An Examination of Healthcare Price and Efficiency: The Third Party Payer Effect

ACA/Obamacare: The Alternative Cash-only, No Insurance, Price-displaying Business Model of Health-Care

“How does Clinica Mi Pueblo offer these medial services at the “most affordable prices possible”? Here’s how: the clinic operates on a cash-only basis, with transparent prices that are listed both on the clinic’s website and on the wall at each clinic. Further, the clinic accepts no insurance, and it will not submit insurance claims on patients’ behalf. If patients have insurance, they can easily take the paperwork the clinic provides and file an insurance claim on their own. Reducing the costly, time-consuming mountain of paperwork associated with insurance, Medicare and Medicaid is one of the main reasons that cash-only medical clinics can keep their costs down and prices so low and affordable. That’s the same business model that keeps surgery costs so low/affordable at the Surgery Center of Oklahoma, the “free market-loving, price-displaying, state-of-the-art, AAAHC accredited, doctor owned, multi-specialty surgical facility in central OK” that has been featured on CD many times over the years.

So how does the cash-only, no insurance, price-displaying business model of the Clinica Mi Pueblo compare to medical coverage under Obamacare? Well, deductibles for individuals enrolled in the lowest-priced Obamacare health plans will average more than $6,000 in 2017, and families enrolled in bronze plans will have average deductibles of more than $12,000. Importantly, the deductible is the amount of money patients must personally pay out of pocket for health services before Obamacare insurance policies cover any medical costs. And what about the monthly Obamacare premiums? A 40-year-old unsubsidized bronze Obamacare plan patient will pay slightly more than $350 per month this year for their “health coverage” with a deductible of more than $6,000. And that’s supposed to somehow be “affordable” health care? In contrast, spending $350 per month out-of-pocket at Clinica Mi Pueblo, instead of going toward an Obamacare plan that provides almost no actual medical care, would actually purchase quite a lot of actual medical services.

Bottom Line: For routine medical care (annual physicals, flu shots, routine office visits, X-Rays, ultrasounds, MRIs, blood tests, etc.) most Americans, especially younger, healthier patients, would be much better off with a cash-only medical clinic like Clinica Mi Pueblo than with Obamacare, no? Under Obamacare, a 40-year-old American pays more than $4,200 per year in premiums. The out-of-pocket limit for an Obamacare plan is $7,150 this year but that doesn’t include the monthly premiums, so an individual could pay more than $11,000 out-of-pocket this year before his or her health plan would start to pay 100% of the costs of covered benefits. Only in some fantasy world of Big Government progressives and collectivists would that ever be considered an “affordable” health care system!” - An antidote for Obamacare: Cash only medicine with transparent pricing and no insurance — the future of medicine?, AEI, 03/26/2017

Link to the entire article appears below:

https://www.aei.org/publication/an-antidote-for-obamacare-cash-only-medicine-with-transparent-pricing-and-no-insurance-the-future-of-medicine/


　

ACA/Obamacare: Yes, Obamacare Did Make Health Insurance More Expensive Without Addressing the Real Price Driver Problem.

"Way back in 2009, some folks on the left shared a chart showing that national expenditures on healthcare compared to life expectancy.

This comparison was not favorable to the United States, which easily spent the most money but didn’t have concomitantly impressive life expectancy.

At the very least, people looking at the chart were supposed to conclude that other nations had better healthcare systems.

And since the chart circulated while Obamacare was being debated, supporters of that initiative clearly wanted people to believe that the U.S. somehow could get better results at lower cost if the government played a bigger role in the healthcare sector.

There were all sorts of reasons to think that chart was misleading (higher average incomes in the United States, more obesity in the United States, different demographics in the United States, etc), but my main gripe was that the chart was being used to advance the cause of bigger government when it actually showed – at least in part – the consequences of government intervention.

The real problem, I argued, was third-party payer. Thanks to programs such as Medicare and Medicaid, government already was paying for nearly 50 percent of all heath spending in the United States (indeed, the U.S. has more government spending for health programs than some nations with single-payer systems!).

