WellPoint's Heart-Stopping Rate Increase

Before I address your seemingly angry comments. Let me first say that the President did a great job today. Probably a waste of time in some eyes in terms of changing votes, but I for one appreciated the open dialogue and his fair treatment of all involved. If you didn’t listen, I especially appreciated Rep. Jim Cooper’s comments. I think it summed up our national problem – our (collective) inability to face our challenges honestly.

This likely will be my last post I wish I could say it had been informative for me, but you can breath a sigh of relief that I’m done.

I infer from your comments that you are on Medicare. Therefore if a blank check is good enough for you, it must be good for the next person. This makes sense in terms of being able to see why you don’t understand the math. You enjoy a benefit that far outweighs anything you put into it. Like a Ponzi scheme it assumes that the next person in pays for you and when that person reaches retirement some other person will buy-in (pay the payroll tax). Like a Ponzi scheme, eventually you run out of enough people coming to the party (or demographics change so much that more people receive benefits than pay into the system). This is our current trajectory, but hey you’re first in so what’s to worry about.

You currently have a prescription benefit for which you likely never contributed a dime (passed into law when the country was already in debt). You are now about to get another benefit if the Senate bill goes through reconciliation (elimination of the Rx donut hole) which means you will pay very little for your prescriptions regardless of your wealth and me, my children and grandchildren get the privilege of paying for it. That doesn’t even address the coming insolvency of Medicare (someone will kick the real problem forward a few years, but eventually math wins). What people forget is the old lesson of compound interest – the bigger the debt, the larger the interest payments; the larger the interest payments, the less money for anything else in the Federal budget. Don't pay the principal, well you get the picture if your home is currently in foreclosure. And, once interest rates go up then the real mess begins. Jim Cooper pointed it out when he said each day that goes by makes the problem worse. Everyone in the room today understood what he was talking about – this is the bogeyman everyone ignores and shoos under the carpet in Congress. No one else really wants to step in it (hence the President’s commission which realistically has a 1% chance of success although I’m praying otherwise). You could hear the silence when Rep. Cooper was speaking.

Now that I’m completely depressed, permit me to respond to your comments.

“So that was a question? My apologies; it came across as just another repetition of that beloved old "slippery slope to socialism" canard.”

I was honestly trying to understand where you draw the line and how you logically you get there. Seems like you are like many of those in Congress who don’t want to try to see both sides and prefer to throw back a cliché (we’re now truly even for my gulag comment). That’s fine, no profit for insurance companies. Not the end of the world for me. See below on impact.

“Endless war? Hellfire missiles blowing up innocents by the score to hit the occasional al Qaeda leader? One of those would pay for a lot of chemotherapy.”

Fine argument wise, eliminate the Defense Department – you’re still $400 Billion short on the annual deficit (assuming a new health benefit does not add to this) which means the debt continues to grow. The Medical Industrial Complex is replacing this sector anyway. ) Not that you’d ever get 51 votes (let alone 60) in the Senate for this one.

“Oh yes, "government" Fanny and Freddy: outrageous executive compensation, shares traded on NYSE and hawked on CNBC, hiring lobbyists to fend off Congressional oversight...perfect example of capitalism given free rein.”

I wouldn’t exactly call quasi-governmental agencies capitalism (although a lot of people did get rich). Fannie and Freddie were established and milked by Congress, mostly the Democrats. I agree with your points about money in Washington and policy, but people bought stock because of the implicit government guarantee. Congress started it, we can agree on where things went wrong from there. Investors figured they couldn’t lose, sounds similar to a Ponzi scheme – similar to some of the other programs we’re now writing about. Only now its worse – now the Macs truly have a blank check and we have $6 trillion in liabilities that are not even counted when looking at the country’s balance sheet.

“Oh, I agree. Furthermore, it motivates a lot of them far beyond any reasonable boundaries, and that's what we're talking about here.”

You know, this is actually one of the comments that I regretted. People are motivated by money, it’s a fact – not all people, but most whether they like to admit it or not. You’re right, that we don’t need to look far for greed, but I do believe in the free-market system with a strong referee. This is the role for government to be a fair and effective referee – both in regulation and enforcement. This is another thing currently broken in Washington (and I don’t mean only in the last year).

“Even that 4.5 percent could pay for an awful lot of patient care rather than going to stockholders. But then there's this:”

Give everything back to the membership WellPoint serves ($2.4 Billion in 2009 (excluding the one-time sale) divided by the 36 Million members gets you about one and one half penny per person if I’m doing my math right. Not as much care as you’d like to think. I will grant you that it is about 320,000 single people who could be insured assuming average cost of about $7500. So unlike in Washington, this does mean something to me, but its not 30 people.

“Jeez, what a whopper! Medical practices have to hire MBAs to haggle with private insurers for payment for covered services -- could that by any chance be a factor in rising medical costs? -- but I've never had a problem with Medicare. I've never seen hide nor hair of that "government bureaucrat" I keep hearing about.”

Uh, the cost trend for Medicare is higher than general inflation so I don't think this is a driver. I agree with the fact that its too complicated – which is why I think insurance as structured today does not work – see my comment in a previous post about big entities. We have a monstrous system designed to help a small part of the population – the people with chronic conditions or who have a catastrophic event. We’d be better off focusing on this and preventive medicine. I know this is a pipe dream.

