Ликбез - Веревкину и Ко посвящается
This will be a post in English because it is directed at the residents of the United States.

Lots of debate today about the the condition of modern healt insurance system in our country and how to reform it. I will tell you, ladies and gentelmen, right now - I do not know how. It's broken and it does need fixing but I suggest we get familiar with an issue at hand before we start debating. A little research, a little excursion in history and policy. It helps to know how the imperfect system works now to have any opinion about how to fix it in the future.

I would be quite naive thinking I can make this discussion all about policy and not at all about politics. So, let's get this out of the way - I am a democrat and I strongly support Obama. Anyone who is going to come here with comments about Obama, of McCain for that matter, personally; anyone who is going to practice name-calling; anyone who is interested in any kind of smear tactics - you are not welcome here. I have other posts where you can express those opinions.

I do my business if FL, so my knowledge is primarily of the system here. There are may be some slight variations in how the health insurance business done in different states. I will be open to questions, suggestions and additions - but only intellegent ones. If your best argument is "i am working for a very large auditing firm", I am not interested. I will be referencing some statistics and principles in here that will not necessarily be documented. If you are interested in a back up, please use google on your own.

So, shall we begin? Alrighty then.

Most Americans currently get their health insurance through their employer. The practice really took off during the period of economic boom following the Great Depression. The economy was on the rise, workers were needed everywhere and employers started to offer more and more widely so called fringe benefits to attract and retain the best talent. Little by little, it became an expectation that American workers have nowadays - health insurance is offered and largely paid for by my employer. That's our system today.

Other than a more satisfied and healthy worker, the Employer enjoys some tax benefits by offering the coverage, but it's fairly small - by far most employers would be better off financially not offering the benefit and forgoing the tax break. There are some additional advantages here that I'll mention - one of the biggest one is that it's proven statistically that employers offering health insurance are a lot less likely to have fradulent Work Comp claims filed by their employee. Consider this scenario - an employee hurts his back over the weekend doing things around the house. If he has health insurance, he gets his butt off to the doctor and gets the services he needs. If he does not have health insurance and can not afford to pay out of pocket (and who can with today's prices), he comes in to work Monday morning and by 9:00 am the employer has what's called in the insurance industry a "monday morning claim" on his hands. Yes, I was just lifting this box of paper for the printer and my back just gave out on me. It's next to impossible to prove otherwise, and since Work Comp is a no-fault system, the insurance company pays, employer's premium goes up for the next three years. (those of you who understand anything about Liability coverages, you know this is a simplification, but I am trying to demonstrate a point).

The system the way we have it now did not always exist unchanged. In the 60s and 70s - there were a lot of "major medical" plans sold - basically a plan to cover a catastroph but offer no coverage for small issues. This did not really work because people just chose to forego the little stuff not wishing to pay out of pocket, until it got so bad that major medical had to kick in. By then the condition was usually so far gone, that expenses associated with curing it - if that was still an option that is - were much higher than they would have been if the issue was addressed when it was still in its infancy. So, the system experienced a correction - welcome 1980s-style HMOs. $5 copay to see a doctor, do not postpone going for service if you think there is something wrong with you. Let's attack the issue early, you have a better chance of recovery and the insurance company does not have to pay as much money to cure you. Prevention, prevention, prevention. This should solve the problem, right? Not so much. The HMOs created a problem now commonly referred to in the industry as "overutilization". Now, if you are lonely and feel like chatting with someone, you just went to see a doctor. Hey, it's only $5. Also, sometimes you had to go and see two or three or four doctors before you got to the right one because of the "gatekeeper issue" - the primary provider that needed to offer you a referral before you could be seen by a specialist. They idea was they would guard the system against the overutilization - in reality they referred people even if there was no need for them to see the specialist - this is called CYA. Noone wanted to get sued because they did not get the patient to the right specialist and that's what was indeed needed. Malpractice insurance costs were already getting high then. Another side-effect of the HMOs was the fact that they altered people's expectations of the benefit offered by their employer. The American worker does not want a catastrophic plan any longer; he wants the gold-plated cadillac that will allow him to see a doctor for hardly any out of pocket money. The American worker forgot that that's not called insurance any longer. Insurance, if you want to read a text book on this topic, is a mechanism created to cover a catastrophic exposure, not every exposure. In some ways, were were closer to the truth back in the 60s, unfortunatelly.

Now, a few words about the inner workings of the health insurance industry. There is a limited number of companies offering the product - the barrier to entry is pretty high in this industry. The biggest challenge for insurance company when one gets started is to create a network. A propriatory network, like the one enjoyed by the likes of Blue Cross, Aetna and United Healthcare, just to name a few - is a listing of medical providers of various specialties who agree to work for less. My husband is a doctor. This is a simlified conversation he had to have with each of the insurance companies in the area when opening his practice:
- Mr. Carr, we would like you to be a part of our network.
- What kind of discount would you expect off my retail rates?
- When creating a fee schedule for a particular physician we usually target 110% of Medicare allowable reimbursement level. This should result in 60-70% discount off your retail rates.
- OK. What kind of volume are you offering in exchange?
- Oh, we are the biggest insurance company in the state of FL. In your business' zipcode specifically we hold a 45% market share and we insure the industry giants like (insert name) here locally.
Then Mr. Carr has a decision to make. No doctor is his clear mind WANTS to work with insurance companies. They do not want to file the paperwork, fight beuracracy, wait for their reimbursement and have it be cut by 60%. But can they afford to build their practice without the 45% market share this insurance company has? Decisions, decisions. Most doctors have no choice but to opt in.

