2009 June 17 Wednesday
Hearings On Health Insurance Policy Cancelations
If you get seriously sick your health insurance company might investigate your medical history.
An investigation by the House Subcommittee on Oversight and Investigations showed that health insurers WellPoint Inc., UnitedHealth Group and Assurant Inc. canceled the coverage of more than 20,000 people, allowing the companies to avoid paying more than $300 million in medical claims over a five-year period.
It also found that policyholders with breast cancer, lymphoma and more than 1,000 other conditions were targeted for rescission and that employees were praised in performance reviews for terminating the policies of customers with expensive illnesses.
In some cases they are targeted over items in their medical records unrelated to the expensive conditions that cause insurance companies to focus on them in the first place.
I happened to watch the testimony for this subcommittee on C-SPAN. I saw these people testify:
A Texas nurse said she lost her coverage, after she was diagnosed with aggressive breast cancer, for failing to disclose a visit to a dermatologist for acne.
The sister of an Illinois man who died of lymphoma said his policy was rescinded for the failure to report a possible aneurysm and gallstones that his physician noted in his chart but did not discuss with him.
What really floored me: the policyholders did not get their policies revoked for hiding the disease that racked up the big costs. For those testifying they lost their coverage over medical issues that nothing to do with their expensive diseases that came later. I sat watching thinking that if one has an individual policy one is basically not safe. You can't count on remaining insured if your insurance company decides to dump you.
It seems to be the case that you can lose your coverage even though you didn't fraudulently represent yourself to a medical insurance company. If one can't make a good faith effort to reveal one's medical history and be assured continued medical insurance as long as you pay your premiums then anyone who has to buy their own medical insurance directly is at risk of losing medical insurance.
Leave aside the public policy issue of health insurance coverage for the moment. What should the self-employed do to ensure they will have medical coverage should the need arise? If you have plenty of money, are healthy, and want to get medical insurance then how to go about it in a way that won't leave an opening for your insurance company to drop coverage a few years later should you suddenly get an expensive disease?
What I also wonder: Are there companies that only try to do rescission on policyholders for previous medical records on the disease that becomes expensive? In other words, do any of the health insurance companies use ethical standards for deciding when to revoke a policy?
The LA Times has been covering the health insurance rescission phenomenon for years and has a lot of articles on their web site about it.
Suppose you don't get your policy revoked. How expensive might it become? Blue Shielf of California hit one 44 year old policy holder with a 54% rate hike to $484 per month. What's it going to cost her at age 50? 55? 60?
The medical insurance providers say they have to contend with fraud. I buy that argument. But the fraud charge is hard to justify when the reason for revoking the policy is for a condition for which the policyholder hasn't even sought treatment (as was the case for some of the people who testified to Congress).
Wellpoint executive Brian A. Sassi told the panel recission policies helped insurance companies combat fraud by ferreting out policyholders who did not reveal pre-existing condition before they signed up for coverage. Sassi pointed to statistics suggesting health-care fraud in the U.S exceeds $100 billion each year.
Since in the United States most people get their medical insurance through their employer they are at risk of losing the ability to get coverage if they develop a condition while employed and then lose their job. An individual can become uninsurable via individual policies. Then it becomes necessary to get a job that comes with medical insurance. Well, what if you are too sick to work?
Even those with employer-provided health insurance are getting hit by rapidly rising costs.
Among adults with employer-sponsored health coverage, out-of-pocket (OOP) spending—including premium shares, deductibles, copayments, and coinsurance—increased by 34 percent between 2004 and 2007, from $545 to $729. Out-of-pocket spending rose 42 percent for the 1 percent of adults with the greatest medical expenses.
In Australia there's a public health system and a parallel private system. The public system is universal (ie available to everyone) and allocates health care resources on a needs basis (eg those with the greatest need are given priority over those with lesser need), while the private system allocates health care resources based on an ability to pay basis. About 45% of the population supplement their public health access with private health insurance.