But that’s just part of the story. Thanks to a loophole in the tax code for fringe benefits (a.k.a., the healthcare exclusion), there’s a huge incentive for both employers and employees to provide compensation in the form of very generous health insurance policies. And this means a big chunk of health spending is paid by insurance companies.

The combination of these direct and indirect government policies is that consumers pay very little for their healthcare. Or, to be more precise, they may pay a lot in terms of taxes and foregone cash compensation, but their direct out-of-pocket expenditures are relatively modest.

And this is why I said the national health spending vs life expectancy chart was far less important than a chart I put together showing the relentless expansion of third-party payer. And the reason this chart is so important is that it helps to explain why healthcare costs are so high and why there’s so much inefficiency in the health sector."














- Another Grim Reminder that Obamacare Has Made Healthcare More Expensive, FEE, 08/30/2016.

Link to the entire essay appears below:

https://fee.org/articles/another-grim-reminder-that-obamacare-has-made-healthcare-more-expensive/#0

ACA/Obamacare: Largest US Private Health Insurer Has Second Thoughts About On-Exchange Offerings

‘According to enrollment data, more than 500,000 Americans using the exchanges purchased plans from UnitedHealthcare. Those consumers will have to purchase new plans in 2017 should the insurance company leave the exchanges, Ed Haislmaier, a health policy expert at The Heritage Foundation, told The Daily Signal.

“What we’re seeing is that insurers are re-evaluating whether this is a good market to go into,” he said. “Some are expanding; others are having problems, and they pulled back. Over time, what you’ll probably see is fewer insurers offering coverage in the exchanges. We’re already seeing that, even though United expanded in 2015 and 2016, insurers offering coverage is down. It’s going to take a few years to play out.”

Compared to its competitors, UnitedHealthcare was slow to offer products on the exchange when Obamacare first went into effect in October 2013 and sold plans in just four states—Colorado, Maryland, Nevada, and New York—in 2014, according to the state-run exchanges and federal exchange, HealthCare.gov.

However, the insurer expanded its exchange coverage substantially in 2015 and 2016, selling plans in 22 states during the 2015 open enrollment period and 34 states during this year’s open enrollment period.

Competitors Aetna and Humana, by comparison, are offering coverage on the exchanges in 15 states.

Haislmaier said that insurers like UnitedHealthcare may not have prepared for how much plans sold on the exchanges would cost them.

“What you’re seeing is the market itself, and this is attributable to Obamacare, is turning out to be a market that’s predominately low-income individuals between 100 to 200 percent of the poverty line,” Haislmaier said. “They’re buying coverage, getting a substantial subsidy, but gravitating toward the low cost-sharing plans where they get extra subsidies. The enrollees have more of an incentive to use more health care, and that makes those plans more expensive [for the insurer].”

For insurers to profit from the coverage offered on the exchanges, Haislmaier said, they must narrow networks or raise prices, both of which impact consumers.

“The ones who have not narrowed the networks or have been behind the curve on pricing are having losses and reevaluating participation,” he said.’ - How Obamacare Could Limit Insurance Options for Americans in These 34 States, daily signal.com, 11/25/2015

ACA/Obamacare: Other people, spending other people’s money, on other people

Oklahoma Doctors vs. Obamacare

Health-Care Costs: the “price” you pay for being convinced you do not need to know the price.

One quite obvious problem in health-care in the U.S. is the total absence of price transparency at the point of sale. One must further consider the total absence of price transparency among providers. Stated alternatively, at the point of sale price is absent which further negates price comparisons among alternative points of sale.

Maybe an example better illustrates the absence of price phenomena. Would any consumer enter a retail establishment and purchase goods where no price was marked nor forth coming? If you entered Target, Wal-Mart, Home Depot, or your corner grocer and price was not readily discernable, would you shop or leave the establishment? How could one compare prices among differing retail establishments in the above example if prices are not marked or forth coming?

When purchasing gasoline do you note the marquee sign displaying price and formulate part of your purchase decision regarding price? Imagine gas stations with no price. You can’t imagine gas stations with no price? Welcome to the wonderful world of health-care purchases.