So, that's how a network is built. Now a few words about how insurance companies acquire business and price it.

Evaluation of the risk and pricing the risk accordingly in the insurance industry is called "underwritting". Insurance companies primarily work through a network of independed agents (like myself) to get an opportunity to quote on a piece of business - be it an employer group or a regular joe six pack, the individual. In exchange for bringing them business, the agent gets comission. Sine the agent is independent and can work with any of the insurance companies they are appointed with, they are really not working for the insurance company, they are working for the end user - the consumer - the business or the individual client.
When a quote request is receive by an insurance company, it goes to the underwritting department. The underwritting of an individual application is much different than the underwritting of a group (or employer sponsored) application. Generally speaking, if insurance companies would be allowed to underwrite everyone individually, they would love it. They could assess their risk much more accurately this way. Individual is asked about his medical conditions, age and heredity on the application and the information is then checked for accuracy with the Medical Information Bureau (MIB). This is a rough equivalent of a credit reporting agency and works much the same way - medical providers are required to send in the information about their patient's medical conditions so that insurance companies can use that information in the underwritting process. If you are a bad risk (aka, had some medical history) you rates will be higher or you will be declined coverage all together. Of course, morbidity table consistent with your demographical data (gender, age, etc) is also cross-referenced to assess your risk-worthiness for the insurance company.

Group underwritting is very different. DISCLAIMER - I am going to limit my discussion here to smaller groups (under 500 lives) that purchase fully-funded coverage. Groups over 500 are generally speaking partially self-insured, and those plans obide by ERISA, not the State law, which adds a whole new level of complexity. So, a group under 500 is seeking health insurance coverage. Instead of checking 500 SSNs with MIB, the underwritter only asks a few general questions of the group administrator:
- are you aware of any serious medical conditions within the group?
- have any employees missed more than x days of work in the last x months due to illness or injury?
- has any employee or dependent been advised of an upcoming medical procedure costing more than x dollars?
That type of thing. Then, of course, the demographics of the group are analyzed, morbidity table is referenced - and voila! Here is your quote, Mr. Employer.
To continue with group underwritting, insurance companies know that a group of 5 with 2 cancers and a group of 500 with 2 cancers are two different things. If they were to experience-rate a group of 5, the two cancers would be utterly unaffordable for the group to take - the risk is spread over just such a small number of people. The large the group is, the more "creditable" the group is. More creditable means that a larger percentage of rate setting can be derived from this particular group's medical histoty. The smaller the group, and the less creditable it is, the smaller percentage of the rate setting is derived from group's own experience, and the large percentage is attributed to the "block of business" consideration. Basically, the industry follows the actuarial studies demonstrating what an appropriate size of the risk pool is.

A few more words about the differences between group and individual policies:
- group policies, generally speaking, do not limit coverage for pre-existing conditions while individual policies ALWAYS do unless the insured member is able to demonstrate proof of prior coverage;
- a person with a very serious medical condition, like cancer, is uninsurable on an individual basis. the same person joining the employer with a group policy can not be singled out and denied coverage.
- out of two similarly written policies - one group and one individual - group policy will always offer more coverage and will have less exclusions.

OK, so back to what we have on the table today from the two presidential candidates. Basics, as I understand them -
McCain - cancel group insurance. The money employer and employee spend on group coverage - give it to the employee to buy his or her own coverage. Allow to purchase coverage across the state lines. De-regulate. Let the market do its normal supply/demand thing.
Obama - keep group insurance. Through a combination of tax breaks and penalties make all employers offer group health insurance to the employees. Regulate the insurance companies differently. Focus on prevention.

So, at the core of the debate is really the issue of - am I, the consumer, better off making my own decision about purchasing health insurance for me and my family or should the government dictate that I have it by making my employer offer it to me.

Let's consider a few commonly asked questions and things that surfaced in my discussion with a very nice but poorly educated in the matter Mr. Verevkin:

1. Why does the employer have to be involved? After all, we are not purchasing our auto insurance through the employer, why should health insurance be any different?
Because in auto insurance there is no such thing as "pre-existing conditions", "risk pooling", and "uninsurable". And because there is a heck of a lot more at stake when you insure such a precious thing as your health as opposed to such a mandane commodity as a car.

2. If I purchase insurance for myself individually rather than purchasing it through the employer, I will get a better deal.
Sure, if you are a 20 year old male with no family or medical history - you can get a great deal. If you are someone with diabetes or cancer or, god forbid, in need of an organ transplant - you will get the short end of the stick. And I don't mean you won't get a good deal on insurance, you will not get any deal on helath insurance. You will be uninsurable.

