What are those charges…

I’m a bureaucrat at a health insurance company which most of you have never and will never hear about. My job is to be a subject matter expert on a fairly arcane set of knowledge. I have seen some posts and some great comment threads at Balloon Juice where great questions are being asked and basic mechanical knowledge would be very useful. I will be writing a series of posts over the next couple of weeks/months that attempts to explain why a profit seeking insurance company does what it does.

And yes, before I get started, I agree with the vast majority of the commenteriat here that absent massive path dependency and being able to make policy behind a veil of ignorance, I would not choose the US model or the modifications to the model that are being made by Obamacare. I would have chosen a far more comprehensive single payer system that is not a kludge of multiple previous kludges. However, that is not the world that we live in, so I am assuming profit seeking insurance companies will be around for a while.

Why do insurance companies charge deductibles, co-payments and co-insurance?  What is the point of three forms of making the buyer of insurance pay?  Why wouldn’t there be a single form?  What are the incentives and how do the different cost share payments save the insurance company money?

These three types of pocket payments have slightly different purposes but they all serve to minimize costs for the health insurance company. One things that we need to remember as we go through the mechanics of non-universal health insurance along the lines of either Canadian Medicare or British NHS is that members/buyers of insurance know way more about their health than the insurers. That knowledge fuels the buyer’s ability to seek the best deal. This is known as adverse selection.

Let’s look at JC for an example.  A mid-40s something male still on average has reasonably low health care costs without too many high expense outliers.  Someone of his general demographics is still in the sweet spot for insurance risk as the long term chronic conditions of late middle age and old age aren’t too common yet.  John knows he is a klutz and that Steve is plotting to kill him slowly.  So if he selects a plan with low cost sharing because he knows that in the next year he needs to worry about a repeat of the mop incident or the first failed attempt on his life by Steve.  That is unusual and therefore valuable information for an insurance company as John would have self-identified as riskier than typical for someone his age.

Deductibles serve two purposes. The first is to transform insurance from being purely pre-payment of average medical expenses for a particular population into an insurance product. Insurance is the payment of defined sums for protection against uncertain losses for an individual. The first purpose of deductibles is to get the insurance company off the hook for the first chunk of expenses.

A zero deductible plan is very attractive to people who know that they have major medical expenses coming their way. A very high deductible plan is attractive to people who anticipate very low health care expenses due to their general good health or belief in their own invincibility. An employer group that offers a $500 deductible plan and a $2,500 deductible plan to its employers will not see random selection of those two choices by its employees. Most of the time, older, sicker employees will choose the lower deductible plan, which is extremely valuable information for the insurance company. They expect high usage of expensive services, so premiums are higher. Conversely, the high deductible plan is more attractive to the younger, healthier and typically a more male population that statistically don’t use expensive services all that much. Bigger spreads between deductible amounts allows for insurance companies to aggressively identify adverse selection risks and then appropriately price that risk.

Co-payments are fixed dollar amounts that members pay for services that don’t apply to deductible sums. There are two reasons for co-pays. The first is to make a service slightly less expensive for the insurance company. This is a minor factor. The main factor is to add a marginal cost for a service from the member’s perspective after a deductible has been satisfied. This is supposed to make members slightly cost sensitive. A $100 co-pay for an MRI is supposed to get the member to question whether or not they really need an MRI or whether the no co-pay X-ray is sufficient. Co-pays for cost sensitivity purposes are extremely common for prescription drug benefits where generic or cheap brand name drugs have nominal co-pays, while patented drugs that have reasonably available and effective substitutes have very high co-pays.

Co-insurance is a percentage of costs that a member is responsible for after their deductible has been satisfied. The primary purpose is to make the member become extremely cost sensitive. For instance, a 20% co-insurance for a non-complicated labor and delivery when my wife gave birth to Reproductive Success #1 and #2 could have put me on the co-insurance hook for roughly a paycheck at the local mid-wife center or a couple of paychecks at the hospital. These type of variable marginal costs for identical services are designed to get people going to the cheaper providers or to eliminate the less essential services.

To review – deductibles are designed for adverse selection identification and effective repricing of risk while co-payments are designed to steer people to cheaper option with fairly simple incentives. Co-insurance is designed to get members to price compare between a variety of providers for a single array of services. Finally, total out of pocket exposure is often capped because there is no reasonable ability of people to finance $30,000, $40,000, or $50,000 in medical expenses from a single incident.

The more cost-sharing through deductibles, co-pays and co-insurance, the less risk the insurance company bears, and the more risk the individual carries on their own. A high deductible, high co-pay, high co-insurance plan is an adequate plan for individual members who either have significant free cash flow OR have a high degree of confidence in their health AND have some ability to access assets in an oh-shit hit by a bus scenario. High deductible, high co-payment, and high co-insurance plans will be the dominant plans on the Catastrophic and Bronze exchanges. Conversely, low deductible, low co-payment and low co-insurance are “rich” coverages that are used by people who can either afford a high premium but few surprises, OR know they need to use a lot of medical resources.

The next post will talk about how insurance is regulated.

NB: Actually going through all the Balloon Juice categories for the first time is pretty damn awesome






125 replies
  1. 1
    John Cole says:

    Welcome aboard and all that, but seriously, no dog or cat pics? We’ll settle for kids, I guess.

  2. 2
    srv says:

    Thx. Looking forward to it all.

  3. 3
    cathyx says:

    Insurance is for rich people.

  4. 4
    Chris says:

    Bienvenue, mon brave.