For the more serious procedures (and certainly for emergency treatment) you'd end up being treated for free at a public hospital because they have the better facilities for keeping you alive, albeit in rather dull surroundings. For 'production line' elective procedures, you'd probably prefer to go to a private hospital where the comfort level is akin to a hotel. That said, you can have free elective procedures at a public hospital, but there's usually a waiting list of anything from a week up to a year (see need-bases resource allocation above). Alternatively, you can have it both ways and use your health insurance to pay for a single room inside a public hospital, while skipping the waiting list and having the choice of your own specialist.
Australian health insurers are heavily regulated:
- Health insurance fees must be 'community rated', that is, health insurers aren't allowed to discriminate between individuals, instead insurers must average costs across the entire population;
- Pre-existing conditions are essentially irrelevant - at most an insurer can decline to cover a person for treatment of a pre-existing condition during the first 12-months of membership, after which the insurer pays just like any other condition;
- Deductibles (called 'excess' in Australia) are capped - amounts vary but a total deductible of $200-$500 per year would be common for a family;
- Private hospital insurance for a single person costs around $600-1400 per year, depending on excess and frills etc. Family hospital insurance costs around $1200-$2000 per year.
Anyone else care to outline the system in their country?
oh, another advantage Australia has is that its illegal for drug companies to advertise outside of the medical profession, so everyone feels better because our innate hypochondria isn't being aggravated.
Interesting. If it were me, I wouldn't want to tick off thousands of terminally ill patients with nothing to lose in a land of liberal gun ownership laws.
One might think that the best health insurance would be to have a relative who is a doctor, but you would be wrong. The best health insurance is to have a relative who is a lawyer. If you can get free legal service you can survive being destitute -- food, housing and healthcare, as well as retention of earnings are all yours if you have free legal service. But if you try to get free health service outside the normal channels, the doctor is at risk of losing his license.
Moral of the story: For those who want to survive in the face of institutions controlling access to vital goods and services, make sure you're related to a lawyer.
Of course, this doesn't insure you in the event of a collapse of the legal system and, indeed, may increase your risks.
Gee, I guess all those women who had breast implants in their twenties and a facelift in their forties better not "forget" to mention it when they purchase their insurance in their fifties.
Really, its ridiculous that a women who forgot she was on accutane for acne in her teens to be thrown off her insurance when she needs it for cancer in her fifties. Her family should be able to sue the living hell out of the company and nail them for millions in my opinion. One has nothing to do with the other. The only thing they should be able to ask you is if you are on any medication and currently have any condition, are a smoker, a heavy drinker, and then give you a full physical to assess your risk. That you took accutane as a teenager, or had your tonsils taken out, or wisdom tooth cut out, or was born with a webbed toe is none of their damned business. They are just looking for a way to cut you out of the money you paid in for years. Insurance companies can be utterly despicable.
I suggest you note this problem as "the OTHER moral hazard." Advocates for crooked insurance companies go on and on about the moral hazard which may prompt the insured to file more claims, but they consistently neglect the other moral hazard: that the insurer, who collects premiums in advance, will refuse to pay claims, thereby converting the moderate profit he could honestly expect into the outsized profit which accrues to a thief.
The problem with cross-national comparisons of healthcare systems is that not everything is equal.
Consider the question of what is medicine? Medicine is drugs and diagnostic equipment. Where is the vast majority of this stuff made? In the United States. Why? Because people can make money off of it. Apply Australian rules or Canadian rules to America and watch this bounty of technology disappear. What would be the result then?
Don't get me wrong. I'm not saying companies don't do bad things like misusing the trust of their customers. But this idea that changes in regulations will lead to some medical is ludicrous.
In fact, as a matter of policy, the US should stress test these "better" medical systems by either prohibiting foreigners from buying medical care here or charging rates that are 10-20 times what Americans are charged. Furthermore, all international drug sales should be done by consignment through the US government where the government is required to get 90% or more of the American retail price.
Then we will see how well these other healthcare programs do.
It is disgusting that people are dropped when they thought they had coverage due to post-claims underwriting. It is actually illegal in the state of California but companies have done it anyway until recently when Poisner made in an enforcement priority - hopefully that will help. Generally these people are screwed because they had a prior lapse in coverage.