Think for a moment and list all the places that do not display price. Its likely a short list and the list is populated with health-care related services. Why do they not list price? Without prices listed how can you compare price?

Price is a signal. Price is the rationing agent or mechanism regarding the allocation of scarce resources with alternate uses. How can one rationally allocate scarce resources with alternate uses without a rationing agent?

One must then ask himself/herself why price is not readily discernable in health-care? Why isn’t there a price tag, estimate, menu or some sort of price signal? Why are prices available at your local lumber yard but not your local clinic? Why? Its because you are not the payer of the health-care goods and services.

Health-care providers have absolutely no incentive to provide price to those not paying for services. Huh? Think about for a moment: who pays the bill? Where does the health-care provider, in most/many instances tender the invoice? The bill goes to a government sponsored quasi-insurer or a private insurer. The price is provided to the payer which is government or a private insurer.

Wait a darn minute! You pay insurance premiums, and/or you take a lower wage for employer sponsored benefits, and/or you pay into Medicare, and/or you pay taxes for government sponsored Medicaid services hence you are the payer! Sorry, wrong. From the stand point of the health-care provider, the government or a private insurer is the payer.

Rather paradoxical?!? If you are the ultimate payer of health-care services through insurance premiums, reduced wages, and/or taxes how in the world can you not be the payer? You are not the payer because you have been convinced by politicos through the mechanism of government that a third party payment system is to your benefit. That price is no object hence price need not be a component of decision making. Hence price becomes something merely passed onto you, the ultimate payer. Unfortunately, the price passed onto you, you being ultimate payer, is the “price” you pay for being convinced you do not need to know the price.

　

　

ObamaCare: the demise of consumer directed health plans

Media outlet reports, insurers communicating to policyholders, and human resource departments communicating to employees are full of reminders to participants enrolled in consumer directed health plans: no longer will participants find over-the-counter drugs reimbursable beginning 01/01/2011. (1) Consumer directed health plans are specifically know as Health Savings Accounts (HSA), Health Reimbursement Accounts (HRA), and Flexible Spending Accounts (FSA).



Why the removal of over-the-counter reimbursement?

Many commentators argue that ObamaCare removed the reimbursement merely as a government revenue measure. That removing the reimbursement then removed the tax qualification of the reimbursement and causes the participant to show more taxable income. Other commentators say that the removal of over-the-counter reimbursement is merely signaling the beginning of the end of consumer directed health plans.



Removal of over-the-counter reimbursement is not the entire story?


ObamaCare's removal of the reimbursement for over-the-counter drugs is really not the story. The story largely unreported is the purposely designed long term demise of consumer directed health plans under ObamaCare. More generally missing from the story is the long term demise of consumer directed health care decisions over the past forty years. Also under reported is that ObamaCare's removal of reimbursement for over-the-counter drugs works directly opposite of other government initiatives to bring drug costs down for consumer by accelerating the speed at which name brand drugs become generic drugs which in many cases also become over-the-counter drugs.


Consumer Directed Health Plans

What is a consumer directed health plan? Consumer directed health plans are a group of insurance plans based on the concept of utilization of health-care dollars at the point of service. That incentives are created for the consumer to make judgements regarding price and quality of health-care related items at the point of service. Currently its estimated that 46 million workers are covered under consumer directed health plans (2)


Consumers of health-care need incentives?

Why do consumers need incentives to judge price and quality in the realm of health-care? Don't consumers always judge price and quality? Why is health-care different than other consumer price and quality decisions?

Health-care price and quality decisions were the same as any other consumer decision until third party payer effects distorted the decision making process. What does third party payer effects mean?


An example likely best illustrates third party payer effects and the consequential distorted decision making process. If you have purchased "bread insurance" for those occasion in which you buy bread, is your decision to buy bread more based on price and quality or is your decision more based on the bread store accepting your "bread insurance"? If the store you have entered has stone ground whole wheat bread on sale for 50 cents a loaf, but the store will not accept your bread insurance, exactly how do you react? Do you buy the bread or do you seek another store that has a regular white bread priced a $2.00 a loaf however will indeed accept your "bread insurance"?


