Volume 62, No. 7 July 2006
IS INSURANCE EVIL?
At least two religious groups the Amish and some
Muslims reject insurance because it involves wagering. One may
lose all the premiums and receive nothing, or one may receive
more in benefits than one paid in. Insurers also profit from
interest ("usury"), which is prohibited by Islamic law. Thus,
some Muslims consider all insurance to be unlawful unless, like
auto insurance, it is required by the government.
A number of religious groups rely on the support of a
trusted community to help when disaster strikes. For example,
members of Christian Care Medishare contribute each month to help
with certain agreed-upon medical expenses. Since 1993, its
members, now numbering 60,000, have shared $250 million in
AAPS member Alieta Eck, M.D., says her family has saved $100,000
in premiums over 8 years.
In stark contrast, leftists view uninsurance, or
anything less than universal coverage, as evil or uncivilized.
But insurance also seems to be evil, in their view, if it
involves profit, disparity, or too much "confusing" consumer
Is insurance a good tree bearing good fruit, a bad tree
bearing bad fruit or does it depend on the state of the market?
Does Insurance Increase the Peril?
Hearing constantly about the rising number of uninsured (now
said to be 47 million), Americans may assume that this is a new
emergency. In fact, comprehensive "major medical" coverage did
not even exist in the U.S. until after 1940. By 1950, about half
the population (75.6 million of 151 million) had some form of
health insurance and there were 75.4 million
uninsured! (See Greg Scandlen's concise and well-
referenced history entitled "100 Years of Market Distortions," www.chcchoices.org.)
In 1960, 56% of all personal medical spending was out of
pocket; in 1980 this had dropped to 27%; today it's only 14%.
In 1925, a private hospital room cost $5 per day, and a new
Buick cost $700. By 1978, the private room cost had increased to
$200, and the Buick could be bought for $7,000: a 10-fold
increase in the cost of the car and a 40-fold increase in the
cost of the hospital room. Both the car and the medical care were
much better technologically.
In his book The Hospital That Ate Chicago: Distortions
Imposed on the Medical System by Its Financing (Saunders
1980), George Ross Fisher, M.D., asks where the money went. CT
scanners and other innovations, medically unnecessary care, the
aging of the population, and other commonly cited factors do not
explain the disproportionate cost escalation.
Nor does market failure. The problem is insulation from, not
operation of the market, as Scandlen also shows. Government
intervention licensure, tax policy, the antitrust exemption for
insurers, price controls, certificates of need, micromanagement
of benefits has compounded the problem.
The Scandal of Hospital Pricing
When asked whether his multi-hospital system would quote an
all-inclusive cash price for a service such as an orthopedic
procedure, the CEO said no.
Why not? He explained "chargemaster" billing and then said,
cryptically: "Confusion to the enemy." Only international
patients can get a cash price from him. There is apparently a
bidding war in progress for such patients.
The Bush Administration is running into tremendous
resistance to its call for pricing transparency. Why the secrecy?
Who's the enemy? What is the justification for charging a self-
insured patient five times what an insurance company would pay?
(Hospitals told 60 Minutes that the charges are the same
for everyone; but the insurer gets a steep discount.)
One factor is that government disproportionate share (DSH)
rates are pegged to the chargemaster rate. Additionally, this
rate is used in calculating the value of charity care.
Also, hospitals want a reliable source of payment and a
stream of patients; insurers want to collect premiums. Fear of
exorbitant hospital prices is a major incentive to buy insurance.
Lack of access to the network "re-pricing" mechanism is a serious
drawback to high-deductible policies and health savings
accounts which have a much lower profit margin for insurers.
Less coverage means less interest from the float or the reserves;
fewer claims mean fewer processing charges.
High prices with discounts are the key to the symbiosis
between hospitals and insurers that bring captive patients.
The government can create a market for products whose price
greatly exceeds their intrinsic economic value. It can even
create a peril that would otherwise not exist.
