Posts Tagged ‘costs’
Americans pay more than one and a half trillion dollars for medical care each year and costs related to all manner of health care, such as prescription drugs, continue to skyrocket. While some of reasons behind this booming bill are understandable, Americans caught in a cash crunch might be surprised to find out some of the lesser-known causes of high health care costs.
The words health care might invoke images of doctors, nurses and hospitals, but the reality is that the medical field is a business and a ruthless one at that. Individual practitioners, researchers and participants may have wonderful intentions and a true desire to help people, but the structure of the American health care system ensures profit is the number one issue of importance.
Here are some facts that may help explain the high costs of American health care:
Pharmaceutical research and development companies spend roughly $20 billion each year on R&D, and about the same amount on advertising and self-promotional marketing activities.
There is sure to be a grin on your face once you get to read this article on health insurance. This is because you are sure to realize that all this matter is so obvious, you wonder how come you never got to know about it!
Additionally, drug companies have as many sales people as there are doctors in the United States. One of the responsibilities of this sales force is to convince doctors to attend pharmaceutical company-sponsored seminars where drugs are showcased.
According to some economists, the purchase of new technology is responsible for more than 50 percent of new health care spending over the last three years.
Much of the money Americans pay for health care finds its way into the rising profits on health care-related products and services such as the provision of medical insurance. Even higher costs have been forecasted for the future, especially for prescription drugs.
For many Americans who are unable to afford the health care they need, rising costs represent an ever-increasing barrier to medical services and products. The financial burden is also felt on the larger national scale with about 15 percent of gross domestic product going toward health care costs. That is equal to about one quarter of the annual federal budget.
Comparatively, Canada invests around 10 percent of its GDP on its public health care program. Unlike the United States, Canada’s health care program is universally available to all citizens and permanent residents without cost. Other countries, such as Germany, where there is a public/private delivery system model for health care, manage to serve their populations for even less while still having better longevity than Americans. This proves that the quality of health care does not rise proportionally with the amount of money spent to attain it.
While many Canadians supplement their universal health care with added insurance to cover the cost of medication and perks such as semi-private or private hospital rooms, health care insurance is much more essential in the United States. Unfortunately, costs have been rising dramatically, making health care insurance out of reach for many Americans. Currently, more than forty million Americans do not receive any kind of health care benefit.
Developing a vision on health insurance, we saw the need of providing some enlightenment in health insurance for others to learn more about health insurance.
For employers, providing health care insurance for employees is also becoming more expensive, with increases dramatically outpacing inflation rates. Some years, the difference is four or six fold. Even if premiums were to remain static, offering health care insurance to employees still costs several thousand dollars per worker. For smaller companies, or for those who employ a large number of people, these costs can be prohibitive.
Measures to reduce health care costs are always under consideration, though many are not popular choices. Suggestions that have been put forward by various sources have included:
Increased drug awareness and education. Millions could be saved if health care insurance covered only generic versions of drugs that have been proven just as effective as their more expensive brand name counterparts.
Terminate expensive treatment options will only add a short amount of time to a patient’s life, particularly if it will not be quality time (i.e. patient is in a coma).
Promote preventative care such as smart lifestyle choices, proper nutrition and exercise.
Examine to ways to control drug advertising to consumers. There is speculation that advertising has led to prescriptions of non-necessary drugs.
Limit malpractice liability so doctors and medical professionals do not feel pressured to cover themselves by ordering unnecessary tests to substantiate conditions they already know to be present.
Iowa is one of only six states to offer the option of free health insurance to state government employees and their families. And the state’s cost to provide health insurance has increased more than 300 percent — $176 million — in 10 years, a Des Moines Register analysis shows.
Iowa’s state employees also pay substantially lower out-of-pocket health insurance costs, such as deductibles and office co-payments, than private-sector workers, according to an independent study of nearly 900 businesses and government employers conducted this year by David P. Lind & Associates of Clive.
Government employees at all levels in Iowa, including those working for schools and local governments, pay maximum out-of-pocket costs that are about half the amount paid by workers in private businesses, Lind’s survey found. That represents a possible annual savings of $1,000 or more for each employee.
The combination of higher benefit costs and lower state revenue has prompted calls for change.
Rep. Scott Raecker of Urbandale, the top-ranking Republican on the House Appropriations Committee, has proposed that state employees contribute $50 a month for health care premiums.
As of July 1, 84 percent of the 28,522 state employees enrolled in health insurance through their jobs participated in plans for which they paid no premiums, according to the Iowa Department of Management. That number includes employees in all branches of state government.