  5. 5
    The Dangerman says:

    ….the first time is pretty damn awesome

  6. 6

    As a side note: We healthy 40 somethings are not actually all that skilled at accurately predicting our health care usage and cost. For example, I was stunned by a diagnosis that got me to the $12,500 annual OOP on my HDHP in 3 weeks of treatment–and I think a lot of customers who buy that type of plan would say the same.

    If you can explain a bit about in-network vs. out-of-network co-pays & deductibles, that might be really helpful for those who don’t already have an oncologist.

  7. 7
    Joy says:

    This is very informative. Thanks for sharing your expertise.

  8. 8
    Warren Terra says:

    When other people look at this post, do they see a title or more importantly the author’s name/nym/handle?

  9. 9
    PeakVT says:

    Welcome. Be sure to install the pie filter if you haven’t already.

  10. 10
    MikeJ says:

    @Warren Terra: Nothing, it just looks b0rked.

  11. 11
    maye says:

    Welcome. I will be in the first wave of Obamacare guinea pigs come Jan. 1 (unless Ted Cruz finds a way to stop me). My COBRA runs out in March, and after that I am uninsurable at any price (under the old world order). I will be paying the highest price through the exchange in my state, but fortunately right now (knock wood) I can afford it. Looking forward to your writing on this subject.

  12. 12
    Princess Leia says:

    So those of us who are financially risk averse should get the silver plans if we have to go through the exchanges? Or is there a better choice. So glad you are here– that was great info.

  13. 13
    Baud says:

    That knowledge fuels the buyer’s ability to seek the best deal. This is known as adverse selection.

    I thought adverse selection referred to the insurance company’s incentive to exclude high risk people from the insurance pool. Thanks for the explanation.

  14. 14
    Steeplejack says:

    How about a post title and a byline? In other words, who are you, Mr. (or Ms.) Health Insurance Bureaucrat?

  15. 15
    La Caterina (Mrs. Johannes) says:

    @Warren Terra: I had the same question.

  16. 16
    Ash Can says:

    Ooooh. I don’t know if this is happening for other folks, or if I just need to refresh a couple more times, but this post is showing up on my screen without any title or author. I have to say, this is the most interesting thing this blog has done in months. Also, this is one of the best blog posts I’ve seen, anywhere, in even more months than that. :)

  17. 17
    Baud says:

    @Steeplejack:

    I see both on the mobile site.

  18. 18
    Just Some Fuckhead, Thought Leader says:

    Really? We couldn’t find a Wall Street trader or a shyster lawyer or someone else a little more respectable?

  19. 19
    Betty Cracker says:

    Good info! Looking forward to further posts on the issue. I used to work for the Evil Private Insurance Empire too (ages ago), and friends and family still call me to explain policy terms or help them choose the best plan. I was just a PR flak, which qualifies me to shine turds to a high glossy finish.

  20. 20
    Steeplejack says:

    @Warren Terra:

    I do not.

  21. 21
    Richard Mayhew says:

    @PhoenixRising: 2 posts from now

  22. 22
    Steeplejack says:

    @Baud:

    So what is the writer’s nym? (Title optional.)

    ETA: Richard Mayhew, I presume.

  23. 23
    Baud says:

    @Steeplejack:

    What are those charges…
    Published on September 5th, 2013
    Written by: Richard Mayhew

  24. 24
    eemom says:

    Welcome, Headless FPer.

  25. 25
    gian says:

    The simple truth is for profit insurance companies are in business to make money. Not to pay claims. That’s why they have to be heavily regulated

  26. 26
    RobertDSC-iPhone 4 says:

    Welcome aboard. Thank you for the post.

    I shed a tear at reading about how Steve is plotting to kill John. I initially read that as Tunch trying to kill John.

    I miss the Tunchinator.

  27. 27
    scav says:

    Welcome to Insurance Below.

  28. 28
    Betty Cracker says:

    @Baud: I can see it too (tablet), but it’s not in the regular format. Weird.

  29. 29
    Crusty Dem says:

    @Baud:

    0/2 on iPhone.

    Pet peeve – percentage co-payment based on hospital bill. The hospital negotiates actual payment w/insurance company, but the number we end up paying is based on some mythical number the hospital comes up with. I have had multiple experiences where my 20% company was significantly more than my insurance company was paying. Fuck that.

  30. 30
    La Caterina (Mrs. Johannes) says:

    @gian: Yep.

  31. 31
    Baud says:

    @Crusty Dem:

    I’m on android chrome, FWIW.

  32. 32
    jenn says:

    Weird. WordPress ate my comment. Anyway – looking forward to the rest of the series! I really appreciate informative posts like these.

  33. 33
    Suzanne says:

    Welcome, Richard. This was great. Very informative.

  34. 34
    Tim F. says:

    Very helpful post. Told you about the pet pics.

  35. 35
    Baud says:

    @Tim F.:

    You could have lent him Max. We love Max photos.

  36. 36
    Villago Delenda Est says:

    A $100 co-pay for an MRI is supposed to get the member to question whether or not they really need an MRI or whether the no co-pay X-ray is sufficient.

    Well, you see, here’s the thing. Most of us do not have enough facts to make the call on this, as we’re not trained medical professionals. This is where the idiotic market assumption of information collapses in tatters. Because one of the huge problems here is we go to doctors because we don’t know what the problem is…we’re looking for an expert opinion, and then a recommendation for treatment. Leveraging professional information for personal gain is what got us into this mess in the first place.

    Health care should NOT be a business, because if it is, it becomes another place where chumps are there to be ruthlessly bled for every last penny they have by Ferengi “physicians”.

  37. 37
    PsiFighter37 says:

    Are you an Obot or not? That will determine how you get treated on the board.