The estate tax, for example. Congress has so far been unable
to kill the death tax, although it harms the middle class, is
evaded by the wealthy, and probably raises negative revenue.
Without the threat of having to sell the family farm at a
fire-sale price, $3 billion in annual revenue for survivorship
policies would be at risk. Thus, former conservative Oklahoma
governor Frank Keating, who once called the death tax "un-
American," now lobbies for it on behalf of his client, the
American Council of Life Insurers (ACLI).
Then there's liability. Lawyers and malpractice carriers
blame each other for the latest crisis. According to a back-
grounder by the Association of Trial Lawyers of America (ATLA),
"insurance companies have been price-gouging doctors by
drastically raising their insurance premiums, even though claims
payments have been flat, or in some cases decreasing." But what
would they do without each other?
Prudent people buy honest insurance. But the moral hazard of
other people's money (OPM) can lead to great evil.
Insurance Facts and Observations
Monopoly. According to an AMA study, there have been
400 consolidations involving medical insurers in the last decade.
In more than half of the 294 metropolitan areas surveyed, a
single insurer controlled 50% or more of the market. In the last
five years, health insurance premiums have increased more than
70% in California, according to the Kaiser Family Foundation.
First quarter profits for UnitedHealth Group, the nation's second
largest insurer, were up 21% in the first quarter (Daniel Yi,
LA Times 4/19/06).
Out-of-Pocket Spending. The percentage of family income
spent for various components in 1917-1919, compared with 1987-
1987: food 41.1%, 19.4%; housing 26.8%, 33.5%; transportation
3.1%, 25.7%; clothing 17.6%, 5.2%; health care 4.7%, 4.0%
(Monthly Labor Review, March 1990).
A Good Deal? For a $100 doctor visit, you could pay the
doctor $100. Or you could pay the insurance company $125, which
will pay the doctor $100, who will spend $25 collecting it. So to
pay small bills through a third party, you spend $125 in premiums
for $75 worth of service, estimates Greg Scandlen.
Goodbye HMOs? According to the subtitle of a June 28
report from Citigroup Smith Barney, "The birth of HSAs should
spell the death of HMOs." It predicts that Health Savings
Accounts will become to employer-provided health benefits what
the 401(k) has become to pensions, driving premiums down as much
as 20% over the next 10 years, and decelerating the growth of
medical costs to 2% by 2010.
Although it may be impossible for a self-paying patient to
find out what an insured patient would have to pay for a
comparable hospital stay, it is possible to find the cost-to-
charge ratio for the hospital and how its charges compare with
those of Johns Hopkins (www.hospitalvictims.com). If the hospital will provide DRG or HCPCS codes,
the Medicare payment can probably be determined. For network
hospitals, most insurers now pay on a DRG basis, using the
Medicare DRG numbers but not the Medicare formula. The
proprietary alternate formula probably pays more than Medicare.
For the 2005 report on hospital pricing by the Institute for
Health and Socioeconomic Policy, go to www.calnurses.org and
click on "research."
According to CMS, the best statewide average operating cost-
to-charge ratio is 0.759% (charges 32% above price) in Maryland,
and the worst is 0.282 in Nevada. On average, hospitals make a
3.9% profit on Medicare patients. Many hospitals collect 95% of
costs imposed on the uninsured, often by very aggressive
collection methods (CAHI, July 2003).
Secondary Insurance Pays Opted-Out Physician
An opted-out Phoenix physician reports that a patient
received reimbursement from a secondary insurer for 59% of his
fee. The patient first submitted a claim to Medicare, requesting
a denial on the basis that the physician had opted out. She then
sent the denial to the private plan, which was provided by her
husband's employer. Note that this was not a "Medigap"
CHCWG Advocates Universal Health Care
After a series of tightly orchestrated meetings, the
Citizens' Health Care Working Group presented an interim report
calling for the federal government to guarantee basic health
insurance coverage to all Americans. It recommended "financing
strategies" based on "principles of fairness and shared
responsibility," including enrollee contributions, income taxes
or surcharges, business or payroll taxes, value-added taxes, and
"sin taxes" (Wall St J 6/7/06).