The key to those with small business/individual policies is to not let your health insurance ever lapse. I'm greatly oversimplifying for brevity in the following example:
There is generally a 2 month HIPAA gap that you can have but other than that you are SOL on a prexisiting condition. If you had no lapses in coverage and get cancer - the company will not renew your policy but then you can do HIPAA after that- which costs ~80%+ more but is still less than paying for cancer. If you had a lapse in coverage 15 months ago - then you're hipaa covered for 15 months and then you are SOL. The details vary by state but this is generally how it works.
If you are small company - consider pooling your health insurance with others like having a virtual HR shell like trinet or something.
Oh.. i should mention that you typically only get hipaa if it was a group, not individual plan you were on before you lost your coverage.
Truther, the US centric view of pharama is mere propaganda, the truth is that the pharmaceuticals industry is global. Here are the top 10:
1 Novartis Switzerland
2 Pfizer USA
3 Bayer Germany
4 GlaxoSmithKline United Kingdom
5 Johnson and Johnson USA
6 Sanofi-Aventis France
7 Hoffmann–La Roche Switzerland
8 AstraZeneca UK/Sweden
9 Merck & Co. USA
10 Abbott Laboratories USA
And each of those have R&D labs on every continent.
Also, have you wondered why there aren't too many drugs imported into the US market? Perhaps its because the domestic pharmaceutical industry has the market sown up? Here's a quote from the Pharma Manufacturers Association of America re US policy on imported drugs:
We should not pursue policies that could expose Americans to substandard drug products and potentially weaken the Food and Drug Administration (FDA) by crippling the Agency’s ability to fulfill its mission in protecting public health and safety.
Might it be that US-pharma's alleged care for Americans is actually a cover for some kind of self-interest? For instance, keeping prices high in a closed market? God forbid.
The headquarters locations of the drug companies are irrelevant. Where do they make most of their profits?
FDA restrictions on market entry: These are centered around safety and efficacy concerns. Novartis, AstraZeneca, and other foreign pharm cos can and do sell big blockbuster drugs here.
Those non-US drug makers have been shifting more of their research spending into the US btw. It is where they know they will make the most money. So they focus on US regulatory approval first and aim at developing drugs for purposes most in demand in the US.
Really, the facts speak very loudly in favor of the US as the center of drug innovation and price controls outside of the US are a major reason why.
For those hoping that Europe might be redressing the imbalance in R&D innovation compared with the United States, two recent reports make gloomy reading. According to a competitiveness report published in November 2006 by the European Commission's high-level Pharmaceutical Forum, the US has established itself firmly as the key innovator in pharmaceuticals since 2000. "That dominant position continues to expand... a disproportionate share of pharmaceutical R&D is performed in the US," it laments.
The discouraging conclusion for European R&D is backed up by Kenneth Kaitin, Director of the Boston-based Tufts Center for the Study of Drug Development, which released a study on drug approval times and new drug availability in Europe and the US earlier this year. He says pharmaceutical companies are increasingly submitting their new drug applications in the US long before they apply in Europe — and as a direct result, they are focusing their R&D efforts in the US too.
Of the 71 drugs receiving marketing clearance both in the European Union and the US between 2000 and 2005, 73% (that is, 52 drugs) received approval first from the US FDA (Fig. 1). On average, the FDA approval came 1 year ahead of clearance by the European Medicines Agency (EMEA).
We fund the development of the drugs that the rest of the world uses.
Europe produces fewer useful drugs due to its price controls.
The loss to research caused by price controls was quantified in a recent study by the U.S. Department of Commerce. The study looked at the impact of pharmaceutical price controls in 11 countries, including Holland, France, and Germany, and found they caused a $5 billion to $8 billion annual reduction in funding for drug research and development.
What could that amount buy? According to the study, it could lead to the discovery of three or four new potentially life-saving drugs each year. So it's no surprise that from 1998 to 2002 there were only 44 new drug launches in Europe, compared to 85 in the United States.
American drug R&D spending is growing faster than in Europe.