Remember, you have already paid your monthly premium for your bread insurance. Do you absorb an extra 50 cents and buy the best price/quality or do you purchase the $2.00 loaf and allow the pre-paid third party insurance to handle the transaction? The question is then: does a price distortion occur when third party effects enter the consumer's decision at the point of sale? Yes. "One of the biggest reasons for higher medical costs is that somebody else is paying those costs, whether an insurance company or the government" -Thomas Sowell. (3)




How pervasive is the third party effect?


Circa 1960 health-care costs were paid at a rate of forty five (45) percent on the dollar by health-care consumers at the point of sale. Circa 2008 the forty five percent has become fifteen (15) percent. Addressed alternatively, we have increased from 55% transfer payment level to 85% transfer payment level between 1960 and 2008. (4)



Consumer directed health plans are cost containment programs

Consumer directed health plans are an attempt to reverse the third party payer effect. That is, the plans encourage consumers to make decisions at the point of sale regarding cost/benefit rather than a third party effect causing the consumer to reject cost/benefit as someone else is paying hence cost/benefit takes a back seat.



Why are consumer directed health plans going to end under ObamaCare?

The removal of over-the-counter reimbursement for consumer directed health plans is merely the first signal of the demise of such plans. The health insurance scheme designated as ObamaCare does not specifically forbid consumer directed health plans however the internal workings of the scheme make consumer directed health plan non-viable. Why would such plans be non-viable? Three components of the ObamaCare scheme work to remove consumer directed health plans:

(1) high deductible plans, which are the hallmark of consumer directed health plans, are only allowable under ObamaCare based on a sliding scale of deductible and co-insurance based on income. That is, there is a maximum deductible and co-insurance allowable then those figures are reduced for lower income thresholds at 300 to 400% of the poverty level income then again at 200 to 300% of the poverty level income,

(2) the 80% minimum "medical loss ratio" (amount insurer is required to pay out in benefits for each dollar of premium). High deductible plans would likely never meet this requirement,

(3) first dollar coverage requirements of ObamaCare for "preventative services" does not correlate with a high deductible plan. That is, first dollar benefits, through the third party payer effect, defeats the high deductible plan's incentive of the health-care consumer making cost/benefit decisions at the point of sale. Further, a high deductible plan's cost structure is based on consumers paying first dollar benefits in exchange for a lower premium.

Theoretically you could design a consumer direct health plan given the above parameters however the end result would be a plan with a low deductible, with many first dollar benefits, as well as a plan based on third party payer effects. That is, you would have designed a policy that looks just like the prescribed ObamaCare health plan. (5)

Counter to over-the-counter

ObamaCare is counter to other government initiatives designed to lower drug costs. One one hand you have the government striking deals with drug companies allowing drug companies to more freely advertise their name brand drugs with the drug companies shorting the patent period allowing drugs to go generic quicker. Meanwhile many generic drugs become over the counter drugs or even name brand drugs going direct to over-the-counter such as Zertec. On the other hand the ObamaCare scheme disallows over-the-counter drugs to be reimbursable under consumer directed health plans. Hence two centralized government schemes work directly counter to one another.

Summary

The removal of the over-the-counter reimbursement by the ObamaCare centralized planned scheme is merely the first stage of the demise of consumer directed health plans currently covering 46 million workers. The incentives produced by consumer directed health plans causing consumers to make cost/benefit decisions at the point of sale to overcome the third party payer effect will be purposely eliminated over time through the conscious designed central planning scheme known as ObamaCare. The ObamaCare required removal of reimbursement for over-the-counter drugs works directly counter to other measures of government to reduce drug costs.

Update 02/28/2011: The big problem with healthcare? It's not a market.

http://scottgrannis.blogspot.com/2011/02/big-problem-with-healthcare-its-not.html

Notes:

(1) Health-Care Reform Changes Flex-Spending Reimbursement Rules http://hffo.cuna.org/33824/article/3119/html

(2) Employer Benefit Research Institute, December 2009.