The CHCWG was created by Congress in the Medicare
Modernization Act, which established the drug benefit.
Benefits would be determined by a federal commission using
"evidence-based" standards, including wellness, patient
education, and case management. Premiums would be based on
income. Care would be delivered through "integrated community
health networks," according to federally determined "guidelines."
Greg Scandlen noted that "all of these ideas are the polar
opposite of the Consumer Driven approach."
The 15-member group "looks like some kind of fronting
organization for the [national health insurance] lobby," stated
Frank Timmins. Its report will be released just in time for the
upcoming congressional elections.
According to a person who attended the Tucson meeting, it
consisted of a PowerPoint presentation resuscitating the usual
alarming statistics from the popular press, a focus group
discussion in which answers to meaningless questions were written
on flip charts, and "voting" with electronic devices on
predetermined multiple choice questions.
This is a "dangerous process that misrepresents its findings
as being representative of the American people," wrote Brant
Mittler, M.D., of San Antonio, TX.
CHCWG is using the Dephi technique in which trained
facilitators manipulate participants into coming to a predeter-
mined "consensus." For an analysis of the technique and ways to
combat it, see
Until August 31, all are invited to offer comments at
Life After Leavenworth
Daniel Ward, M.D., released after serving time on a
Medicare-related charge, is working as a professor at the
University of Phoenix and drives a luxury limousine on the
weekends. He notes that a felony conviction is a death warrant
for most job opportunities; and if you lack a job and secure
housing, the parole board returns you to prison. Fortunately, he
had not amassed much debt in 27 years of practice. He is seeking
relief from some Medicare fiscal penalties.
Jul 15. Roundtable, Pier 66 Hyatt, Ft. Lauderdale, FL.
Sep 13-16. 63rd annual meeting, Embassy Suites,
Insurers Deny Right to Self-Pay
In the case of Sandra Lobb, who died after alcohol
rehabilitation treatment was denied despite the family's offer to
pay, it appeared that Independence Blue Cross had exploited a
loophole it had created in state regulations (see AAPS
News, Nov and Dec
2005). However, writes Frank Lobb, the restriction on the
right to self pay and self contract is evidently an industry
Essentially all states require a Hold Harmless clause in
their provider contracts. According to a formal Maryland report,
the states are strongly encouraged to use the wording developed
by the National Association of Insurance Commissioners. Maryland
Attorney General J. Joseph Curran, Jr., considers the Hold
Harmless clause a key component in the statutory basis for the
concept of the HMO. The clause states:
"the provider may not, under any
circumstances, including nonpayment of moneys due
the providers by the [HMO], insolvency of the [HMO], or
breach of the provider contract, bill, charge, collect
a deposit, seek compensation, remuneration or
reimbursement from, or have any recourse against the
[HMO] member ... for services provided in accordance
with the provider contract [emphasis in
The prohibition applies to all "covered services" defined
as the benefits contained in the policy, not what the
insurer pre-certifies or actually pays for. Noncovered services
are basically limited to cosmetic and experimental procedures.
"The Hold Harmless clause gives insurers full control over
policyholders' access to health care," states Mr. Lobb. He
advocates full disclosure of the meaning of this clause to all
Privacy Rule Unconstitutional, AAPS Says
Joining several physicians, including Leonard Morse, M.D.,
of Massachusetts, in an amicus brief supporting an appeal to the
Supreme Court in Citizens for Health v. Leavitt, AAPS
argues that the enactment of the HIPAA Privacy Rule violated
important constitutional principles.
Congress violated its self-imposed deadline for enacting
legislation protecting medical privacy, triggering a provision to
have the Secretary of Health and Human Services write the rules.