Between 1990 and 2007, pharmaceutical research and development investment in the United States increased 5.2 times while in Europe it rose 3.3 times, according to industry figures
Americans spend more per person on drugs than people in other countries. Countries other than the US that have fewer drug price controls also get drugs to market quicker than those countries with price controls.
Also see my post Tyler Cowen: High US Medical Spending Spurs Innovation.
BTW, R&D facilities dispersed around the world are not more productive:
A dispersed global R&D network is less effective. Companies that operated a multi-geography network of fewer and larger R&D facilities performed 30% better on three-year operating income growth and total shareholder return, and 40 percent better on three-year market-cap growth. "A highly focused R&D footprint improves coordination among sites, and focuses a company's talent pool in its R&D hubs that benefit from scale," said Kevin Dehoff, Booz & Company Partner. In contrast, those with smaller, more dispersed site strategies "experience execution problems," he added. The study finds, in fact, that nearly half of companies that deployed R&D resources globally did not reap the benefit they anticipated.
I have heard time and time again from VCs and people involved in the entrepreneurial medical community that the main driver for investment in medical device and drug R&D is the potential to score a blockbuster drug or device that will sell in the lucrative US market. If the US carrot were taken away, there surely would be less R&D spending. Not saying that it's okay that the US bears the cost burden of being the snow plow.
Jerry, despite the political environment, it seems likely that medical R&D would drop because the low hanging fruit for blockbuster drug have already been picked and they are about to go off patent. Also, it doesn't seem to bea good environment for new drugs if tey have to compete with off-patent generics, and monopsonies (such as health insurance companies and governments# who are now interested in cost/benefit analysis.
Unfortunately, I do not see any real effort to reduce costs. I do not see a restriction of immigration as one its immigration's ects is to drive up medical costs.
Randall, I am pessimistic about the development of SENS. Are you optimistic? Why do you think the public or private sector would pursue that endeavor? I think the value of SENS would be highly discounted and this would discourage research for SENS. For example, there are significant doubts on its feasibility and it would take a long time to achieve the goals of SENS. An analogy from security analysis: in the case of the former, a bond from a company with a low credit rating (that is the perception of inability for it to pay off the bond at maturity) would lower the price of a bond and increase its yield, and cash flows from a distant future would have intertemporal discount rates than one closer to the present (this is one reason why yield curves is usually upward sloping). In the case of SENS, there is a significant risk that research into it would not yield much and the pay would take years for it come to fruition.
Randall, why do you value SENS more than I do? Why do you see this as a likely outcome that could be obtained in a reasonable time frame #for the sake of this comment, I'll say around 30-40 years as "reasonable".)
Drug development spending has greatly increased in recent years. The aging of the US population and yearly increases in drug spending well above the rate of inflation provides incentives for new drug development. If drug development spending drops it will be because ObamaCare puts price controls on drugs. That's my biggest fear in the current health policy debate. I do not want to remove incentives for drug development.
Real efforts to reduce costs: Increasing co-pays for employees is a big way to cut costs. So are Health Savings Accounts. So are Medicare rules about what Medicare will pay and how much it will pay.
Bigger cost cutting measures are coming. Cost increases for medical care are not sustainable:
Healthcare expenditures in the United States are currently about 18 percent of GDP, and this share is projected to rise sharply. If healthcare costs continue to grow at historical rates, the share of GDP devoted to healthcare in the United States is projected to reach 34 percent by 2040.
SENS: I expect rejuvenation therapies to come as a result of attempts to treat individual diseases. Stem cell therapies will be developed to repair joints, muscles, and other body parts.
Reasonable time frame: stem cell therapies are going to come to market in the next 10 years. Watch what is being done with lab animals. Ditto some gene therapies. I expect big advances in manipulating MicroRNA in order to cure cancer. The techniques developed against cancer will be reusable for other diseases.
The amount of money available to treat diseases is so enormous that the incentives for treatment development are considerable. Also, Arlen Specter just managed to get the budget for NIH doubled as a consequence of the financial crisis. In a year when Congress was doing massive spending increases he managed to get a few tens of billions added. The money is there.