UnitedHealth Group (UNH) had a banner quarter, as their 4th quarter earnings jumped to $1.7 Billion. Is this good news for UNH but bad news for healthcare consumers? With their stock currently trading at $165 a share, and total annual revenue approaching $200 billion, things are looking good for UNH executives and shareholders. But what does this mean for healthcare consumers?
For the past 12 years, as a business owner, I’ve paid for 100% of all my healthcare costs. This allows for a pragmatic view of the industry, regardless of political party rhetoric or politician promises. From my perspective the only constant has been increased premiums and reduced benefits. This was true under the Bush years and has not changed since. All the parties involved in our healthcare system, including hospitals, insurance carriers, pharmaceutical companies, and medical device manufacturers, are first and foremost seeking to increase profits. This includes many non-profit hospitals, which are actually extremely profitable, the difference being that their profits are reinvested in facilities, technology, research and of course compensation. Little has been done to provide patient visibility into the rising costs. Then again, why should these parties work to lower costs or increase patient visibility? Lower costs result in reduced revenue and profits, and these healthcare entities are motivated to earn compelling returns for their shareholders and executives. The same motivation as any business.
How Much Does an X-ray Cost?
Let’s look at a real life example of the problem. I had a sore ankle and was referred by my primary care physician assistant ($50 Tufts copay) to an ankle specialist. The ankle specialist ($75 Tufts copay) directed me to get an X-ray. So I asked the front desk staff at the ankle specialist a simple question, how much would the X-ray cost? They said, “Your insurance will cover it.” Of course this is no longer true, as deductibles and copayments often apply, and even if my insurance did cover it, shouldn’t I know what they get charged? The physician’s staff then told me to ask the radiology department.
About 10 minutes later, I was in radiology, and asked their scheduler the same question about the cost. She had no idea and seemed surprised by the question, but said she would call the radiology billing department. The billing department told me (indirectly since she was on the phone speaking with the scheduler) that it depended upon my insurance company. I provided my Tufts insurance card and asked again, how much the X-Ray would cost. I was then told to speak directly with their billing specialist, who would help me determine the cost of the X-ray. After a 10 minute discussion, and twice being placed on hold, I was finally told what my carrier allowed and the likely range of costs, which she estimated to be about $100 to $150. It was an arduous journey to get what should be easily and immediately accessible from the hospital and insurance carrier, on a PC or on a smart phone app.
Many millions of X-rays are done in the U.S. every year and the costs should not take on a mystical property. If we can quickly learn the cost to add the most insignificant item to a new car (readily available online), or quickly determine the average cost paid for any model car, new or used, in any given area of the country, why should medical procedures be different? The simple answer lies with the providers, as hospitals, clinics, labs, etc. don’t want us to know. Keeping rates hidden, helps mitigate competition and limits patient insight into their costs. If “Hospital A” charged $200 for an ankle X-ray, and “Hospital B” which was 5 miles away charged $100, patients might choose the latter (assuming they were in your network which must also be checked). Look at this a different way, if you wanted to purchase some groceries and they would cost $200 at the convenience store around the corner, but only $100 five minutes away, would you drive the five minutes for the savings?
Fortunately, this is changing, albeit much too slowly. There are progressively more online sources and services to help determine the best quality of resources available at the best price. This includes pharmacy sites and apps (GoodRX) which compare drug costs by pharmacy within a specific area, physician (PriceDoc) and hospital quality and costs (LeapFrogGroup or even medicare.gov/hospitalcompare), surgical costs, and there are numerous sites to now compare dental fees. This is potentially good news for consumers, and the faster and more pervasive the better.
It’s all about the Profits
Now let’s get back to UnitedHealth specifically, and healthcare carriers in general. What happens when healthcare insurance companies are focused mainly on profits? Our capitalistic system is in many regards the most enviable model for the entire world. It’s typically efficient, often transparent, and open to most everyone (anyone can start a business in America). It fosters innovation in part because of the inherent competition. That’s pretty impressive. But when it comes to healthcare, the system seems to break down.
You may recall that in 2016 UNH was pulling out of certain markets relating to Obamacare. Forbes reported that, “UnitedHealth entered 2017 selling individual coverage under the ACA in just a handful of states after scaling back its Obamacare footprint significantly.” That said, UNH did see promise in offering coverage under Medicaid, which was expanded to 31 states under ACA. Why did they do this? Remember, their top priority is not about providing health insurance and caring for patients, it’s about making profits. And if $7 billion dollars in profits is insufficient for their shareholders, then UNH needs to go (or leave) and find a place they can make even greater returns. Granted, healthcare companies do need to make a profit in the current climate, the question is, how much profit and how do they make these profits.
Are profits derived from selling cars different than profits derived from saving (or not saving) lives? Before Obamacare, insurance companies could turn down people they deemed an unacceptable risk. For example, let’s say there was a 60 year old male we’ll call “Mike the mechanic”, who was changing jobs and moving to a new health plan. Mike was healthy for his entire adult life (almost 40 years from age 18 to 58), but then had a heart attack on his 59th birthday. Prior to Obamacare (ACA), this would be a preexisting condition, and even though Mike the mechanic really needed health insurance, and had been a net contributor for almost four decades, insurance companies could simply say no, or charge him dramatically higher rates. That doesn’t sound like a fair or equitable deal, and it leaves the insurance carriers holding all the cards.
