Copyright© 2005 by School Services of California, Inc.
Volume 18 For Publication Date: December 16, 2005 No. 25
Attachment A
Thrive
By Mary Frances Callan, Superintendent,
Palo Alto Unified
A recent television ad suggests
the allure of a health spa, but surprisingly promotes a well-known Health
Maintenance Organization (HMO) and its programs for diet and exercise. The ad
ends with “May you live long and thrive.”
These ads are quite captivating
and are not the only ones promoting various health care products and providers.
Newspapers and magazines are filled with similar ads. Ads for medications . . .
if only we knew the condition for which we should take them. Although the ads
that do let you know the side effects make one ponder why you would want to take
them at all. In nearly all instances, we are admonished to consult our health
care provider—the doctor. But my point is not about the advertising world and
health insurance and medications; it is about the cost of these essential
commodities.
As an employer with 1,200
employees, I have seen the cost of health care benefits for our employees go
from $5,800 in 2001-02 to $8,200 in 2004‑05. That’s a 68% increase.
During the same time period (2001-2005), the San Francisco Bay Area Consumer
Price Index rose 11.9%. Had we not analyzed our data, sought bargaining group
support, learned which questions to ask, and obtained expert assistance, our
health benefit costs would have increased over 100%. Despite these efforts to
control costs, health benefits consume over 10% of our budget. For 2006, they
are increasing another 20%.
Given these increases, one would
assume our coverage was outstanding. In this case “was” is the operative
word. Seeing the mounting costs, we collaborated with our employees to
voluntarily reduce their coverage and increase their out-of-pocket expenses. In
insurance jargon, these are called cost-sharing or shifting “decrements.”
Employees agreed to increase their copays, deductibles, and maximum
out-of-pocket costs to reduce the increase in premiums. These changes reduced
our coverage. These same employees saw a 2% pay increase in 2002-03, no pay
increase in 2003-04, and a little over a 2% increase in 2004‑05. The
available dollars for increases were used to continue coverage.
Our insurance companies assure
us our reduced coverage is still excellent. So what does this “excellent
coverage” mean to employees? Employees with conditions like multiple sclerosis
can be out of pocket for medication $1,000 per month under our “excellent
coverage.” If an employee requires a wheelchair, the employee can pay $4,000
or more out of pocket, depending on the type of wheelchair needed. It is
considered “durable medical equipment” and that falls outside of our
plan’s out of pocket maximum. Another example comes from the HMO who wishes us
to “thrive.” Under its revised coverage, any employee unfortunate enough to
need a walking cast will be responsible for its cost. This item is considered to
be durable medical equipment and therefore only a small percentage is covered.
Physical therapy following
surgery provides yet another example of our coverage. One insurance company
limits visits to 24 per year, even if a knee, hip, or shoulder is replaced.
These surgeries require months of therapy to recover normal use. In most
instances, only $25 of each visit is covered. The most common cost per visit in
our area is $100-$125, leaving the employee to pay $75-$100 per visit.
Even
if the plan’s $1,500 out-of-pocket maximum per person per year is reached, the
employee must still pay for certain services that fall outside of the
out-of-pocket maximum. This also applies to medications, durable medical
equipment, and other services that don’t count toward the out-of-pocket
maximum. For these services there is no maximum.
The Wall Street Journal
reports that over 50% of personal bankruptcies in this country are caused by
medical debt. No wonder employers and employees are concerned about these
escalating costs. The solutions some employers are forced to use, such as no
longer providing health benefits or shifting more costs onto employees, are not
viable, sustainable solutions. Yes, nominal out of pocket cost sharing does help
keep costs down, but when those expenses become excessive, or the benefits so
expensive, then access to health benefits becomes a luxury only the few can
afford. Insurance carriers, medical providers, and pharmaceutical companies need
to share this problem and change or face continuous declines in the insured
population.
According to a Kaiser Family
Foundation report released in mid-September, “Soaring premiums . . . have
risen 73 percent since 2000 and hurt employers and employees throughout the
Valley . . . hitting small business and lower paid workers the
hardest.”
Another study conducted by the
nonpartisan Center for Labor Research and Education at the University of
California and Working Partnerships USA found that, “If premiums continue to
rise at a double-digit pace, employers will cut back coverage to the point where
less than half the states’ children will be covered by an employer-sponsored
plan by 2010.”
