Is the Insurance Company Really Saving Us $$$?

True Story

I am sitting in a meeting with a local hospital.  This hospital is very reputable and ethical.  They do things the right way.  I ask the CEO, “What is my discount if I use [INSERT ANY INSURANCE COMPANY] at your hospital?”  His reply is, “55% discount”.  At this point I am thinking this sounds like I am getting a pretty good deal.  I am getting 55% off the “normal price”.

I then ask this same CEO, “What is my discount if I pay cash?” (meaning pay the hospital without them running my claim through the insurance company)  His reply, “We will give a 60% discount”.

Let me give you a second to process what just happened …..

So if I go through the insurance company my discount is 55%, but if I pay cash then my discount is 60%!!!

So my next question seems logical.  How do insurance companies arrive at the following statement?

“You saved XXX dollars by using our service”

The top number appears to be totally fictitious.  I think the term most insurance companies and even health care providers use is “normal and customary charges”, but how do they arrive at such a number? Look at the following example

You go in for a CAT scan.  For the sake of easy math I will use small numbers.

Insurance Company Model
CAT scan cost = $1,000
Discount = 55%
Your price = $450

Cash Price Model
CAT scan cost = $1000
Discount  = 60%
Your price = $400

OK, so now that I have concluded that the “normal and customary” number is in fact fictitious, what number should I use?  Normal logic leads me to consider the “Cash Price” number.  This is the price quoted to those that don’t have insurance right?

With this said a normal person can easily conclude that it is more expensive to use the insurance company in this example.

Cash Price for Healthcare. Can it help you?

As an HR professional working in manufacturing I am constantly looking for better and more efficient ways to help my employees live and work.  The company I work for utilizes an HSA fronted by a high deductible health plan.  This HSA has given our company a health culture of personal decision making and accountability for choices on health care (which we make every day of our lives).  Some of the benefits we have seen are consistent with the recent article posted in the WSJ by Mitch Daniels.  I posted some of these results a fews weeks back on this topic.

Something very interesting I have come across in my recent project called Rx Mole are benefits in requesting “cash price”.   Quite simply this is paying cash for your prescription rather than run it through your insurance company.  At times this can be very beneficial and you can still run the cost through your insurance company on the back end via a manual claim.   Here is an example.

You have a prescription for Nortriptyline.  The cost through your insurance company is $15.  You ask for the cash price and the pharmacist tells you it is $7.  You can pay the cash price (not run it through your insurance company) and then submit a manual claim on the back end and get reimbursed for this prescription.

Why would the pharmacy have a higher price if run through my insurance company?

1) There are a few answers to this.  One possibility is that your plan has a co-pay option that states all prescriptions are $15.  We all naturally assume that this is saving us BIG $$$, however in many cases (especially with generic drugs) the savings are an illusion and actually the insurance company may make money on the deal.  Use this as an example.

Prescription cost = $5
You co-pay = $15
Insurance company makes $10

2)  The insurance company tells the pharmacy at what price they will sell the drug.

This selling price is normally based on AWP or average warehouse price.  The drug companies control this pricing.  A pharmacy in the “network” has no say in what the selling price is set, however if they don’t run the prescription through the insurance company then they can sell the drug at a competitive price.

Understand there are many factors that come into play that I don’t go into here.   At a minimum, I would encourage you to ask for “cash price” the next time you visit your pharmacy to determine if you can get a better deal on your next prescription.

I welcome feedback.

Health Savings Accounts vs. Obama Healthcare Plan

This week an article was submitted by Mitch Daniels, Indiana Governor on the healthcare debate.  The article is well written and discusses the positive outcomes of the state of Indiana utilizing an HSA (health savings account).  Here are a few highlights:

• The HSA option has proven highly popular. This year, over 70% of our 30,000 Indiana state workers chose it.
• Individually owned and directed health-care coverage has a startlingly positive effect on costs for both employees and the state.
• State employees enrolled in the consumer-driven plan will save more than $8 million in 2010 compared to their coworkers in the old-fashioned preferred provider organization (PPO) alternative.
• Indiana will save at least $20 million in 2010 because of our high HSA enrollment.
• In 2009, for example, state workers with the HSA visited emergency rooms and physicians 67% less frequently than co-workers with traditional health care.
• Overall, participants in our new plan ran up only $65 in cost for every $100 incurred by their associates under the old coverage.