3. Medical services delivery system is inefficient and beaurocratic. Instead of hiring 6 suppor staff, doctor's offices should invest in a better computer system - that will save them money and will make my insurance more affordable.
I don't know whether it will save a doctor's office any money, but it certainly won't save you, the consumer, any. The insurance company will pay 110% of Medicare allowable regardless of doctor's office's profit margin. Though there is no unified fee schedule for all providers, their individual fee schedules are similar and are in the 110% of Medicare allowable range. See how that does not benefit the consumer at all?
And hey, while we are on efficiency and saving money - do you think underwritting 500 people individually is less expensive than underwritting 500 people as a group, based on what I stated above? Think again.

4. Olga, you are biased because you sell health insurance and you don't want ot lose your job. If we went all towards individual coverage, you would lose group business - your bread and butter.
I'll just say that comissions paid by insurance companies for individual policies are about 6 times what they pay for group policies.

5. Why can't I buy my individual coverage across the state lines?
Becaus States mandate certain coverages that are necessary and promote prevention - like an annual preventative mammogram and/or colonoscopy. If purchasing across state lines was all of a sudden a norm, all insurance companies would go sell our of states with the least amount of mandates and the quality of our healthcare would suffer.

6. Instead of mandating that employers offer coverage, why not mandate that individuals buy coverage? We'll be giving them some money to do it with, right?
Businesses are easier to control than individuals.
Well, than it's their problem - those people who chose not to buy individual coverage, screw them, let them be uninsured, it's not my problem, right?
Oh yes, it IS your problem. And mine and every taxpayer's. An uninsured person runs to the ER no matter what the problem is because they can not be denied service in ER by law. Regular practitioners can deny service in absence of a an upfront payment and ER can not. Do you think these uninsured people will actually pay their ER bill? Not likely. If they could not afford to purchase insurance, what leads you to believe they'll be able to afford the ER bill? So, us, the taxpayers, will end up footing the bill. Over 50% of hospitals in the US are in the red because of this particular issue.

7. Ok, I still don't understand why Obama wants to insure as many people as possible?
Law of large numbers. The more people we insure, the larger the risk pook and the cheaper the product becomes for everyone. Plus consider this, do you think most currently uninsured people are ill or healthy? Sick people get coverage. They lie, cheat and change employers, but they get coverage because they can not afford to go without. So, it's the healthy ones that primarily remain uninsured. See how this could work in everyone's favor if we insure those healthy people to? Healthier risk pool, lower costs.

8. If I pay out of pocket for a service an an uninsured member I will get a better deal than what the insurance company pays to the provider. And here is my proof http://www.costhelper.com/cost/health/mammogram.html
It's only $80 for a mammogram and my insurance company paid $700.

I won't even argue with you, Mr Verevkin, about this one. You certainly must understand that one mammogram can very from the next. The equipment's it's done with, the quality of the image, the extensiveness of the reading, the purpose of having it done. It's like comparing two different blood tests. I will bet if you dig a little deeper, you will see the differences between the $80 mammogram the site is referring to and the mammomgram you say you have an EOB for. Very rarely can a consumer negotiate a better deal than the insurance company - it take someone who knows the system and has bulldogish negotiating skills, like yours truly. You seem to know a few things about the market - think about it logically - a company with a huge volume versus one little you - who has a better negotiating power?

If you really want to research this issue, thy using the actual billing codes medical providers and insurance companies use to compare services, not just the word "mammogram".


9. We should go to individual coverage and make insurance companies underwrite individuals differently, without using the MIB.
Firs of all, McCain is not suggesting that. Second, that would be like taking Equifax from the banks. Third, isn't that exactly what you don't want - government telling companies how to run their business?

10. In Israel the government only collects the premium money and give it to the insurance companies.
In the Unites States the government does not even do that. What are you talking about?

11. 20 years ago, when I first came to the United States, I paid very little for insurance. What the hell happened?
Longevity. Advances in medical technology. 20 years ago, guess what happened to you if you needed a heart transplant? That's right, you died. Now people are surviving those surgeries daily.

12. The best way to reduce insurance premiums is to cut out some of the admin overhead.
77% of premium goes to pay the actual claim, 15% goes to overhead and admin, the rest is profit. Now, I am not saying the system could not be made more efficient. But if you could take a 30% chunck out of one of the categories, wouldn't it be the bigger one?

13. I still think consumer knows best what they need.
OK, consider a person with an acid reflux. She goes to the doctor. She is offered a prescription for something that will take care of her acid reflux. But she does not want that boring little beige pill, she wants the Purple Pill. Because she saw a commercial on it during Monday night football. Will the doctor give it to her? Sure. She is a lot more likely to sue him if that modest beige pill causes her some side effects. Afterall, that's not what she asked for. Which pill do you think is more expensive? Do you think if this woman did not see a direct-to-consumer ad for Prilosec, she would ask for it by name? Do you think she thinks Prilosec is better because she thumbed through pages and pages of research? Consumer knows best? Ha!

I agree with some of the things you are saying, Mr. Verevkin, I do. But that's not McCain's plan; I am not even sure why you are alligning your views with his agenda.

Happy Friday. And of yeah, I do not remember how to do lj-cut, so get off my back:)