This was "an effort to accomplish an unconstitutional end by
unconstitutional means," taking legislative responsibility from
Congress and delegating it to the Secretary. This "revolutionary"
action "radically upsets the constitutionally contemplated
process of political compromise."
In its attempt to avoid making tough decisions, Congress
unlawfully delegated authority beyond the end of its term and
provided no policy or boundary to limit HHS discretion.
Most importantly, attorney David P. Felsher argues that the
powers of the legislature are limited. "The Constitution does not
give Congress authority to impair a physician's confidentiality
obligations." The only enumerated power to impair obligations of
contracts pertains to bankruptcy.
Although section 10, Article I of the U.S. Constitution is
directed to the states alone, the Court held in Johnson v.
U.S., 79 F.Supp. 208 (Ct. Cl. 1948), that impairing
contracts was contrary to the founders' policy. Thus, a specific
provision in the Fourteenth Amendment was required to extinguish
debts and obligations incurred in the aid of the
On Limiting Treatment to Medicare Patients
As fee constraints tighten, many physicians say they intend
to cut back on services to Medicare beneficiaries. Physicians
should be aware of Section 30.1.3, "Provider Treatment of
Beneficiaries," in the Medicare Claims Processing Manual:
In the agreement between CMS and a provider, the
provider agrees to accept Medicare beneficiaries for
care and treatment. The provider cannot impose any
limitations with respect to care and treatment of
Medicare beneficiaries that it does not also impose on
all other persons seeking care and treatment. If the
provider does not furnish treatment for certain
illnesses and conditions to patients who are not
Medicare beneficiaries, it need not furnish such
treatment to Medicare beneficiaries to participate in
the Medicare program. It may not, however, refuse to
furnish treatment for certain illnesses or conditions
to Medicare beneficiaries if it furnishes such
treatment to others. Failure to abide by this rule is
cause for termination of the provider's agreement to
participate in the Medicare program.
CMS Enforcement Actions Up
CMS claims that overpayments to providers amounted to $11.9
billion between Oct 1, 2004 and Sep 20, 2005; up $700 million
from the previous fiscal year. Auditors will be focusing on
office consultations (99244) and upcoding on subsequent hospital
visits and established patient visits.
More exclusions are expected on the basis of medical board
actions, which are up 33% in 2005 compared to five years earlier,
largely because of negative media coverage and pressure from
local politicians. If a board reinstates a physician's license,
he is not automatically reinstated to Medicare but must reapply
through a potentially long and tedious process.
There are about 4,400 standing exclusions of physicians or
physician practices (MCA 5/29/06).
HIPAA Enforcement Lax
In the three years since HIPAA was enacted, no civil fines
have been imposed, and two criminal cases have been prosecuted:
one for stealing credit-card information from a cancer patient,
and one for selling an FBI agent's medical record. Despite the
government's push to computerize medical records, making them
much more susceptible to invasions, little is being done to
"We're dangerously close to having a law that is essentially
meaningless," stated Janlori Goldman (Washington Post
Pain Physician Acquitted
Recently, Paul Heberle, D.O., of Erie, PA, was found not
guilty on all charges of overprescribing controlled substances.
Had he been convicted, he could have faced 15 years in prison. He
was blamed for the drug-overdose deaths of two patients, one of
whom had eaten a Fentanyl patch, ingesting three days worth of
drugs at once. Many of his patients came to him after their
previous physician, Dr. David Klees, was sent to prison. After
Heberle's arrest, many of his patients were unable to find pain
relief; six attempted suicide. Dr. Heberle will no longer be
practicing medicine (Maia Szalavitz, reason.com 6/2/06).
AMA Promises Quality Measures. Concerning "voluntary"
physician reporting on quality measures, AMA Board Chairman Duane
Cady states: "If organized medicine does not work together on
these challenging issues, government officials and health plans
will fill the void" (AM News 3/13/06).
