Wednesday, September 16, 2009

The Socialized Medicine Scheme: The "sales pitch" of low out of pocket costs

The current Socialized Medicine schemes being presented are being "pitched" as having very limited out-of-pocket costs. You have likely heard President Obama mention the low out-of-pocket costs in his Socialized Medicine stump speeches.

The four components that likely need explained regarding out-of-pocket costs, in a general sense, are:

(1) Doctor Office Co-Pays: the insured must make a payment, representing a portion of the total payment, at the point of service at the Doctor's Office. Generally, the covered event is the Doctor's charge and any basic tests that can be accomplished in the Doctor's facility. Typical Co-Pays are $25, $50, and $100,

(2) Out Patient Prescription Drug Co-Pays: the insured pays a portion of the prescription price based on a sliding scale. For example, a co-pay of $10 for generic drugs, $50 for named brands (many sliding scales exist),

(3) Major Medical Deductible: the amount of money the insured must absorb before coverage begins for those covered items not mentioned in (1) and (2) above.

(4) Major Medical C0-Insurance: after the Major Medical Deductible is satisfied, the insured participates in the further eligible charges over a specified range. For example, the insurer pays 80% of eligible charges and the insured pays 20% of eligible charges over the next $10,000 of charges after the deductible is satisfied. Stop Loss is the maximum amount the insured must pay under the co-insurance arrangement. In the example above, 20% of $10,000 is $2,000 which is Stop Loss.

Beyond all the other short comings of the Socialized Medicine Scheme discussed previously (see links below), attempting to "sell" a Socialized Medicine Scheme based on low-loss-cost -participation by the insured merely makes the Plan Cost much more expensive.

Think of it this way, as a sales pitch, having to pay very little out-of-pocket sounds great. However, the less the insured participates in the loss, means the more the insurer participates in the loss. The more loss exposure the insurer is faced with, the higher the premium.

The sales pitch of low out-of-pocket costs, like any "sales pitch", omits the remainder of the story. The remainder of the story is that low out-of-pocket costs translates into very high premium costs.

However, the premium cost story gets much uglier. Low out-of-pocket cost which translates into high initial premium cost becomes a cascading price spiral. Why? The low out-of-pocket costs further translates into over utilization. That is, with very little to be paid out-of-pocket, the insured is more apt to seek services. The more services used means more losses incurred meaning premiums must rise to cover the increased losses.

Further, the increasing cost spiral gets fueled by another aspect. Say premium "x" is charged for a low out-of-pocket plan. In a Socialized Medicine Scheme many individuals receive subsidized premiums. Hence certain insureds pay x -subsidy = y premium. These individuals not only have low out-of-pocket costs, they have low premiums due to the subsidy. Low out-of-pocket costs coupled with low subsidized premium generally escalates over utilization and hence more upward premium pressure.

The escalating price spiral receives even more fuel due to "forced participation". Consider those individuals forced to participate in the plan, who previously did not want to buy health insurance for any variety of reasons. These new "forced insureds" find the cost a burden. They also see the cost being forced upon them as a cost they need to recoup. The mind set becomes: if I have to pay "x" premium then I'll get "x" amount of services, further creating over utilization which further drives the price spiral.

As the Premium Price Spirals upwards, the sales pitch becomes "switch the pitch". Suddenly Co-Pays, Deductibles, etc., are raised to lower utilization rates to decrease the rate of the increasing price spiral.

However, these increased Co-Pays, Deductibles then become a situation argued as "fairness". That is, lower income participants complain they can not access the system due to high out-of-pocket costs. These participants want the Government to subsidize their Co-Pays and Deductibles.

Beyond the escalating price spiral brought to you by a Socialized Medicine Scheme, the "sales pitch" of everyone with low out-of-pocket costs is painting each risk with the same paint brush. That is, needs based insurance planning is being supplanted by a sales pitch. The Private Sector has long known that each individual has differing needs. Hence the plan discussed for each Individual Risk is an attempt to meet the Risk's (insured) need. For example, the multi millionaire can self insure, the self employed single carpenter who is 35 years old wants a high deductible catastrophe plan, the business with young middle income workers in their family years needs group coverage that includes wellness coverage, and so on.


1 comment:

  1. Grunenthal has also cross licensed the drug to many other pharmaceutical companies that market it under various names, some of which are listed below.