The Three Costs of Health Care

Everyone is talking about the cost of health care in America, and how we must bring the cost down. That is something we can all agree on.

What is interesting- and very confusing– is that there are three different costs to health care (all of which need to come down), but it is not always evident which is being discussed. This is particularly true when you are listening to politicians (big surprise).

If you want to be an informed voter- to track what is happening in Washington or your state capital you need to understand which cost is being addressed by a proposed law or policy change.

Cost Number 1: Your Policy Premium

Your premium is what you pay for your insurance policy, usually on a monthly basis. If you fail to pay your premium, you lose your insurance coverage.

Many of you bought your insurance policy directly from an insurance company (or broker), others of you don’t see that monthly bill per se because your health care coverage comes to you as a benefit of employment.

And some of you have policies you purchased from an Obamacare Exchange (or “Marketplace”)*. Not everyone is eligible to purchase there- but of those who are, nearly 83% (or 10.5 million exchange enrollees in March 2016) are also available for a premium tax credit to help defray the expense.

It is the cost of policies– the most basic health care expenditure- that has been the focus in Washington, particularly by those who want to “Repeal and Replace” Obamacare [the Affordable Care Act or ACA].

Accordingly, the American Health Care Act [AHCA], passed by the House of Representatives in May, focuses on bringing more competition and market forces into the Exchanges to bring those premiums down.

The Senate is currently drafting its version of the AHCA (although it may not keep the name). The goal is to eventually have both halves of Congress agree and pass a law to repeal the Affordable Care Act.

All of that is for another day- the point I want to make here is there is nothing in the AHCA that addresses any of the other costs of health care. The price of premiums is the sole target of the GOP.

Cost Number 2: Your Deductible

Your deductible is the amount you owe for care before your insurance plan begins to pay. “For example, if your deductible is $1,000, your plan won’t pay anything until you’ve paid $1,000 for covered services.”

High Deductible Insurance plans are policies where the insurance will not kick in until the first health care expenditures- perhaps as much as $5,000 if not more– are paid by the patient.

And High Deductible plans have become rampant in the insurance industry- particularly on the Exchanges.

The net effect is families are paying out-of-pocket for office visits, prescriptions, and other health care when they were accustomed (prior to the ACA) to a small copay.

Healthy people may not require enough care in a year to trigger the insurance they purchased, leaving them with a new experience of being “on their own” when getting regular checkups and preventive care.

People who have greater need, such as families with a child who sustained an injury or a parent with a newly diagnosed disease will eventually see their policy assist them, but they still need to get through the high deductible before they get any relief.

It is high deductibles that are causing the most pain for people. This is the “cost of care” that most people are complaining about when they take to the streets or the voting booths.

Here is the rub: High Deductible plans are not in our lives because of Obamacare or any other law, they are a favored practice in the insurance industry, and predate the Affordable Care Act by years, if not decades (particularly in the employer plan market).

No law currently under consideration in Washington, including the GOP Bill working its way through the Senate, will make high deductible plans go away.

Private insurance companies are choosing to offer High Deductible plans because they can- and they are here to stay.

Cost Number 3: The Cost of the Care You Receive

The third cost of care is the actual cost of your care- I mean the bill that gets passed on to your insurance company (or the Government) from your hospital, your doctor, your lab, and your pharmacy.

This is the cost that anyone paying for care (such as Medicare, Medicaid, and the insurance industry) is really concerned about.

It is also the cost that is driving your premium payments and deductibles up.

But more importantly, the run-away cost of care in this country is what you are paying after you meet your deductible for your “coinsurance.” [Typically, you pay 20% of costs above the deductible until you reach the “out of pocket” limit under your policy.]

And make no mistake. We are paying more for our health care than any other country in the world.

The cost of obtaining medical care in our system is the driver behind all the other costs. To take it on will require significant disruption, but without addressing how expensive our system is, we will continue to see all of our expenses rise.

Yet the recently passed GOP House Bill AHCA does not address the actual cost of care in any way– and there is no current talk of doing so in the Senate.

Does Obamacare Control the Underlying Cost of Care?

In December 2009- as the ACA was being finalized- President Obama told Senate Democrats:

“You talk to every health care economist out there and they will tell you that whatever ideas are — whatever ideas exist in terms of bending the cost curve and starting to reduce costs for families, businesses, and government, those elements are in this bill.”

Within Obamacare are reimbursement reforms (such as paying for quality rather than volume), limits on profits enjoyed by insurance companies, independent review of cost controls for Medicare spending, encouragement of new delivery systems such as ACOs, and a focus on wellness and prevention to reduce the need for end-stage care for chronic diseases.

There is controversy over the actual effect of the ACA on health care expenses; not everyone agrees that Obamacare has “bent the cost curve.” But even in that disagreement, the argument tends to make my point– the measurement of effectiveness tends to focus more on the price of premiums than the actual cost of care.

Measuring the actual effect of Obamacare on costs to date is a very technical, detailed process. The results are far from a clear win for the law– but at least the Affordable Care Act was an initial attempt to control costs in an unprecedented manner.

And now the GOP is working feverishly to repeal Obamacare without putting similar cost controls in place.

Here is My Point

The total cost of our health care is one of the most important political issues of our time. It is a complex and multi-faceted problem that requires in-depth analysis and intervention.

What we want and need is a discussion in this country about what has to happen to truly fix our system- and politicians willing to address the real problems behind the cost of American health care.

So- the next time a politician promises to “lower the cost of your health care” pin them down to which cost they mean, and which costs they are not addressing.

In the meantime- the people behind the current GOP bill in Congress are addressing only the easiest issue regarding the costs we all pay for our health care.

Want To Know More?

To state the obvious, insurance is confusing.

In writing this Fontenotes, I found two resources on-line that were comprehensive, educational and user friendly. The first is from Medical Mutual; the second is from Parasail.

* Why do I use “Exchange” and “Marketplace” interchangeably?
I use them interchangeably because they are the same thing. Really!