Mike’s Premiums Versus Steve’s $110 Million Paycheck
But wait a minute, what happened to Mike’s 40 years of barely used premiums? During that time, Mike’s premiums went to pay for less healthy people, and to pay for health insurance company profits. Let’s look at an example. Let’s say that UNH charged $10,000 a year when Mike was 50 and healthy, and earned 10% on an average policy. Mike contributed $1,000 toward their profits, while the remaining $9,000 would pay for his healthcare costs (which were nominal for 40 years) and others who needed more care than their premiums would cover. Of course profits can be a deceptive metric, as they are determined after executive compensation, perks and other costs. And just in case you’re wondering how much that might be, UnitedHealth Group’s CEO, Stephen Hemsley, received total compensation of about $110 Million in 2010 and $66 Million in 2014. Total compensation can include salary, stock option rewards which are often a great factor in compensation, deferred compensation benefits, expense account perks, health benefits, life insurance policies and more. Whether or not you think some of these CEOs are paid too much, it seems like it should be different when it comes to healthcare and health insurance. When a health insurance company turns down someone with a preexisting condition, they are enriching themselves by refusing to pay for those most desperately in need. That makes sense from a profit standpoint, but not from a healthcare perspective.
Say No and Hope That the Claim Goes Unpaid
About six years ago, my daughter travelled to Moscow for her “mod abroad” program at the university she attended. She was a government major, and had been studying international politics and learning Russian. At the time, our insurance carrier was Blue Cross Blue Shield of Massachusetts. We contacted them to ask about her coverage wile in Russia, and what our daughter should do if she became ill. They were very specific, offering three choices of physician offices and clinics in Moscow that she could visit in the event of illness.
Several months after her arrival, she came down with conjunctivitis, visited one of the clinics suggested, got a written receipt for the visit, and sent the receipt to me. I filled out the proper BCBS form with a detailed explanation and submitted the form and receipt to BCBS of Massachusetts. What happened to that claim? It was rejected! So I called the claims department, and was referred to a supervisor, who told me that the claim was reviewed, and it was determined that it wasn’t part of our coverage. I said, “They didn’t review it.” The supervisor again said that they did. We volleyed back and forth a couple of times, when I said, “So how many of your claim processors are fluent in Russian?” The receipt was in Russian (Cyrillic characters), which is essentially unreadable for your average English speaker. I also told her that we followed the BCBS protocol exactly, and that we documented everything to ensure we had an audit trail. The supervisor put me on hold, twice, and returned about five minutes later to say they would pay the claim. That was a lot of work for a claim that was around $150, but that seems to be the idea. Consumers tire out, fail to understand the nuances, or simply throw in the towel when it comes to dealing with these types of issues.
It’s been extremely difficult to get cost estimates from insurance companies. Here is another real life example. I had turned 50 which means the time had come for a routine colonoscopy. I called Tufts Health to ask about the procedure cost, and after a series of transfers and holds, was finally on the line with a representative who told me that the procedure would be covered 100%, as it was a preventative care procedure. A couple of months after the procedure, my EOB (Explanation of Benefits) arrived with the patient responsible portion costing me thousands of dollars. After another series of calls, Tufts agreed that there was an error, and said it would be 100% covered. Another month passed, and I received a new EOB, this one for hundreds dollars. Once again, I made the requisite call to Tufts, and they said that the new error would be fixed, and I would not owe anything. And after many months, and many calls, Tufts Health Plan finally did what they should have done in the first place, and paid for the procedure. But what happens to people who don’t have the time, the knowledge or the patience to make all these calls? Many give up, contributing to the profits of the insurance company. Does our compelling capitalistic system work well with most types of businesses, but fail to do so when it comes to providing healthcare?
ACA Protections versus the Pursuit of Profits
There are other protections which were created under Obamacare. Prior to ACA, many twenty something children were not covered under their parent’s policies after they graduated college. There were restrictions on yearly and lifetime maximums that were devastating to families which encountered a severe illness. And as mentioned prior, the ability to turn down people with preexisting conditions was a major problem for many healthcare consumers. These issues were exacerbated by the exorbitant “retail rates” charged by hospitals, pharmaceutical companies and medical device companies. For example, an ankle X-ray which might be billed at $150 for an insurance patient, could be $500 or more for a private pay patient without an insurance coverage.
One reason for all of the restrictions above gets back to the profit motive of healthcare related companies including the insurance carriers. Though profit opportunities typically yield positive results in our highly competitive capitalistic system, as companies work hard to cut costs and improve efficiency, healthcare creates some unusual barriers to this paradigm. For example, when Mike the mechanic was having a heart attack, he had no concern with price, he wanted the best care possible regardless of costs. And therein lies a big part of the problem. When it comes to the healthcare of our loved ones, we often don’t care what it costs. But not all problems are urgent care related, and in many instances patients can take the time to weigh the costs, quality and venue of procedures, if providers would just let us know.