    Welcome, also, too.

  38. 38
    Yatsuno says:

    John knows he is a klutz and that Steve is plotting to kill him slowly.

    LULz

    when my wife gave birth to Reproductive Success #1 and #2

    Okay we’ll keep you. But is the International Man of Mystery Act intentional?

  39. 39
    Suzanne says:

    A $100 co-pay for an MRI is supposed to get the member to question whether or not they really need an MRI or whether the no co-pay X-ray is sufficient.

    How is the typical member, who has no medical knowledge, supposed to make a judgment of this kind with any level of reasonable risk assessment?

    I have been thinking about this because I have scorpions in my neighborhood. If one of my girls gets stung, I know which local hospitals carry antivenom. However, the antivenom is supposedly about sixty grand. You can “take your chances” in intensive care, where they will keep your airway open until the venom wears off. But how is ANYONE supposed to be able to make this sort of decision in a clear-headed fashion?

  40. 40
    fuckwit says:

    @PhoenixRising: Wow. Something that cost that much would literally be a death sentence for me.

  41. 41
    Another Holocene Human says:

    @cathyx: Exactly. All of this stuff about high/low deductible/premium just sounds like doom, doom, doom if you’re talking about people who live paycheck to paycheck.

    I guess it works because they put off medical care until they’re dying, then when they die suddenly it costs less than treating their chronic conditions.

    What is the thought process behind making people pay full freight for vaccines? Shouldn’t insurance co’s be paying people to come in and get jabbed? Shouldn’t they send chickipoo’s to jobsites with vaccine doses like pharma reps come around the doctor’s office with pizza and short skirts to get people vaccinated, all the cool kids are doing it? I mean, don’t preventable hospitalizations costs these numb-nuts money?

  42. 42
    Gin & Tonic says:

    But health “insurance” isn’t really insurance, in the Edward Lloyd sense, it is coverage for both fairly predictable and common expenses, as well as for the catastrophic unplanned expenses. Property-casualty insurance, in the traditional model, is for the pooling of relatively homogeneous risks against the possibility of relatively rare but catastrophic loss — i.e. it started in oceanic shipping, where the majority of ships and cargoes would make it across, but the one that didn’t would be a total and catastrophic loss for the shipper. Pooling those risks make sense, and carries over into the typical automobile or homeowners’ insurance. I pay car insurance premiums for years and years and make no claims, but I am protecting myself against ruin from that once-in-a-lifetime catastrophic accident where I kill or maim someone. Same thing with homeowners’ — most houses don’t burn down or get destroyed by tornadoes. So the pricing can be “simpler”, in a sense. Modern US “health insurance” covers my out-of-the-blue cancer, sure, but it also pays for my every-5-years colonoscopy, and this is where the pricing loses its “insurance” aspect. It’s as if I expected my automobile insurance also to cover my tune-ups and brake jobs, or my homeowners’ insurance to cover the repainting of my house. This distorts the whole model.

  43. 43
    Princess Leia says:

    @Gin & Tonic: Exactly.

  44. 44
    Another Holocene Human says:

    @Villago Delenda Est:

    Health care should NOT be a business, because if it is, it becomes another place where chumps are there to be ruthlessly bled for every last penny they have by Ferengi “physicians”.

    It sounds oddly like car repairs market and how they soak professionals who only know if-car-doesn’t-go-me-pay-too-much-for-rental-help-help.

    Except worse because a car shop can get into big doo doo with the state if they do repairs without the owner’s permission and then try to attach a lien to the vehicle, whereas physicians are expected to police themselves.

  45. 45
    Just Some Fuckhead, Thought Leader says:

    @Gin & Tonic: Sounds like a service agreement.

  46. 46
    Yatsuno says:

    @Betty Cracker: My mom used to work for a health insurer as a claims processor a very long time ago. The really scary thing is there are people who still know her there as they’re a small regional company here. Unfortunately they will eventually get eaten up by my health insurer at some point. It’s a when not an if.

    @Suzanne: What VDE said. In an emergency situation, comparing options is not a possibility. The only requirement should be saving the life of the individual. The scary part is there’s a mechanism in ACA that is going to be a HUGE game-changer in regards to all this.

  47. 47
    fuckwit says:

    @RobertDSC-iPhone 4: The cats may change, but some things remain constant.

  48. 48
    Baud says:

    @Yatsuno:

    The scary part is there’s a mechanism in ACA that is going to be a HUGE game-changer in regards to all this.

    Care to elaborate.

  49. 49
    Punchy says:

    Does this post come with Cliff’s Notes?

  50. 50
    JCJ says:

    Greetings Mr Mayhew. I am looking forward to your posts. Do you think in the future insurance companies will offer a single payment for services? My question has to do with my specialty – radiation oncology. If a woman undergoes lumpectomy for breast cancer and meets criteria for hypofractionated whole breast radiation (age > 50, no previous chemotherapy, separation (sorry, technical term) < 25 cm) yet still receives a more protracted course of treatments might insurance companies be justified in paying for the only for the shorter course and let the doctor explain the difference? Similarly a man with favorable risk prostate cancer could undergo a course of treatment with radiation receiving 28 doses while at another hospital seven miles away might receive 40 or 43 treatments. If there are no complicating factors I would agree with an insurance company paying for the shorter course only and leaving the difference for the doctor and clinic to either write off or pursue with the patient. If a man wishes to undergo proton treatments insurance should pay no more than they would have for IMRT and leave the rest for the patient to deal with unless evidence were to show an advantage to the more expensive treatments.