(3) Alice in Health Care, Thomas Sowell,

http://townhall.com/columnists/ThomasSowell/2010/03/02/alice_in_health_care


(4) Back in the Old Days When the "Single Payer" Was the Patient, There Was "Self-Rationing".

http://mjperry.blogspot.com/2010/03/back-in-old-days-when-single-payer-was.html


(5)Bad Medicine, Michael Tanner, Cato Institute, 2010.

The Socialized Medicine Scheme and Health Savings Accounts

The current socialized medicine bill proposed in the house and senate discourages a cost containment method known as the Health Savings Account (HSA).


What is a health savings account (HSA)? Is the HSA a cost containment tool? Is the proposed socialized medicine scheme discouraging the use of the HSA?





What is a Health Savings Account (HSA)?

The health savings account (HSA) is a market based, consumer driven, health-care cost containment mechanism. Through the use of tax qualified deposits to the medical expense savings account and through withdrawals from the account of tax free money (tax free when used for qualifying medical expenses) the consumer is put in the a position of spending their own funds in the wisest manner. (1) (2)

The health savings account is the concept of moving insurance back to the realm of catastrophic coverage. That is, you are allowing insurance to perform its intended use and moving routine items to the sole direction of the consumer. In this way you remove the use of the "insurance mechanism" for everyday expense and/or basic health maintenance issues. (3) (4)

Is the Health Savings Account a cost containment tool?

Health insurance dates back to the artisans of imperial Rome. (5) Health insurance progressed over the years and between 1910 and 1945 the basic medical care expense program was introduced. However, basic medical care expense policies were inadequate against catastrophic accidents and illnesses that required long hospital stays and/or extensive treatment. (6) In extended stay and extensive care cases, the medical expense plan left the insured with large unmanageable bills that were not covered by the basic medical expense plan.

To address the short comings of the basic medical expense plan, Liberty Mutual Insurance Company in 1949 introduced major medical insurance to provide insurance coverage for catastrophic medical events. (7) Today major medical is the most common medical-care coverage available. (8)

However, as with any insurance plan, public or private, there is an inherent problem of the "third party payer system". That is, when a third party pays a bill on the consumer's behalf, the consumer is disenfranchised from the health-care cost and health-care provider. That the third party payer effect leads to the any cost from any provider phenomena. (9) (10) (11)

Major medical health insurance was designed to pay for catastrophes. However, in the recent past major medical has been combined with elements of the old basic medical expense plan with offerings (known as "extras") such as doctor office co-pays, specialist co-pays, prescription cards co-pays and co-pays for emergency room visits. The relatively small out of pocket co-pay with the remainder of the bill subject to the third party payment effect mentioned above, leads to over utilization at a high cost. That is, the cost of the routine expense and the provider of the routine expense are not items that the consumer directly measures in regards to expense or quality due to the third party payment effect.

If you price a typical major medical plan with a $1,000 deductible and include the menu of "extras" as mentioned above, then reprice the plan removing the "extras", you find, as a rule of thumb, a 30% reduction in cost. Further, by increasing the deductible from $1,000 to $5,000, you generally see another 15 to 20% reduction in cost. Hence the proponents of high deductible health plans (HDHP) point to the immediate savings to the consumer of the traditional major medical plan with a high deductible. In other words, taking the major medical plan back to its intended initial use as a "catastrophe plan".

With the removal of the "extras" and the increase in the deductible a major cost savings is achieved. This cost savings is then redirected into the health savings account. The health savings account then gives the consumer the ability to make cost effective decisions about more minor, mundane, everyday expenses such as routine doctor visits, prescription drugs, physicals, etc.. The consumer can shop these routine medical needs and find the best provider at the lowest cost. In other words, the third party payer effect is removed.

Is the current socialized medicine scheme discouraging the use of HSA's?


In both the house and senate versions of socialized medicine the health savings account is discouraged rather than encouraged. (12) Coverage never intended to be included in high deductible health plans are required to be included driving up cost for the major medical portion. Further, limitations on contributions and withdrawals are proposed in both house and senate plans.


