Saturday, November 14, 2009

Degrees of Evil

Health insurance is in need or reform. I do not for one moment question that assertion, and I am in favor of some of the reform that is being proposed. But insurance is not the only problem in our health care delivery system, it is not the biggest problem, and in some respects it is part of the solution. Consider the following.

We paid total insurance premiums, employer and employee combined, of $7,285 this year because my wife works for a very large company and they have good purchasing power. It is an average policy, with significant deductibles and copays which are higher when we use medical providers that are not “in plan.”

Our out-of-pocket costs have been $2,870 and the insurance company has paid $4,234 on our behalf, for total medical costs incurred of $7,204 paid to medical providers.

Two things sort of leap out here. First is that the insurance company took in $3,051 more than it paid out, which is highway robbery. But that’s really none of my business. When I buy a product I decide if the price I’m willing to pay is justified by what I am receiving and, if it is, then I buy the product. How much of that selling price is profit is not relevant to its value to me. When you buy a bicycle at Sears, do you ask them how much profit they are making on that bicycle?

One also needs to consider that health insurance is a “risk pool” business. How many policies did that company issue where it paid out $3000 more than it took in?

The other thing in those numbers is that it would appear that we could have saved $81 by not having insurance and paying cash for our medical care. That appearance is deceptive. That appearance is very wrong, in fact.

The $7204 was the discounted amount billed by the providers to the insurance company. Had we been cash customers, that amount would have been $15,529 instead, more than two times as much. The insurance company saved us $5374 by demanding deep discounts from medical providers and passing that discount on to us.

Costco charges an annual membership fee to buy merchandise at a reduced cost, made possible by their enormous purchasing power of buying in very large quantity. Health insurance companies offer that same benefit to their clients, they demand deep discounts from medical providers, and they don’t pocket that discount; they pass that savings on to the people they insure. That’s really evil, isn’t it?

On the other hand, hospitals, doctors, and testing labs charge well over twice as much to cash customers as they do to insurance companies. What does present reform do to address that terrible inequity? Nothing.

These insurance premiums are made up, by the way; the medical bills are not, they are actual medical bills and they were not selected. Medical providers routinely do bill cash customers more than twice what they bill insurance, and that is an outrageous practice. I am appalled at the lack of attention that such a usurious policy is receiving.

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