  51. 51
    MikeJ says:

    @Another Holocene Human: It would help if the doc had no financial incentive in ordering an MRI over a xray.

  52. 52
    jenn says:

    @Suzanne: I think it really depends on the patient’s communication with their doctor, and what the ailment is. When I screwed up my ankle, I was given a bunch of scenarios, ranging from MRI now, so as to know for sure what was going on with it, to X-ray now plus series of minor treatments, and an MRI only if it didn’t start resolving in X days. The co-pay model worked alright in that situation – I didn’t end up getting the MRI, but I felt I had enough information to make the call, particularly given that the risks if I’d made the wrong call were really low. This model doesn’t work out in situations where communication sucks between doctor and patient, communication sucks between admin and patient (I.e., there have been plenty of times I don’t find out my co-pay until after I’ve already had the procedure), or when the risks are high if you’ve made the wrong call. Among others!

  53. 53
    Wag says:

    An idea for a future post would be to explain medical loss ratios as they pertain to for profit vs not for profit va Medicare delivery models, and the changes coming down the road under ACA.

    Thanks

  54. 54
    Suzanne says:

    @Yatsuno: Also, prices for healthcare services are SO OPAQUE. I literally have no idea how much I would pay to go to the doctor without insurance. That exposé in Time recently about medical billing showed how the same care at different hospitals can be dramatically different in the same city, but if you were trying to comparison shop in advance, you literally cannot find out how much you’ll get charged until AFTER YOU GET THE BILL.

    Anascorp is priced at $8K per vial at the Banner Good Samaritan, but is over $21K per vial at Phoenix Children’s Hospital. Those facilities are four miles away from each other.

  55. 55
    lahke says:

    I too am a faceless health insurance bureaucrat, but the difference is that it’s for a not-for-profit in Massachusetts. And why, you may or may not want to ask, is 90+% of the MA market made up of nonprofits? Because we started health care reform 25 years earlier than everyone else with guaranteed issue and no rescission permitted. In other words, the insurance companies had to cover you, and they couldn’t dump you when you got sick. Romneycare (enacted over his almost comatose, already running for president body in 2006) just made insurance mandatory and affordable.
    As a result of the guaranteed issue,etc, all the big for-profits became scarce, and MA was left for the not for profits who needed a different business model. They couldn’t cherry-pick the sick, so they had to try to keep their enrollees healthy. Look up the NCQA scores for the best health insurance companies in the country, and you will find MA insurers hogging the top 10. Once the other insurers figure it out, things should get better for their enrollees too. I hope.

  56. 56
    jenn says:

    @Suzanne: Wow. That’s a really impressive price difference.

  57. 57
    jayackroyd says:

    I’ve done some poking around the literature on adverse selection, and while I see it cited, it’s invariably something health insurers believe to be true rather than something empirically shown to exist.

    Do you have any actual evidence of adverse selection in health care insurance markets?

    (There’s plenty of reason for this not to be so. Risk aversion, for instance, is well documented and might have a much larger effect on insurance purchase decision making than adverse selection. JC may fear quadraplegia from a lightning strike more than he rationally should, and thus buy insurance regardless of the risk Steve poses.

    You also see plenty of anecdotal evidence that people feel more comfortable when insured, even if they would be smarter, probability wise, to roll the dice and bank on Medicaid if the dice come up snakes eyes eight times in a row.)

  58. 58
    jenn says:

    @lahke: That’s encouraging. Though I wonder if the transition will be slower, since there’s nowhere for the big for-profits to run to?

  59. 59

    @scav: Dealing with insurance companies is a bit like battling the Beast of London, isn’t it?

  60. 60
    Jane2 says:

    I think Obamacare is as far as it could be taken at the present. If you read the history of Medicare in Canada, a modified insurance system was also the genesis of the comprehensive health care system in place today.

  61. 61
    Suzanne says:

    @jenn: I pay my co-pays when I take my kids to the doctor, and then invariably I get a statement in the mail a couple of weeks later saying that I either have a balance or a credit to my account.

    I had dental insurance say they would cover treatment for my kid’s anesthesia, and then decline to pay it…..after we had the work done. Apparently this is legal.

  62. 62
    lahke says:

    @JCJ:
    Blue Cross of California just decided to stop paying for proton beam–too expensive and no better outcomes.

  63. 63
    jayackroyd says:

    I also talked to Melissa Thomasson about some of these issues:

    http://www.blogtalkradio.com/v.....ay-ackroyd

    this link is also useful

    http://eh.net/encyclopedia/art......health.us

    and here’s Melissa on This American Life:

    http://www.thisamericanlife.or.....lses-money

  64. 64
    Suzanne says:

    @jenn: Anascorp is made in Mexico, where it is roughly $100 per vial.

  65. 65
    lahke says:

    Here’s the link to the NCQA rankings: supposed to help employers choose health plans.

    http://www.ncqa.org/Directorie.....22013.aspx

  66. 66
    Just Some Fuckhead says:

    @Punchy:

    Does this post come with Cliff’s Notes?

    You are going to hate the Balloon Juice Ask A Bankster series.

  67. 67
    Yatsuno says:

    @Baud: Presumptive eligibility. Basically if you go to an ER and you either have no insurance or don’t have your insurance card on you, the hospital can presume you are eligible for Medicaid until proven otherwise. They will even now register you for Medicaid if you come to the ER under those circumstances PLUS Medicaid will pay the bill until another payer can be found. It will mean that even if you’re a teatard idiot who refuses to sign up but you’re Medicaid eligible you’ll end up on it. It’s quite the nefarious method for getting folks covered.

