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 expenses (www.tccm.org). 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 choice.

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.

Rent Seeking

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.

Hospital Prices

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" plan.

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 www.newmediaexplorer.org/chris/2004/05/04/how_to_stop_being_manipulated.htm.

Until August 31, all are invited to offer comments at www.citizenshealthcare.gov/speak_out/comment.php.

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.

AAPS Calendar

Jul 15. Roundtable, Pier 66 Hyatt, Ft. Lauderdale, FL.
Sep 13-16. 63rd annual meeting, Embassy Suites, Scottsdale, AZ.

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 practice.

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 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 subscribers.

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 Confederacy.

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:

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 protect security.

"We're dangerously close to having a law that is essentially meaningless," stated Janlori Goldman (Washington Post 6/5/06).

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).

Correspondence

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 for them.
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