieve a reward for their
hard work. People live unhealthy
lifestyles that lead to increased treatment. All these factors and more drive
healthcare expenses higher and we all pay for it.
There are real issues that need to be addressed. The uninsured, under-reimbursement
from Medicare and Medicaid, pre-existing conditions, insurability, rationing
of coverage, unhealthy lifestyles and more all need attention. But please remember that insurance is a
method of transferring costs, not a driver of costs. Until we figure out priorities and get
medical inflation in line with the consumer price index, this issue will
continue to eat into the disposable income of Americans.
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