Furthermore, taking coverage
away only adds to high health costs. Why? Those with limited or no coverage must
wait until their conditions are so acute they are forced to use emergency rooms
or are admitted into hospitals, thus using the most expensive forms of health
care. This care, when provided, cannot simply be written off, so it is shifted
into the costs that the remaining insured individuals pay.
We have a national emergency
greater than hurricane Katrina, and it costs more. Currently the national cost
of health care is $1.4 trillion. By 2012, it will be $3.1 trillion if nothing is
done. It is in everyone’s interest to address this national emergency. All
employers want healthy workers—without them productivity falls precipitously.
And when workers have sick children with no health benefits, productivity falls
further as parents are absent to care for sick children.
While no simple solutions exist,
certainly a number of measures could be taken to radically reduce costs. At the
very least, the following must be addressed.
Medication Costs: The profits being made by pharmaceutical companies
have made medication costs one of the fastest growing health care expenses. For
example, in the United States Celebrex has a per-pill markup of 2,016%. Many
other examples exist. Markups are particularly extraneous or usurious on drugs
that have no generic counterpart. Other countries offer these same medications
at lower costs because they negotiate. The new Medicare prescription plan prohibits
the federal government from negotiating lower costs, even though Medicare will
be the largest purchaser of medications. On a smaller scale, we have requested
one of our carriers to negotiate with a single pharmacy provider to lower costs,
but have yet to succeed.
Pharmaceutical companies that
develop new medications should profit to encourage further research and recoup
development costs. But how much profit? A fundamental question is why the
Insurance Companies: In the 1980s, insurance companies claimed they
could provide better‑managed care and lower costs than health care
providers who were seen as charging “what the traffic would bear.”
At that time, it was common that out of every insurance dollar, 80%-85%
would go to pay benefits, 10% to administration, and 5%-10% to provide for
fluctuations in future insurance costs. Now, insurance companies routinely
receive 20% to 30% in administrative costs and have little or no success in
managing care, let alone costs. Further, we pay for insurance to cover large
claims. To date, one insurer has collected $1.7 million more in premiums than
claims. This accounts for nearly 20% of our yearly costs. We continue to explore
ways to recoup these excess premium reserves.
As for managed care, our request
for an explanation of how one insurer “managed care” for a $300,000 claim
remains unanswered. It appears that, while we paid for this service, none was
provided. This situation exacerbates the questions around the profits being made
by these companies and the pay to their executives. According to the Wall
Street Journal, one giant not-for-profit HMO’s $1.6 billion in
“profit” was up 59% over last year. Another mega-insurer’s profits were up
35%. How can those responsible for purchasing health benefits, either for our
employees or ourselves, not be receiving some benefit in lower premiums from the
companies?
As important, how much profit is
enough when benefit costs prevent people from receiving adequate health care and
a continually smaller percentage of the premium actually pays for the health
care for which it was originally purchased.
Providers: Many health
care providers contract with insurers and accept the suggested pricing. Other
providers refuse to contract with insurers, but will assist with forms so the
patient can collect from his/her insurance company. What is of interest is the
insurers’ reports that show variations in the prices of services and the
difference in types or numbers of tests or medications certain providers order.
Patients influenced by direct-to-consumer advertising and doctors’ fear of
malpractice claims drive some of these variations. We have even seen variations
of up to 50% exist between providers in clinics in the same town. What accounts
for these major differences should be examined more carefully.
Pricing: The ultimate
question is how to fairly price health care to allow for reasonable profits and
still provide reasonable and adequate benefits. The underlying question is, who
determines “reasonable” and “adequate”? Adding up the total health
benefits paid in an insurer’s “book of business,” dividing by the number
of insureds and then adding in 10%-15% (not 30%) for administration and future
cost trends is the way insurance used to be priced. This alone would lower costs
for everyone and spread risk to all groups.
But the world of health care is
no longer so simple. Every party involved needs to participate in keeping these
costs down. Carriers and pharmaceutical companies need to examine their profit
and overhead, providers need to better manage their costs, and patients need to
share in the costs of routine services to reduce demand. Only when each of these
pieces is put into place will coverage be available as it is in other
industrialized nations. At the current time, the only ones being asked to
participate in the cost cutting are the employees and employers. This is done
through higher premiums and less coverage. The result is inadequate care and
loss of productivity.
The time has come for our state and federal governments to address this crisis. We need to thrive, but blueberries and exercise won’t eradicate this dilemma. The answer lies less in a discussion of the agreed-upon crisis, and more in a change to what is now allowed. In a time of reduced budgets, this answer needs to come now. We can no longer afford to wait.