Same song, different verse. This is the same argument that
brought us the incomprehensibly complex CPT coding system and
managed care. If only we could encourage terrorists to adopt the
same thought process: i.e. supply them with guns, and tell them
that if they didn't "voluntarily" shoot themselves, we'd do it
Lawrence R. Huntoon, M.D., Ph.D., Lake View, NY
Massachusetts. In cynical moments, I see plans like the
one in Massachusetts as legislators looking for people who have
money that they can take away. The object is to construct
penalties and taxes to get money to flow into the state treasury
and out to the coffers of the standard constellation of
"nonprofit" interest groups. Unknown factors: costs, deadweight
losses, number of businesses driven out of business, number of
people who will stop taking care of themselves and start relying
on public programs, and the effect of the accompanying
regulations on what's left of private medicine.
Linda Gorman, Independence Institute, Golden, CO
Diversification. The ill and the injured we will always
have with us. Government programs come and go. You can't depend
on them to pay the bills. Besides, putting too many eggs in one
payer's basket is a prescription for disaster. I now have 7,000
payers in my practice this should be adequate diversification.
A couple who came to see me two years ago may actually go
into solo practice. Their office manager said they'd be jumping
off a cliff. But with TennCare disenrollment, it's getting harder
to make ends meet. I'd say the water is starting to boil, and the
frog is about to jump out.
Robert S. Berry, M.D., Greeneville, TN
The French Model. Jean Monnet, architect of the
original blueprint for the EU, said "avoid bureaucracy." But as
Paul Johnson writes, "The EU has gone in the opposite direction
and created a totalitarian monster." Its "philosophy is
epitomized by one word, convergence. The aim is to make
all national economies identical with the perfect model. This, as
it turns out, is actually the perfect formula for stagnation."
Germany's decline started when it turned away from America and
adopted the French "social market" model. P4P is the American
medical equivalent of the French model.
Robert P. Gervais, M.D., Mesa, AZ
Capitalist Morality. Capitalism is not just "profit" or
"supply and demand." It is the rule of law, free entry for
competitors, and property rights. It forbids stealing or forcing
others to do what you want. If you value human freedom and the
right of conscience, capitalism is the most moral system that
exists for creating, exchanging, and preserving value.
Sean Parnell, Heartland Institute, Chicago, IL
Inconsistency. I was in Massachusetts a few years ago
during a referendum campaign that tried to apply community rating
to auto insurance. The same groups that demand community rating
for health insurance hate it for auto. They bought radio ads
about how anti-consumer it is!
Greg Scandlen, Consumers for Health Care Choices
The Standard of Care. I read AAPS materials on sham
peer review with great appreciation. Disgusting as it is, sham
review is the standard of care in big business and big
government. When a big executive or official wants to trash
somebody, he sends a functionary to the garbage cans to dig up
the "documentation." It's the same in science. If you want to see
a well-done study, in which the conclusions come after
the data and not before, go to a third-grade science fair, not to
a billion-dollar government or corporate "study."
John Minarcik, M.D., Lake Bluff, IL
The Defining Question. Medical spending has increased
because there are more worthwhile services to buy. But do we want
to restrain medical advances in order to equalize access? The
options are to use the Star Trek prerogative to "boldly go where
no man has gone before" (leaving some behind) or to level all
down to the lowest common denominator.
Frank Timmins, Dallas, TX
Major Error. In the mid 1990s, major carriers invested
millions of dollars in information systems and claims-processing
systems to maximize their managed-care techniques. They wanted to
shuck their insurance image in favor of becoming a "real"
managed-care company by buying and partnering with HMOs. They
thought the market would evolve so that carriers would become the
managers and givers of care. The message was promoted,
cultivated, and gospelized 24/7/365. None of the CEOs want to
admit that a mistake was made.
Joseph Lee Pugh, Diamondhead, MS
Motives. It is true that carriers could increase
profits on lower revenue by eliminating the administrative costs
of adjudicating small claims and overseeing doctors. But for
nonprofits, the motivations are different: think "empire."
Steve Barchet, M.D., Issaquah, WA