“Medicare IS between you and your provider” and I don’t mean this in the pejorative sense that Republicans use it. I mean it in a factual sense that Medicare administrators are performing many of the same functions as an insurance bureaucrat. They don’t interfere on the cost side because as I’ve said before, no one says no under government programs. The reason you’ve never see anyone from Medicare is because someone else pays for it. No need to talk to you. The Doctors charge the commercial market more (and the uninsured who actually pay) so that YOU, enrolled in Medicare can pay less. Talk to your doctor next time about how they like the Medicare reimbursement rate (we’ll skip the charade discussion that Congress has every year about cutting it further). Medicare reimbursement rates are set by the government (between you and your doctor) and doctors are dropping out because its not enough and if the doctor still participates then he/she makes sure to charge other patients more to make up for YOU. Ditto for Medicaid only worse. The doctors have to haggle with the insurers because this is were they actually make money. As for the bureaucrat, you’ll love this – some of the same for-profit insurance companies that you hate contract with the government to perform many of the same administration functions that they provide for the private market (and I’m not just talking about Medicare Advantage program). The doctor argues with the insurance company in the private market, because this is the cash cow and they know they can’t argue with the government.

“No, we want something for our something, especially the people who get summarily dumped after after paying in scores of thousands of dollars over years and years.”

This is the cat’s meow. Yes there are some people in the market who are paying year after year exorbitant amounts, like me. (My current annual premiums are $13K), but you’re in Medicare so its not about you. And my payments are subsidizing your care (which is okay with me if you are under poverty level, but its not okay if you're not). This is why I agree that we have to get rid of pre-existing conditions and rescissions – both are unfair and not right. But the reality is that this means costs will likely go up for everyone. I’m okay with this concept, but I don’t think the vast majority of Americans understand it or will pay for it once they understand the implications.

We can pretend otherwise, but if you have 10 people sharing annual claim costs of $10,000 and then add someone who has $50,000 in annual costs because of a chronic condition, everyone in that group of 11 is now going to pay more. The mandate hopefully adds more healthy people to the pool so that in addition to the one person (with $50,000), others with $0 annual expenses also join to bring down the overall average cost. But in the math example above you need at least 49 people with $0 in annual costs to offset the one sick person or average costs go up. No one really knows what’s going to happen when we change things around because of all of the variables – how much of the $50000 was already covered in the provider pricing for the 10, will the 49 new people now use more care because they will now have insurance. No one really knows. The average could go up or down. If anyone tells you they know for sure which way it will go, they are lying. My point is that we may drive up costs for everyone (or not, I really don’t know). If they do go up – people will really be upset, then the revolt begins or like the other programs, we push the cost as far out as possible. I for one would prefer not to pass this to my kids.

Unfortunately, if we screw up the incentives in the new world i.e., assess penalties that are too low, provide benefits that are too rich, we will drive up the overall costs for everyone. Who will make up for the difference if the costs go up? We can make guesses on which direction things will go, but we won’t really know until after the first year or two.

“...Which the lobbyists will start chipping away at as soon as it's enacted.”

Chip away? The Senate bill is the greatest thing since sliced bread for the Medical Industrial Complex (including the insurers). Will the Doctors change their rates to account for the fact they no longer need to make up for the uninsured. Doubtful. With more people with benefits the newly insured actually don’t pay full cost for, doctors/hospitals/Rx are likely to have even more patients with money (our children’s money). This is the same reason I was concerned about the public option. If we're going that direction, I think I’d rather fall on the sword and make the whole system public so no one makes a profit, because there is nothing worse than one part in the private market with another in the public (see Fannie and Freddie above).

Insurers love it (see the gains in the stock market today) because more people will enroll in insurance plans. And better yet for the insurers is that the newly insured under $88k don’t pay the full premium cost (because of the taxpayer subsidies). So the insurers are whole, no need to worry about them. Matter of fact they are now treated like the doctors. No one initially complains because the true cost of things are hidden (in this case the premium cost). The Rx people are giddy at the thought of getting rid of the Rx donut hole. The people who don’t want to play well with others – they will pay a penalty that is so low as to be laughable, then enter system when they get sick and piggyback on all of the hardworking Americans who do play well and have been paying much higher costs (either through employers or premiums).

So who gets crushed if the average costs do go up – the smaller businesses (50-1000) will find it difficult because of the penalties to them, but they will either raise prices (see inflation, interest rates, debt implications above) or go out of business (see inflation above) and those people who make more than $88,000 who will pay more in taxes and likely premiums.

“There's a fundamental, irreconcilable conflict of interest at the heart of the for-profit health insurance business. I want a public option, and I for one hope it really will end up doing away with private health insurance.”

As many things as they may do wrong (make a profit for those that are for-profit, pay executives too much money, not efficiently improve the delivery or payment of care), insurance companies are not the problem - we are. If we the American people had Medicare on a sustainable path, or Medicaid or Social Security, I might have less of a problem with talking about another program, but the fact is none of them are currently sustainable (with or without the wars).

I’d prefer not to be in the car with broken brakes (sorry Toyota) speeding down the unfinished highway that currently ends with a cliff with everyone in the car yelling about where’s mine while singing along the way.

Since we’re sharing links, try this one on for size and be sure to read volume 2 2010 when in comes out in the next week.

http://www.commonwealthfund.org/Content/Newsletters/Washington-Health-Policy-in-Review/2009/May/May-18-2009/Trustees-Report-Projects-2017-Insolvency-Of-Medicare-Hospital-Fund.aspx

Maybe you can read it while you enjoy the fact that you were early on the Ponzi schemes. I'll worry about the last ones in our children.