The five other states that offer at least some of their employees no-premium health insurance are Arkansas, Delaware, North Dakota, Oklahoma and Oregon.
Iowa offers employees a variety of insurance plans. Generally, the 16 percent of state employees who pay part of their premium costs have chosen more comprehensive insurance, which covers more medical conditions, such as chronic illnesses, or pays a greater percentage of total claims.
“We ask indigent Iowans and those living under the poverty level to contribute up to $40 a month for their state-sponsored health plan, yet, in many cases, do not ask state employees to contribute anything,” Raecker said. “It’s not an easy thing to do, but I think most Iowans would appreciate the fact that state employees would contribute to their health care plan.”
The proposal is unlikely to go anywhere in the coming legislative session. Democrats occupy the governor’s office and hold majorities in both the Iowa House and Senate.
House Majority Leader Kevin McCarthy, D-Des Moines, called Republicans’ push to cut state employee benefits “a turkey.”
Benefits were negotiated with unions in legally binding contracts, and cutting them would be unfair, McCarthy said.
He agreed that medical costs are “out of control,” but said the issue needs to be resolved through national reform.
Several other states are looking at how to rein in health insurance costs.
Officials in Alabama, California, Hawaii, Illinois, Maine and Nevada are considering increasing employees’ share of premiums and co-payments, according to the National Conference of State Legislatures. At least 11 states are considering trimming coverage.
Requiring employees to pay partial premiums would not only help offset the government’s costs but also help them gain awareness of health costs, which ultimately would help hold down rates, said Fred Buie, president of Keystone Electrical Manufacturing Co. in Des Moines.
Keystone, which has 60 full-time employees, has kept health insurance costs level in the past four years largely by setting up health reimbursement accounts, which reimburse employees for some medical expenses. The accounts come with a tax advantage that helps offset costs for Keystone.
Keystone employees pay an average of about 18 percent of health care costs through monthly premiums.
“I don’t know of any private business where employees don’t pay premiums,” Buie said. “If you’re contributing, you appreciate it more and tend to make better use of it.”
Union officials who represent state workers have long argued that good benefits are part of a trade-off state employees make for accepting lower pay.
That depends on state workers’ education levels, according to a review of salary data conducted for the Register by Iowa State University economist David Swenson.
Highly educated state workers, on average, do make less than those in the private sector, by $15,000 or more a year, Swenson found. But state workers as a group make nearly $5,400 more a year on average in base salary and receive $4,700 more in benefits than their private-sector counterparts.
Danny Homan, president of AFSCME’s Local 61, contended last month that the salary and benefits information obtained by the Register is “either a lie or miscalculated.”
The Register, in response, shared much of its data with Homan and spokesman Charlie Wishman and requested they provide information or studies that dispute the newspaper’s findings. They declined to do so, although Wishman, in an e-mail, questioned Lind’s methodology because it did not break out education levels.
Lind’s study focused upon health insurance costs, which, unlike salaries, do not correlate closely with education levels. Lind said the survey has an accuracy rate of plus or minus 3.3 percent.
Union officials say members have accepted smaller raises in recent years to help preserve good benefits. Across-the-board wage increases have been 3 percent or less for the past 10 years, with no raises in 2006 and the current fiscal year. Some employees are eligible each year for step increases beyond the across-the-board raise.
Susan Shields, a pharmacist with the state’s corrections department, falls in the category of highly educated state workers who are paid less than private-sector counterparts. Eleven years ago, she left a pharmacist job with a large retailer to join the state work force. Last year, her pay remained roughly $4,000 less than that of the average pharmacist in Iowa.
Shields said she was working nearly 80 hours a week in the private sector and now works closer to a normal workweek. While pay is less with the state, the benefits are better, she acknowledged.
“I don’t think of myself as being any better off or worse off (than) most pharmacists,” Shields said. “No, I don’t make the same amount of money as someone who works for a big-box retail chain. They make a lot of money, but they also work a lot of hours and have a lot of stress. I’ve been there. It’s not worth the money.”
The state has taken steps in recent years to rein in its increased costs for employee health benefits. Those efforts have created tension.
Beginning in January of this year, for example, Iowa eliminated United HealthCare as a health insurance option for state employees, a move estimated to save $10.8 million this year, according to a memo sent in September to state officials by Ed Holland, division administrator for the Iowa Department of Administrative Services.