  68. 68
    MikeJ says:

    @Suzanne:

    Anascorp is priced at $8K per vial at the Banner Good Samaritan, but is over $21K per vial at Phoenix Children’s Hospital.

    And you’re supposed to have 3-5 treatments. Travel to Mexico for the follow up.

  69. 69
    Suzanne says:

    @MikeJ: But you’re supposed to have 3-5 treatments THAT DAY. Traveling to Mexico is not an option in that scenario.

  70. 70
    Ted & Hellen says:

    Could you say that again?

  71. 71
    joes527 says:

    can you explain why hmos have copays on routine and preventative care? isnt it to the hmo’s advantage for its members to take advantage of routine and preventative care to stay well, and to catch problems early?

  72. 72
    MikeJ says:

    @Suzanne: Oops, didn’t know that. I had assumed they were over a week or so. Yes, getting anywhere else would be problematic.

  73. 73
    jl says:

    Thanks, great post. I look forward to the others.

    The emphasis on two key facts is well placed, I think. First, that insured knows a lot more about his or her health than the insurer does. Second, that the insurance company uses all the gimmicks such as co-pays and co-insurance to both eliminate wasteful care (a good thing) and maximize profits (sometimes a good thing…). Those are the two key facts that can prevent a stable competitive equilibrium from existing. And without that, you don’t have all the magic goodies that the market produces, but rather churning chaos that eventually destroys the availability of insurance for some part of the population.

    If you add in that contracts are expensive for the insurance company to write and expensive for consumers to monitor and enforce, then the sicker people gradually lose their ability to buy insurance at a fair price, or at any price. That is the Rothschild-Stigltiz adverse selection result from the 1970s. And I do not know of any economist who proposed an idea that can fix the problem, at least for health insurance markets.

  74. 74
    BillinGlendaleCA says:

    @Yatsuno: I was going to guess DEATH PANELS.

  75. 75
    jl says:

    And my comment above is why the continued availability of a different types of plan on the same exchange market is one of the features of the reform that worries me. Even with minimum standards there may be too much room for companies to attempt to pick cherries and skim cream, and create continued (though reduced) chaos.

    It would be better to force every insurance company to offer an identical basic mandatory plan and offer supplemental insurance on a separate market, which is a common solution in European countries that still have insurance companies.

    Maybe someone who knows the details of the exchanges can explain something I don’t know about to relieve my worries about that. Maybe the uniform minimum standard benefit will be enough.

  76. 76
    Bruce S says:

    This is great. Reality-based and all of that…

    Of course, all of your factual information is completely useless for those here who are primarily concerned with the nature of Glenn Greenwald’s soul, questions of his perfidy and projections about his psychological motivations. But it’s okay – nobody’s perfect.

  77. 77
    mai naem says:

    @MikeJ: Why the hell should you have to travel to Mexico for medical care, es. for little kids? I can see going for some non emergency planned dental work or routine pharmaceuticals to save some $$$ but not this.

    Anyhow, I feel like an idiot but I never thought of insurance cos. and adverse selection based on the customer’s choice of plan but at the same time I think it’s dumb. I bet if you looked at health care professionals(non-docs) and what they pick, I bet they pick low deductible high premium plans because what they observe IRL.

  78. 78
    lahke says:

    @joes527:
    Copays on preventive care gone as of last year under the ACA. However, in practice this isn’t working so well, because if you use the visit to discuss an issue with your doctor, it becomes a therapeutic visit and the doc’s billing service codes it for a copay.

  79. 79
    BillinGlendaleCA says:

    @jl: I think you forgot about the consultant that advises the consumer, aka the doctor.

    ETA: This reply would have been more timely, but I had a phone call from a nice UCLA undergrad, aka the annual UCLA Fund donation request.

  80. 80
    the Conster says:

    Maybe I missed the discussion above, but the high deductible plans are often funded with an HSA with pre-tax dollars, and belongs to you, like an IRA. Rather than paying the premium to an insurance company, you pay yourself. It’s more advantageous for relatively healthy higher income people since you have to come out of pocket for several thousand dollars if you need to until the insurance starts to pay, but in the instance you don’t have a medical event, the money you put into the HSA is yours. Which is good.

  81. 81
    Suzanne says:

    @the Conster: This is what I have. I like it because I can spend HSA money on dental care. Despite epilepsy, I am healthy, so I appreciate not blowing money every month on health insurance that I don’t use.

  82. 82
    the Conster says:

    @Suzanne:

    Exactly, and I think it pays for glasses too. My new job offers a high deductible plan which my employer funds and a relatively low monthly premium, but my husband’s plan which we’ve been in for the past 3 years is a higher deductible plan, but with no premium. After running the numbers, his plan makes more financial sense since we’re both relatively healthy and I’d just be throwing money at the insurance company instead of getting our money back some day. Some people retire with many tens of thousands of dollars in their HSA, which is theirs. I wish car insurance had an option like that – I think of the 30 years I’ve made monthly payments, and I’ve only had one accident which wasn’t my fault.

  83. 83
    Maeve says:

    It’s not just a question of how much perceived risk there is but how risk averse (vs. risk seeking) one is. Typically females are more risk averse ( for cultural reasons and perhaps sensibly.)

    People do not make economic decisions rationally. An example is cell phone plans. Unlimited minutes elliminate risk, but if people actually analyzed their callings, many would find the overcharges on the times they run out of minutes would be less than the unlimited plan. Similarly, many might find the risk of encountering the high deductible is low enough that savings from opting for it rather than the low deductible is worth the risk. However how risk averse they are influences the decision. Also how much cushion they have in their budget.

