2014 Government Regulations & Business Summit
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In 2004, while testifying before the R.I. Joint Oversight Committee for Healthcare, I suggested that subscribers were largely responsible for out-of-control health care costs. I struck a nerve, because the next day The Providence Journal announced, “Blue Cross blames subscribers for cost increases.”
The headline had a kernel of truth, but it cartoonized the reality of the situation by shifting the focus on the insurer rather than the patient. Although reforming health care delivery must be at the top of the agenda, it’s even more important to consider how increased health care costs result from our behavior because our unhealthy lifestyles are the primary causes of the cost increases.
Let me make this clear. I’m not talking about terrible, unavoidable illnesses and injuries like cancer, car accidents, etc. I’m referring to things that are self-inflicted such as obesity, diabetes, diet and lack of exercise which, for many reasons, are not properly managed by society, families and individuals. This may not be a popular message, but it’s one that must be sent and received.
First the basics: Health-insurance premiums have three components: 2 percent-3 percent “profits” which contribute to a health insurer’s reserves; 12 percent-13 percent insurer operating expenses; and 85 percent claims expenses (what’s actually paid by the insurer to a physician or hospital).
In this light, it becomes clear that the predominant health care (and, hence, health insurance) cost driver is claims expense (85 percent).
Claims expenses consist of three components: price, use and mix. Price is the fee paid for rendered services (e.g., $100 for an office visit). Use is the number of times a service is used per year per insured (e.g., number of office visits per year), and mix is the relative expensiveness of the services (e.g., MRI rather than X-ray).
Over the past decade, medical service “use” has increased by yearly double-digit rates and is the primary culprit for skyrocketing health-insurance premiums. Contrary to popular belief (fueled by media and elected officials) health care premiums are not rising due to increased insurer profits or provider fees. In essence, we’re using more services because we are less healthy.
We all say we should live healthier lifestyles. That’s not what I’m talking about. The wrong thing here is that we allow people to live unhealthy lifestyles without consequences.
Under existing law, “penalties” are not favored because of the ill-advised notion that it’s somehow now the patient’s fault. I think that is really bad policy because it tacitly sanctions such behavior. Its result is that our already overburdened health care system is further burdened with trying to “fix” people with self-inflicted maladies.
To significantly impact health care costs, we must incent people to do the right things and penalize those who don’t. This won’t be easy, and not always nice, but consumers must understand the consequences of their actions.
For example, a family has limited resources for buying healthy food, which costs more than junk food. What’s the solution? We could develop an educational program showing parents how to feed their kids better on a limited budget.
A core message would include making parents understand their responsibility for maintaining a healthy diet for their children. We could change the food stamp program to subsidize healthy food consumption. This could benefit both families and the producers of healthy food.