Worried about Deflation? Rising Healthcare Costs will Cure it!

But the cure may be worse than the disease!

Health care costs are out of control.  In a time when the economy overall faces pressures from deflation healthcare cost increases threaten to fully offset that risk with continued rapid increases.

To get the votes needed to pass ObamaCare, Congressional Democrats “reduced its cost” by delaying the effective date for parts of the program up to four years even while allowing some provisions to expand coverage to go into effect sooner. One consequence of this staging implementation is that health care costs—already rising faster than inflation—are going into warp speed.

The Hunt Family Story of Health Care Costs

My family is covered under my wife’s health care plan at her school district as we have been for the last fifteen years.  Her plan for teachers was always better than the one offered by my employer.  As parents of a diabetic child we chose Kaiser coverage because of the comprehensiveness of its diabetic management services—and it was cheaper than other options.  It has proven a good choice for us.

As Carolyn prepares for another school year, she got a memo from the School District telling teachers that health care premiums were going up—way up for the coming year.  Like most employers, the School District offers a range of options from HMO to PPO services.

The District-Union committee working to manage the costs of this benefit program was asking for advice on changes they can make to reduce the cost impacts like raising copays, deductibles on brand named drugs, higher emergency room visit copays, etc.

The bottom line:  Kaiser raised premiums 10% but the BlueCross options for HMO and PPO services raised premiums 25%.  This brings the monthly premium for those who elect the BlueCross PPO to a staggering $2867 per month or roughly 50% of the salary cost of the average teacher in California.

This has been the trend for the last several years.  The result is that more employees each year switch their coverage to Kaiser from the Blue Cross plans.  Blue Cross responds by raising premiums even higher to make up the revenue shortfall.

This year the benefits committee has been negotiating to add a third provider, HealthNet, to introduce more competition.  HealthNet has offered premiums that represent as little as a 7.6% increase over this year but requires a substantial number of employees to switch to their plan from BlueCross, presumably, to make it work.  It has high copays and more limited coverage to get the costs down.  But the State of California specifies minimum coverage levels on many items.

This is Russian roulette since BlueCross responded that if subscribers switched in numbers needed to make HealthNet viable BlueCross would consider pulling out all together.  This would simply transfer the non-Kaiser market share to HealthNet which would promptly raise premiums like any good monopolist.

Kaiser’s growth in market share is due to several factors and good strategic positioning.  It offers the lowest premiums and the fewest benefit administration hassles for subscribers.  By maintaining that relative market price position, Kaiser has grown substantially taking share from others who must then raise premiums to achieve their margins.  But as an HMO it is managed assertively and you must learn to manage it right back to get the services you need.  This is frustrating for those accustomed to a one-to-one doctor relationship, but the savings are serious money.

Why are health care premiums increasing by 25% per year? And even scarier what will the premium increases be when inflation from the growing Federal deficit kicks in?  We could get ObamaCare not because we want it, but because there ends up being no alternatives we can afford.

Health Care Change We Should Believe in!

But it does not have to be that way, but it will require some changes we can believe in not those which benefit our politicians. What changes?

  1. Aggressively expand competition in the health care market by allowing insurance providers to offer a wide variety of plans across state lines including a basic “no frills” universal plan to serve as a floor for coverage and a basis for comparison of both benefits and costs in other plans.
  2. Make premiums paid by individuals tax deductible just as they are in group plans effectively since they are paid with pre-tax dollars to encourage aggregating customers and making competition work in the private plan market. Allow all individual plan providers to operate across state lines under Federal rules to enable scale.
  3. Force competition between group plans and individual plans based upon price by giving individuals in existing group plans the option of taking their current employer contribution with them if they move to a private plan by having it added to their salary base.
  4. Enable competition among aggregators to go after group plans thus allowing the scalable national market to compete for customers not only on an individual plan basis but offering more cost effective options to acquire entire groups.
  5. The role of the Government is to define fair rules of competition to assure that information is clearly presented and customers are able to reasonably compare the costs and benefits across plan offerings.

These changes would likely stop the out of control price increases by giving captive health care insurance customers options for coverage on a nondiscriminatory basis and forcing insurance companies to compete for customers.  Health insurance would likely work as well as life insurance does today.  Forcing each of us as health consumers to see competition as our friend rather than seeing health insurance as an entitlement is the fastest way to cure the health care cost spike disease.

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