    What I’d more like you to address is why health costs are so high in the first place.

    A recent article I read in nytimes.com said insurance companies which require service by principle providers ( e.g. Blue cross) have a greater interest in signing up chains of principle providers than in reducing costs. Their big customers ( companies providing health insurance) want large numbers of principle providers. So they cut deals with the provider chains for lucrative compensation, pass that cost on to the consumer, and the cost of health care goes up. In other words, they have a grater interest in satisfying the principle providers and keeping them in their network than in keeping costs down.

    The real question is why American health care costs are so high, not why insurance companies charge so much, and why private insurance companies have no upinsenticpve to reduce costs.

  84. 84
    Soonergrunt says:

    Welcome! Good stuff, and I hope to see lots more of it!

  85. 85
    AA+ Bonds says:

    Thank you for posting.

  86. 86
    AnotherBruce says:

    This is an awesome summation of the healthcare system that we will have for the foreseeable future. As someone who is in a cobra situation (in a union no less} this is a good realistic primer for what to expect is coming. Which is all non or barely insured people can ask until the AHCA markets are set up.
    It’s only a month before we get some look at them, but a month is still all too many people have to make a decision on something as important to life and death as affordable health care.

  87. 87
    AnotherBruce says:

    @Villago Delenda Est: This is absolutely true, even if physicians have the best of intentions, it is suspected to be true. There was a time not too long ago when there were ample community health centers and most hospitals were non-profit. True, they might have had some well paid staff, but they were not part of your investment portfolio.

  88. 88
    manyakitty says:

    @Suzanne: This. I’m not a doctor, so why am I expected to understand the intricacies of diagnosis and treatment?

  89. 89
    manyakitty says:

    @Richard Mayhew: Fascinating stuff. I look forward to the rest of the series

  90. 90
    AnotherBruce says:

    What I’d more like you to address is why health costs are so high in the first place.

    Because health care supply is limited, and health care demand is infinite.

    If I’m diagnosed with cancer, how much treatment do I want? I want the best cancer treatment in the world.

    This is why a market based approach fails, this is why young people have to subsidize older people. because young people will hopefully become older, and want affordable health care when they do. Health care along with social security are necessary to the social contract that a healthy society should want. We are too big and spread out to rely on immediate family anymore. So yeah, health care is the ultimate reason for socialism, because every one of us will become weaker and older and ultimately vulnerable at some point in our lives, And we will want our society to at least acknowledge that there should be some degree of care at that point.

  91. 91
    JoyfulA says:

    I hate copays. I have the choice of always having with me a stash of $5, $10, and $20 bills, which seems archaic, or of taking the time, while the patient behind me in line is frail, or gasping for breath, etc., to write out a check or present a credit card, after which the clerk takes forever to prepare a receipt.

    It doesn’t feel like the insurance company is pushing me to purchase health care thriftily. It feels like it’s into making the procedure a little more unpleasant, hoping it will push me over the edge so I’ll never return and cost it money.

  92. 92
    Batocchio says:

    Good idea for a series. Welcome aboard.

  93. 93
    Maeve says:

    @AnotherBruce:

    The issue is not that the average person insured pays for the catastrophically affected persn ( a fact of all insurance) but that we’re all paying in the US for basic care that costs way beyond the cost of other similar care elsewhere

    http://goo.gl/AdUrpY

    They’d like you to believe that in “socialist” countries like Sweden or. Britain ( loved.the salute to national healthcare at the Olympics) the only reason we pay more is that we have access to unlimited skies the limit treatment and they have death panels and Steven Hawking would be dead if he lived upin the UK, but basic health care in the US costs outrageously and the private insurance companies ( not them alone but the whole system) have no incentive to control those costs.

  94. 94
    qwerty42 says:

    @Suzanne: …I have scorpions in my neighborhood. If one of my girls gets stung, I know which local hospitals carry antivenom….
    Are you in the Southwest? I believe the bark scorpion (a small critter) is regarded as quite venomous. We have scorpions in the Southeast, but they are more on par with a bee (speaking from experience). However, the reaction of any individual to such a sting is unpredictable (it might kill my sister), so …

  95. 95
    lojasmo says:

    @Yatsuno:

    The scary part is there’s a mechanism in ACA that is going to be a HUGE game-changer in regards to all this.

    I am intrigued.

  96. 96
    lojasmo says:

    @Suzanne:

    The crazy part is that WE don’t even know how much our shit costs. I work i n a cardiac catheterization lab, and while I can find the cost of the items we use in our practice, I can’t for the life of me find out how much we charge our patients for the shit we do.

    Crazy making.

  97. 97
    HeartlandLiberal says:

    Thanks for a very comprehensive explanation of why government mandated and regulated, single payer, Medicare for all, with overhead costs of only 5%, 95% spend on health benefits, is what this nation needs to implement.

  98. 98
    debbie says:

    @Maeve:

    What I’d more like you to address is why health costs are so high in the first place.

    One word: Profit. I have to get a blood test every month. At one hospital, it’s $36.75; at another (less than a couple miles away), it’s $88.00. Exact same test at both places.

    I’d like a rational explanation of that.

  99. 99
    Tom says:

    One other reason people select high deductibles, or low, is their financial situation. This amounts to what they can afford to pay should you have unknown medical costs. High deductible plans (or even collision deductibles on your car) are cheaper. Thus if you are unsure if you will need medical services in the next year, but can afford to pay if something happens a high deductible may be preferable. You save money on the front end and may save it on the back end. If you do get hit with expenses you are fully able to absorb those costs. You are assuming some of the risk.