The arguments to discourage the health savings account are class warfare based. The typical argument avoids the cost containment feature of the health savings account and concentrates on the class warfare argument associated with the tax qualified status of health savings account as well as the health savings account not being a popular program. (14) (15) However, the critical arguments to discourage HSA's are quickly dispatched as highlighted in a paper by Michael F. Cannon of the Cato Institute as well as other evidence . (16) (17) (18) (19)

Basically the arguments against health savings accounts are that the wealthy and/or high income earner takes advantage of the tax aspect of health savings accounts more often than low wage earners. The argument is the classic class warfare argument and has nothing to do with the main idea of cost containment. The arguments against HSA's point out that HSA's are not popular and have little impact on market share of health insurance. The popularity argument is based on notions and not empirical evidence. That in fact between 2004 and 2010, a mere six years, the HSA has captured 12% of the health insurance market place. (20) (21)(22)

One must take into account that the proposed socialized medicine scheme is nothing more that an elaborate and very complicated price fixing scheme. (23) Fixing prices has nothing to do with cost containment. In point of fact, price fixing schemes have always produced reduced supply. The proponents of price fixing schemes think fixing a price somehow affects basic underlying cost. The results of price fixing is well known within the discipline of economics. Its known to fail each and every time ever attempted. There is not one recorded incident in all of economic history where price fixing ever succeeded. Hence the discouragement of the HSA under the proposed socialized medicine scheme fits the proponents wishes as they are removing a cost containment measure in favor of price fixing.

Summary

The health savings account is a cost containment measure. The health savings account is an attempt to put health insurance back in the realm of catastrophe coverage and make routine medical needs a consumer driven point of sale decision hence creating a cost containment environment. The currently proposed socialized medicine scheme is in fact discouraging health savings accounts as a cost containment measure.


Notes:



(a) the phrase health savings account gets blurred. Many times the phrase health savings accounts (HSA) is used when referring to high deductible health plans (HDHP). Also, the phrase health savings account is sometimes used to refer to the combination of the health savings account and the high deductible health plan.

(b) an excellent source for health savings account information can be found as http://www.hsabankusa.com/.

(c) a very comprehensive discussion of the tax aspects of the health savings account can be found at http://www.irs.gov/publications/p969/ar02.html


(1)http://www.examiner.com/examiner/x-11804-Health-Care-Examiner~y2009m7d27-Health-Savings-Accounts-101-Twelve-reasons-to-have-a-Health-Savings-Account-HSA

(2)http://www.foxnews.com/opinion/2010/01/21/clgray-health-care-reform-obama-massachusetts/

(3)http://www.healthsavingsinfo.com/

(4)http://www.health--savings--accounts.com/hsa-weblog-arch/2009/07/hsa_plan_owners.html

(5)(6)(7)(8) http://www.mrm-mgu.com/sections.asp?sec=42

(9) http://www.healthsavingsinfo.com/

(10) http://www.euclidmanagers.com/downloads/legrev/LRSept04READER.pdf

(11) http://www.answers.com/topic/economics-of-health

(12) http://blog.group-insurance-guide.com/2010/01/14/health-savings-accounts-effects-of-health

(13)http://blogs.wsj.com/wallet/2009/06/26/health-savings-accounts-come-under-fire/tab/article/

(14)http://industry.bnet.com/healthcare/1000865/health-savings-accounts-much-ado-about-nothing/

(15) http://money.cnn.com/2009/09/14/smallbusiness/health_savings_account_HSA_reform/index.htm

(16)http://www.cato.org/pub_display.php?pub_id=6395

(17) http://www.health--savings--accounts.com/hsa-weblog-arch/2009/07/hsa_plan_owners.html

(18) http://articles.moneycentral.msn.com/Insurance/InsureYourHealth/3-health-insurance-blunders-to-avoid.aspx

(19)http://blogs.wsj.com/wallet/2009/06/26/health-savings-accounts-come-under-fire/tab/article/

(20) http://www.healthsavingsinfo.com/

(21)http://www.kff.org/insurance/7672/

(22) http://www.ahipresearch.org/pdfs/2008_HSA_Census.pdf

(23)http://thelastembassy.blogspot.com/2009/12/socialized-medicine-scheme-bending-cost.html