Would UNH post lower profits if they provided better coverages, or less costly plans? The simple answer seems to be, yes. From what I’ve seen, there doesn’t seem to be much competition, as all the major healthcare carriers charge similar (and confusing) rates. When I’ve compared carrier rates and coverage each year, including the dizzying array of seemingly similar plans, they all look comparable. But that’s not the case when I compare auto and home insurance coverage – there is often a wide disparity – likely due to competition and transparency. Is there really any true competition between healthcare insurance carriers?
With all of these healthcare players (insurers, hospitals, pharma companies, medical device companies, etc.) striving to increase profits, and lobby our politicians to allow them to do so, how will costs be reined in, and how can coverages be fairly administered? Just imagine how many more billions UnitedHealth (or any healthcare insurance carrier) could earn if they could refuse anyone they deemed to have an expensive potential condition. Or perhaps they could earn even more if they refused to cover those who were genetically predisposed toward a health condition. And actually, some of the carriers and large employers tried to do so, resulting in government legislation to prevent carriers and employers from refusing to insure people based on genetic profiling. The Genetic Information Nondiscrimination Act of 2008 (GINA), prohibited discrimination on the basis of genetic information with respect to both health insurance and employment.
What if health insurance companies could successfully lobby congress to cut back on those pesky annual or lifetime limits? Perhaps they could really make those profits soar, with shareholders recording windfall profits. Or perhaps insurance companies could lobby to cover only healthy young people up to the age of 50, or charge 10 times the rates for older people. These statements strike at the heart of the paradox, the fair distribution of health insurance versus the profit driven model of our current healthcare system.
Health insurers now operate under a law referred to as the 80/20 rule, which is designed to help consumers by guaranteeing that at least 80% of insurance premiums will be used to pay for health care related costs. The other 20% goes to general administrative, overhead, and marketing costs. In some cases, like group benefits, or certain state requirements, the spending level required is 85% to 88%. This regulation may be helping, but it is not be helping enough. The incentive to cut costs is mitigated because a bigger top line revenue number will often result in greater profits. Simply said, an insurer with a billion dollars in revue could earn $200 million while an insurer with half that revenue might only earn $100 million in profit, even though they are doing a better job controlling premiums and costs.
Imperfect but a Step in the Right Direction?
Obamacare is an imperfect solution, let’s examine why this happened. Obama needed to build consensus with existing players, to try to refine the existing system. His attempt to create a government option failed, and as a result of this and the special interests lobbying Congress, ACA didn’t do enough to reduce costs. It also added complexities and compliance issues for many businesses, and created a Cadillac tax to help defray the costs of the program. That said, it added many important protections and helped provide subsidized insurance for millions of uninsured US healthcare consumers. Though imperfect, it seemed like a step in the right direction, insuring tens of millions of people, and curbing potential abuses by insurance carriers.
Repeal And Replace
However, our new president and our Republican controlled Congress are trying to repeal ACA. Trump has promised to resolve all these issues, reduce costs, and retain the key benefits of Obamacare. To me, that seemed difficult to believe. And recently the POTUS seems to have realized that changes to our health system are difficult, “It’s an unbelievably complex subject, nobody knew that health care could be so complicated.” I’m not sure where he’s been, but it’s been complicated for as long as I can remember. Perhaps the POTUS should spend less time Tweeting and more time reading books like America’s Bitter Pill: Money, Politics, Backroom Deals, and the Fight to Fix Our Broken Healthcare System, which details the highly nuanced politics and complexities involved in our healthcare system.
Will ACA be repealed and replaced with a “less expensive and much better… insurance for everybody,” as Trump has stated? The American Healthcare Act, appeared to contradict Trump’s lofty and seemingly unrealistic promises. And though Trump said everyone will be insured, The U.S. Congressional Budget Office said that over 14 million people will lose their health insurance coverage if the American Healthcare Act is ever approved. As more details finally emerge about the Republican replacement plan for ACA, one of the early proposed changes is said to allow insurance companies the ability to charge older customers up to five times more than younger customers. Sounds like bad news for Mike the mechanic if this is allowed to happen.
It’s Still About Visibility
Regardless of the proposed changes, costs will never be curtailed if consumers don’t gain visibility into the prices we are all charged. Not that visibility is the sole answer to this complex issue. But it is a good beginning. We should all be concerned with the cost of an ankle X-ray, including the physician’s office referring the patient for the procedure. Does it cost $200 at the medical office building, but $100 around the corner? Is the radiology practice around the corner in “the network”? What are the patient ratings for each of those two providers? Sound complicated? If Yelp, TripAdvisor, and Edmunds can readily share a plethora of information, including specifics on restaurants (which meal to order), hotels (best rooms to ask for) and cars (average price paid in your zip code), isn’t it feasible to offer access to the billions we’re spending on healthcare?
Of course it would be great if we could all get what Trump promised, namely “less expensive and much better” health insurance. But since all these promises sound like empty promises, I’m not going to hold my breath, because that could cause a lung rupture, and that is likely to be a preexisting condition.
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