  100. 100
    Lee says:

    @Yatsuno:

    That is actually pretty cool and exceedingly nefarious. I love it.

  101. 101
    Original Lee says:

    @Suzanne: I’ve had the reverse happen, as well. We were told that none of Original Daughter’s surgery would be covered because the doctor we chose only had privileges at an out-of-network hospital, but we went ahead with it anyway and the insurance company ended up paying for everything except the anesthesiologist.

  102. 102
    jayackroyd says:

    @Baud: Adverse selection is the justification insurers offer for exclusionary rules in small group policies, like groups of one or two participants.

  103. 103
    hrumpole says:

    How is an individual supposed to know if they “really” need an MRI? The way people are wired, a large chunk of them will make the wrong decision–pocketing the hundred bucks for a test–and then have to deal with worse consequences down the road. Does the industry study this?

  104. 104
    jayackroyd says:

    @Maeve: One reason provider prices in the US are so high (double the rest of the OECD) is that providers set prices in secret .

    In countries like Germany that use private insurance, prices are set openly and regulated by the government.

    I wrote up a summary of some of the issues involved in different health care delivery systems. A while ago.

  105. 105
    jayackroyd says:

    @hrumpole: Atul Gawande’s influential New Yorker article discussed the incentives of doctors owning the machines or the specialty practices to overutilize. While there is a lot of talk of overutilization due to patient demand and fear of lawsuits, I think the bigger utilization problem is provider conflict of interest. That is, after all, what led to the first round of health care reform–doctors performing unnecessary in patient procedures* because they were covered by BC/BS major medical.

    ——-
    *EG:
    tonsillectomies. hysterectomies.

  106. 106
    jayackroyd says:

    @debbie: How are the hospitals different? Is one private, the other public? Why are you going to a hospital for an out patient procedure in the first place?

  107. 107
    pseudonymous in nc says:

    @Villago Delenda Est:

    Most of us do not have enough facts to make the call on this, as we’re not trained medical professionals. This is where the idiotic market assumption of information collapses in tatters.

    The mental load of having to second-guess one’s doctor in the US is… exhausting. There’s a lot of talk about “defensive medicine” from the practitioners’ side, but the result is “defensive non-medicine” from the patient’s side, because you either go with “doctor knows best” or end up assuming that everything is designed to rob you. The idea of the “smart healthcare consumer” is bullshit, because we are not doctors.

    I’m going to put in a request, which is for Richard to talk (from an insurer’s perspective) about the acquisition of specialists by hospital groups, which moves the services they provide from the “specialist” level to the high-OOP “hospital outpatient” level. My SO was completely blindsided by that this year: the same test at the same specialist changed from one month to the next because the corporate control of the place (and thus the billing entity) changed.

    The US has too many specialists and not enough general practitioners in any case, because, as Atul Gawande has also pointed out, American medical students have to think about making lots of money from the moment they start their training.

  108. 108
    paul says:

    Let’s remember that this is the way insurance companies think. So even if adverse selection is a myth (because insurance companies subscribe to medical-information databases that essentially know everything about your treatment, and have much more expertise than you in figuring out what that data means in terms of cost) and choice of deductible and other copays is about cash flow rather than risk perception, the way this guy talks is the way insurance companies are typically going to act.

    Which means one of the biggest things we should be pushing for is transparency. Because without that it’s impossible to make those supposed cost-sensitive decisions (other than just dying quickly) and it’s also impossible to fuel the outrage that’s needed to fix things properly.

  109. 109
    Alex says:

    @Villago Delenda Est: A year ago I got the X-ray and eventually had to beg my doctor for an MRI as the pain in my hip got really bad and was responding to no treatment at all. With the MRI, I was able to be properly diagnosed with osteonecrosis, a degenerative bone disease that’s not genetic and, in my case, not a result of any of the common risk factors for the disease.

    I was doing this in France, where both were free for me (under my partner’s insurance), but it still took some finagling to get the MRI. But if I had to pay $100 for the MRI? Doubtful I would have done it at the time. I was pretty poor then. So then my leg would have collapsed and I would now be a paraplegic.

    So I have no clue how I was supposed to make an informed decision there. It seems more like an insurance company would just have wanted me not to take the MRI and buy a cheap wheel chair afterwards.

    In that context, Mayhew’s use of the phrase “appropriately price” is just laughable. The prices are never appropriate, not in a country that spends more on health care than any other while getting mediocre results. The point is to squeeze as much money out of people as possible, their health be damned.

  110. 110

    Let’s look at JC for an example. A mid-40s something male still on average has reasonably low health care costs without too many high expense outliers. Someone of his general demographics is still in the sweet spot for insurance risk as the long term chronic conditions of late middle age and old age aren’t too common yet. John knows he is a klutz and that Steve is plotting to kill him slowly. So if he selects a plan with low cost sharing because he knows that in the next year he needs to worry about a repeat of the mop incident or the first failed attempt on his life by Steve. That is unusual and therefore valuable information for an insurance company as John would have self-identified as riskier than typical for someone his age.

    If you had just wandered in here without the backstory, this would be incomprehensible.

    Knowing the backstory makes it hilarious, and a very appropriate example, though your actuarial mileage may vary.

  111. 111
    Prairielogic says:

    Great Post… look forward to reading more from you.