The article then answers the question that most critics of HSA’s ask:

It turns out that, when someone is spending his own money alone for routine expenses, he is far more likely to ask the questions he would ask if purchasing any other good or service: “Is there a generic version of that drug?” “Didn’t I take that same test just recently?” “Where can I get the colonoscopy at the best price?”

This is the key to anything we do as a society.  When people have control to make our own choices they are much happier.   Child psychologists use this with little kids.  They tell parents to “give them a choice”.  Even if we are faced with 2 bad choices, at least we had a say in which bad choice we made.

My company has been offering an HSA plan for 4 years. Our results are consistent with those in this article.  We have seen positive trends in our claims and feedback from our employees.  I would note that initially our employees were confused and apprehensive about the plan, but with education and time to learn, I feel confident that our employees would be angry if we took the HSA away from them.

In comparison, how is the state of Massachusetts doing?  A recent article on The DC website gives statistics that are not surprising to those who understand consumer driven healthcare and the benefits of choice.  Here are some of their findings.

• Since 2006, the cost of the Massachusetts insurance program has increased by 42 percent, or almost $600 million.
• According to an analysis by the Rand Corporation, “in the absence of policy change, health care spending in Massachusetts is projected to nearly double to $123 billion in 2020, increasing 8 percent faster than the Massachusetts gross domestic product (GDP).”
• The cost of insurance premiums in the state is the highest in the nation, and double-digit rate hikes are expected again in 2010.
• Physicians for a National Health Plan, a doctor’s group that supports a fully socialized, single-payer health-care system, warned in a February 2009 report that the new system had failed to reduce medical spending, and has subsequently drawn funding away from crucial health resources such as emergency room care.
• In summer 2009, the state announced plans to drop coverage for 30,000 legal immigrants with a goal of cutting $130 million in health-care expenses.

In summary,

One problem the state has faced is that it failed to accurately anticipate the true cost of the program. At the time the program was signed into law, estimates indicated that the cost of Commonwealth Care, which is responsible for the program’s biggest single cost, its health insurance subsidies, would be about $725 million per year. But by 2008, those projections had been revised. New estimates indicated that the plan was to cost $869 million in 2009 and $880 million 2010, an upwards increase of nearly 20 percent.

As I understand it, the Obama healthcare plan uses the template established by Massachusetts.  The question becomes, can we all afford it?

I welcome your thoughts.

Updates to Rx Mole are coming

We are meeting with local pharmacists and employers to give a quality product that promotes transparency and unbiased information. More to come.

An employer’s view of the proposed healthcare plan

Letter sent to Senator Bayh

Our employees have done a very good job managing their healthcare costs.  Their healthcare insurance premium costs have gone up one time in the last five years.  Of course they are very interested in what happens if their DC lawmakers pass a healthcare reform act.

Based on the latest look I have been permitted, here is what I will be sharing with our employees if the Healthcare Reform Act passes:

The Bad:

•           The additional government mandates, taxes, penalties, administration costs, and fees will be moving employers who currently offer healthcare insurance to either reduce the company investment in the plan or drop it altogether.

•           Significant reduction in the support of such plans as the FSAs and HSAs, if there is any reason to keep them at all.

•           Healthcare premiums become taxable.

•           Our employee premiums that have been below the national average will increase 53% over the next five years with less services.

•           The threshold for itemized medical expenses will increased from 7.5% to 10%.

The Good, if the employer continues to offer a healthcare insurance Plan.

•           No lifetime maximum (no employee is close to this concern).

•           No denial of services (no issues).

•           Child Dependent coverage age moved from 24 to 26 (the expectation is that our plan was going to 30 anyway).

•           Auto-enroll (already nearly 100% enrolled).

•           Wellness incentives can increase from 20% of premium to 30%. Not a concern.

•           No exclusion from pre-existing conditions (only one case in the last five years).

We certainly hope the legislature considers this view when voting.

Thanks for the well worded letter.