Iowa’s five-member Executive Council, headed by Gov. Chet Culver, made the decision. Opponents, including members of his own party, said thousands of workers would have to choose among plans that offer less flexibility, particularly to see specialists in other states. They also cast doubt on the savings.
Holland said last week that the decision has led to few problems to date.
The state also expanded education on wellness and prevention, which officials think will help lower long-term costs.
State leaders, including Culver, have also set up a working group of unions and government representatives to identify ways to reduce health care costs. The next time union contracts are up for negotiations is 2011.
The negotiation process that leads to union agreements on salaries and benefits is conducted almost entirely in private. Typically, the governor, a handful of other state employees and union representatives participate. Although authorities make final union agreements public, union leaders, state negotiators and lawmakers usually do not discuss how negotiators arrived at the agreements.
The Department of Administrative Services denied a request for an interview with any employee of that department involved in the collective bargaining process.
Senate Majority Leader Michael Gronstal, D-Council Bluffs, said the negotiation process takes much of the decision-making about employee benefit costs out of the hands of lawmakers.
Questioned about the premium-free health insurance offered to state employees, Gronstal said: “I don’t want to characterize it as good or bad because that is unfairly biasing the collective bargaining process. This is a job for the executive branch to negotiate with the employee unions, and I am not going to jawbone the unions down or state government up in this equation. I think it’s inappropriate for us to comment on subjects relative to collective bargaining.”
Senate Republican Leader Paul McKinley said the union negotiation process should be more transparent to allow more citizen input as negotiating takes place.
“One of the things we know is that the total compensation package of state employees has exceeded that of private employees, and it has gotten to the point where we’re seeing billion-dollar deficits,” McKinley said. “The bargaining process just isn’t working to protect the taxpayers.”
If a governor wanted to require employees to pay part of insurance premiums or take other steps to control costs, such changes are often years in the making, said Richard Cauch, health program director for the National Conference of State Legislatures.
“Changes for public employees generally move at a slower pace,” Cauch said, noting the complex union agreements that bind most states. “It’s unlike the private sector, where a company can announce, ‘In 60 days, here’s what we’re doing to you.’”
Why? Because Congress wants to levy a $6.7 billion premium tax on all private health plans each year for the next decade to pay for reform.
That’s a $67 billion tax.
Health plans will have no choice but to pass these costs on to the consumer. This tax will make it tougher for families to afford coverage, increase the difficulty for small-business owners trying hard to insure workers, and stifle job creation.
In Florida, small businesses are the bedrock of our economy. This tax will hit our economy especially hard. It’s just not what families and small businesses need as they dig their way out of a severe recession.
The Congressional Budget Office evaluated this tax and found it will lead to “higher premiums for private coverage.” The nonpartisan CBO estimated that premiums for individual coverage could rise by as much as 13 percent.
This tax also might be disruptive to policyholders, because it could damage the ability of health plans to deliver all the benefits that members expect.
That’s because Congress is ready to impose this health-insurance tax in 2010. That’s after families have already signed up for coverage for next year, and after small businesses have already negotiated coverage contracts.
The result? Health plans may not receive enough premium to cover the costs of the massive tax, and benefits might suffer.
Unfortunately, health plans have been demonized in the pursuit of reform. But in reality, it’s not true to claim that health plans make a lot of money; their profit margins are actually pretty small.
In 2008, private health plans made $8.61 billion in total profits nationally, according to Forbes magazine. The industry’s profit margin was just 2.2 percent, ranking health plans 35th out of 53 industries in terms of profitability.
As the president and CEO of SantaFe HealthCare — the parent company of AvMed Health Plans — I am truly concerned by this proposed tax. As one of Florida’s oldest and largest nonprofit health plans, AvMed reinvests its earnings each year to continually improve on the benefits and services it offers to members in Orlando and elsewhere.
Obviously, a health-insurance tax that wipes out most of our annual earnings is counterproductive to our mission. Surely, congressional leaders must grasp that this tax doesn’t make sense.
There are better ways to pay for the systemic health-care reform that AvMed and other health plans support.
Instead of taxing health insurance, Congress should focus on the underlying costs of medical care. We can achieve huge cost savings by ending unnecessary treatments and services, rooting out rampant fraud and ending frivolous medical lawsuits filed by trial lawyers.
Health reform shouldn’t hurt Florida’s families and small businesses. It shouldn’t hamper the ability of health plans to provide benefits.
Time’s running out.
Please contact your congressional representative and Florida’s two senators today. Ask them to vote against this harmful health-insurance tax. We can achieve true, lasting reform in better ways.