    Our family is predominantly healthy… but we’ve had our share of pre-existing condition run-ins, paid for births and actually had our coverage “canceled” as of a certain date when the insurance company we were with decided to leave the our state (in the 1990s). In their “thanks for your 15 years of premiums paid, sucker” notification letter, they informed me that if we had a pre-existing condition that prevented us from getting coverage from another provider, we always had the option of applying for the state’s catastrophic coverage policy. At over $1,000 per month… and that was in the 1990s. So I’ve never understood all the screaming about how bad Obamacare is and how we need to repeal it. Yes, I too would prefer a single payer universal system. But (pardon my slam) the health insurance companies are blood sucking parasites that cannot be trusted to do the right thing on their own. We need the federal government laying down the law to them… because without that… if you get sick… you’re screwed. They will find a way to not pay. And even the wealthiest have family (or extended family) or friends who would be ruined financially by such a turn of events. So I really don’t get the Republican’s insane stance on this issue.

  112. 112
    liberal says:

    @jayackroyd:
    There’s definitely economic incentives to overtreat. There’s also the “if you’re a hammer, everything looks like a nail” effect.

  113. 113
    Tone in DC says:

    That story damn near made me sick:

    http://www.azcentral.com/busin.....rcent.html

    I had surgery on my arm for a bad break of radius and ulna in ’97. That reduction (why the hell do they call the procedure that) cost $9,000 then. I shudder to think what it costs these days. That antivenom in the story originally cost more than some condos in Virginia.

  114. 114
    Tone in DC says:

    John knows he is a klutz and that Steve is plotting to kill him slowly.

    The original mission was taken up by the gray cat, after his Tunchness considered everything and decided it was actually better to let the staff live.

    All your couch are belong to CATS (and Lily the Head-butter).

  115. 115
    danimal says:

    @PsiFighter37: Whether he’s an Obot or not really won’t change the abuse he’s about to receive, only the perjorative used.

  116. 116
    T. Scheisskopf says:

    I detect potentially large amounts of topic awesomesauce.

  117. 117
    Claudia says:

    Rilly informative, thanks.

  118. 118
    Anna in PDX says:

    Thank you for this series, what a great idea!

  119. 119
    Joe Bob says:

    @debbie: I deal with a similar issue. Blood test every month, probably for the rest of my life. If I just make a lab appointment for the blood draw it’s $9. The clinic pressures me to see the nurse every month, which costs $48. As best I can tell, the only difference between the lab and the nurse is that the nurse takes my blood pressure and reads the questions on a form to me, which I would othrwise read and fill out myself while waiting for the blood draw results.

    The clinic staff get a little pissy when I refuse to see the nurse, but no way in hell am I paying an extra $39/month forever for no discernable benefit. It’s not like I’m an elderly cancer patient; so I don’t need to be ‘observed’ every four weeks.

    I’m sure that the agreement between my insurer and the clinic is responsible for the ridiculously cheap lab work. Financially, the clinic can probably make it work if the lab cost is tacked on to an office visit. But, if I’m not being billed for an office visit they probably lose money every time I walk in the door.

  120. 120
    jayackroyd says:

    @liberal: here in the urban hellhole, the proliferation of specialists is also an issue.And, of course, nurse practitioners could do a lot more than they do. Dean Baker has pointed this and other elements of artificial scarcity in the medical professional marketplace, in the End of Loser Liberalism.

  121. 121
    debbie says:

    @jayackroyd:

    Nope, they’re both conglomerate hospitals with outpatient blood labs, and my doctor is afillated with both, so she can get the results same day. If there’s any difference, it’s that one (the more expensive test) is a Catholic hospital.

  122. 122
    Ben Franklin says:

    Test

  123. 123
    Ilya says:

    @jayackroyd: “nurse practitioners could do a lot more than they do. Dean Baker has pointed this and other elements of artificial scarcity in the medical professional marketplace” – yes, turns out training doctors, especially specialists, is a really difficult, time-consuming, and expensive process, so instead we should replace them with 25-year-olds who got an online degree in “doctorate of nursing”?

  124. 124

    […] Perhaps that’s why, when a Democratic loyalist blog finally decides to do some education on ObamaCare, it doesn’t start with the actual benefits ObamaCare will deliver*, and certainly doesn’t mention let alone advocate for proven programs, like single payer Medicare for all, that could actually deliver the services ObamaCare claims to. No. What do they do? They begin a series that will explain the arcana of private health insurance. Good call, because that’s what ObamaCare is.** Balloon Juice: […]

  125. 125

    […] Perhaps that’s why, when a Democratic loyalist blog finally decides to do some education on ObamaCare, it doesn’t start with the actual benefits ObamaCare will deliver*, and certainly doesn’t mention let alone advocate for proven programs, like single payer Medicare for all, that could actually deliver the services ObamaCare claims to. No. What do they do? They begin a series that will explain the arcana of private health insurance. Good call, because that’s what ObamaCare is.** Balloon Juice: […]

Trackbacks & Pingbacks

  1. […] Perhaps that’s why, when a Democratic loyalist blog finally decides to do some education on ObamaCare, it doesn’t start with the actual benefits ObamaCare will deliver*, and certainly doesn’t mention let alone advocate for proven programs, like single payer Medicare for all, that could actually deliver the services ObamaCare claims to. No. What do they do? They begin a series that will explain the arcana of private health insurance. Good call, because that’s what ObamaCare is.** Balloon Juice: […]

  2. […] Perhaps that’s why, when a Democratic loyalist blog finally decides to do some education on ObamaCare, it doesn’t start with the actual benefits ObamaCare will deliver*, and certainly doesn’t mention let alone advocate for proven programs, like single payer Medicare for all, that could actually deliver the services ObamaCare claims to. No. What do they do? They begin a series that will explain the arcana of private health insurance. Good call, because that’s what ObamaCare is.** Balloon Juice: […]

Comments are closed.