What Makes Health Care Costs So High?

Dear Readers,

While the jury is still out on whether "Obamacare" will increase or decrease per capita health care costs in the U.S., this post identifies two cost drivers that have absolutely nothing to do with the controversial 2010 health care reform legislation known as the Affordable Care Act (ACA).

First, let us observe the Hospital CEO Pay And Incentives as recently reported by Kaiser Health News and ABC.  Most of the information on salary and bonuses received by sample Hospital CEOs and Presidents was obtained from IRS filings, so it would seem that the data are accurate.

While I have general concerns that hospital executive pay shouldn't be tied to profit and unsustainable expansion, I have more specific concerns about the amounts being paid to CEOs and Presidents of U.S. Hospitals.  Here are some examples of a year's pay, courtesy of Kaiser Health News:

George Halvorson of Kaiser Permanente (CA) - $7,936,510
Dr. John Koster of Providence Health & Services (WA) - $6,379,455
Jeffrey Romoff of UPMC, Pittsburgh (PA) - $5,975,462
Lloyd Dean of Dignity Health (CA) - $5,136,883
Michael Tarwater of Carolinas HealthCare System (NC) - $4,760,026

The compensation for these executives far exceeds the two million and change earned by Dr. John Noseworthy of the Mayo Clinic, arguably one of the best performing medical facilities in the country as measured by patient outcomes (that would seem to be a better driver of medical incentive pay).  But in my own subjective view, I tend to feel that two million is a bit on the high side anyway.

Click here to view Kaiser Health News' CEO compensation tracking chart

Second, I am watching much less television these days due not only to the diminishing quality of the programming, but also to the pervasive "ask your doctor" advertisements.  Encouraging consumers to speak with their physician about every medicine that comes on the market has a direct impact of increasing doctor's office visit costs, not to mention lining the pockets of pharmaceutical company executives.  Furthermore, medicines that are new to the market and rife with adverse side-effects carry their own risk of increasing patient morbidity and ultimately U.S. health care costs as well.

So, short of not using health care services, is there anything Americans can do?  Here are a few suggestions that I feel could go a long way:

For Consumers

• Shop for medicines & services like other consumer goods; i.e. compare quality, cost, outcome
• Minimize use of medications by improving diet, exercising more and trying stress reduction techniques such as professional massage, tai chi or yoga
• Turn the television off

For Doctors

• Place your patients before your pocketbook
• Reject incentives offered by the pharma companies, no matter how attractive
• Resist any temptations to add-on unnecessary services, medical testing and/or expensive prescription medication due to presence of insurance benefits

For Hospital CEOs

• To the hospital executives in the listing above, give some thought to the fact that you earn more than 100 times what your average patient makes in a year
• Focus on quality of services rather than growth of your empire
• Eliminate any bonus structure based on growth and profit; and instead follow the lead of your noteworthy peers such as Dr. John Noseworthy (Mayo Clinic) and Dr. Delos "Toby" Cosgrove (Cleveland Clinic) who reportedly do not receive any bonus compensation

Now that I've said my piece, I'm on my way to create a healthy concoction with my new juicer!

Until next time,

Andrew Herman, President
AH Insurance Services, Inc.

Health Care Advertisements

Health Care Plan Advertisements: Let The Buyer Beware


All around us - on television, on the radio, and on the internet when we’re browsing - there are advertisements for health care plans. Some specifically relate to changes in health care mandated by the new Patient Protection and Affordable Care Act (PPACA), while others are generic advertisements, not new in their message, but only in their graphics. Be wary of these commercials, for no matter how glitzy they may be, their primary purpose is to sell rather than to inform.

In looking into the issue of advertisements, AH Insurance Services reviewed specific promotional materials from Aetna and United Healthcare. We were hoping to encounter easy-to-understand sound bites that would summarize the new benefits mandated by health care reform and explain the impact of these benefits on plan premiums. What do you suppose we found?

Well, we found lots of information - but not all of it clear-cut - and much of the relevant information is buried from the consumer.

Aetna, for example, provides real information about the impacts of PPACA on health insurance plans via their Homepage, but first you must search for “health care reform” and then sort through material provided in a long list of URLs. When it comes to Aetna’s advertisements, it’s difficult to discern what is true from what is mere embellishment without having prior knowledge about health care reform provisions. Aetna’s advertisements promote new benefits as innovative plan features, when in reality these benefits are mandated by PPACA. So even though Aetna makes their plan options sound original, consumers will find them available with every new health plan.

United Healthcare uses advertisements that emphasize consumer satisfaction and security. That’s all fine, but what about explaining the health plan changes and quantifying any extra costs? United Healthcare’s visual pieces, such as the advertisement to the left, emphasize the importance of obtaining a health care plan, and merely give assurance of protection. Radio commercials by United Healthcare, such as those found on United Healthcare's National Advertising website, also emphasize the protection that having health insurance provides, while giving little factual information on new health benefits.

We see on United Healthcare's National Advertising website video advertisements in which consumers give their impressions of the health care they purchased for their small businesses. Once again, these give little information about what the actual benefits and costs are, but they do give four essential tips to purchasing health insurance:

1. Look at the benefits

2. Compare prices

3. Research the quality of service

4. See if your doctors are covered

Do not be lulled by non-informative advertisements containing fantastic consumer reviews. We all pay mind to good testimonials, but it would be foolish to think that insurance companies use a random sample to choose which reviews will be shared with the public. We suggest listening closely to the reviews, and then doing due diligence to confirm their integrity.

Even though a company may include little information in its advertisements, its products are not necessarily inferior. The key is to do your research, either by yourself or with a trusted independent insurance agent. Make sure you weigh the benefits and potential shortcomings of each plan, and compare premiums with several competitors. Sometimes, quoted rates vary substantially between companies, but that may not tell the full story as the company with lower quoted rates might employ much more stringent medical underwriting. Currently, it’s still permissible for health insurance companies to charge a higher premium, impose exclusions for pre-existing conditions, or outright deny adult applicants based on their medical history.

While we didn’t specifically review any of Humana’s advertisements for this post, we should mention that we haven’t noticed any mention in the media yet of the new lower new business premium rates Humana will be rolling out on January 2nd on its Florida “HumanaOne” individual health product. Lower rates - now that’s an expression you don’t hear very often. Perhaps in this case, you heard it from us first!

For a summary of the changes to health care plans mandated by the PPACA, please visit our prior blog posts titled New PPACA Provisions I and New PPACA Provisions II.

Until next year,

Andrew Herman

AH Insurance Services, Inc.