What I'm Learning About Insurance - Part 3

Its close to a year after I started writing about it and now that my case is settled and I have a tiny bit of free time, I've decided I'm going to try to close out my mini-series on what I've been learning about insurance. Let's pick things back up and discuss a little weirdness with liability insurance.

When I introduced liability insurance, I framed it as protection for you, the policy holder, when you do something that causes damage to somebody else.We buy this insurance because, particularly in the case of driving automobiles, it is very easy to cause a lot of damage to somebody or their property. Rather than being financially obligated to directly pay for all of the damage directly out of your pocket, liability insurance comes in and covers those payments for you (up to a certain amount).  Insurance companies do this in exchange for a relatively small monthly fee which, according to the big piles of data they have after doing this a long time, is big enough to allow them to make a profit even after paying out for all this destruction that people cause with their cars.

There are a few tricks they use to make this work. One, they are relatively selective about the type of people they insure.  There are a bunch of people at insurance companies (or people the insurance companies contract out to) called actuaries, whose job it is to figure out what kinds of things are indicators of bad and good drivers.  Past auto insurance claims?  Tickets?  Age?  This type of information allows them to asses just how risky it would be to enter this kind of liability agreement.  Furthermore, using even more data and math, they are able to make an educated guess at how much they should charge you for your monthly payment to them (your premium) in exchange for taking on this risky.  The riskier a bet you are (because maybe you've told them you always drive two times the speed limit), the higher your monthly premium will be.

The second trick to making this whole insurance thing work is to insure tons of people.  Lots and lots and lots of people, hopefully people who always signal, drive the speed limit, and have never gotten a ticket.  By being selective and pooling all those monthly premiums together, it is possible to pay for whatever destruction is caused and still make money at it. Its all statistics, a numbers game. There are no guarantees but with a good screening process and lots of people, the actuaries can find a way to make it work.

(Until recently, health insurance worked the same way.  In fact, some health insurance companies were such sticklers about only letting in healthy people that if you did end up seriously sick, they worked very hard to find a way to weasel out of the contract they made with you.  This is called "recidivism"and its one the things Obamacare  has been trying to fix.  This sneakiness and legal legerdemain on the part of the health insurance companies would be unnecessary if we had a single-payer system where there was only one insurance company; everybody would be covered by default.  Requiring everybody to have health insurance is a step in that direction but still provides some incentives for health insurance companies to try to off-load their sickest policy-holders to somebody else.)

Liability coverage is the most fundamental type of insurance and it extends to more than auto liability insurance. Ice skating rinks, home-owners, water parks, schools, fast-food restaurants, everybody has liability insurance because anybody can sue anybody at any time for causing harm or damage.  Liability insurance makes it possible for businesses to not have to hoard a huge stockpile of cash just in case they get sued for damage they may or may not have caused. During the process of transferring our home and auto insurance during our move we were asked if we wanted a general liability policy, covering our whole lives, essentially.  When I briefly owned my own legitimate window-washing business I had liability insurance in case, you know, I dropped a squeegee on somebody's head or something. Liability insurance gives us all the ability to sue for damages while allowing businesses to not exist one lawsuit away from bankruptcy.

So liability insurance is a good thing for us auto-drivers. But what happens if I have a $100,000 liability policy but I drive into an art museum and destroy their $100 million Van Gogh?  The agreement I have with the insurance company says they will pay the first $100,000 (ignoring the deductible) and the rest is on me.  Things are looking bad because, even after the my insurance company pays out the full policy limit, I will still have approximately $100 milllion to pay.

There is another catch in the law that can prevent my life from being one of poverty henceforth and this is the concept of recoverable assets.  Even though I am still on the hook for $100 million and the museum can sue me to try to recover their losses due to my careless driving, they are not able to take all of my worldly wealth to do so.  There are only certain assets which can be recovered by the museum in a lawsuit. In Kansas (working from memory of what my lawyer told me), the museum could not take:

• My home (primary residence)
• One car per adult in my household
• My retirement savings

For most adults, most of their earthly treasure falls into these categories.  If the museum were to sue me, the amount of money they might win is probably going to be relatively small, even by the standards of a typical household. If the museum has some reason to believe I have a bunch of money, they can search the public records and find out what property I own and how many cars I have registered in my name but they can't look at my bank accounts or ask to go through my house to see if I happen to have any Van Goghs. Based on whatever information is publicly available, they have to decide if it would be worth the time and expense to sue me.  

In the the case of the person who hit me, though I don't believe we did a public records search, we had good reason to believe she was a normal person that probably didn't have piles of cash laying around, at least not $100,000 worth.  What about her salary? There is a possibility of garnishing wages (legally forcing part of her future income to be sent to me) but enforcement is tricky.  Its a lot like child support in that even though I might be legally obligated to that income, enforcing those payments can literally be more expensive than they are worth. Even though she was 100% at fault, the cost of personally suing here would in all likelihood result in lower compensation for me.

It kind of stinks. The combination of a Kansas' low liability requirement ($25,000) and the lack of recoverable assets most of us have means that it is very easy to be completely without fault in a collision and still receive very little compensation for the damage caused.  I could have lost much more than the ability to walk pain-free and the payment I would have received in compensation for my losses (and to pay for future medical care) would have been unaffected.  This is why having uninsured and underinsured policies are so important, particularly in Kansas.  They set a lower limit to the payment amount regardless of the other party's insurance policy.  

To be clear, I really like the idea of protecting what you might call "essential assets" from lawsuits.  Even if I had been able to, I would not have felt good about taking a house, car, or life savings from the gal who hit me. I am very convinced that there was no negligence on her part and that this was entirely an accident.  Unfortunately for me, I am bearing most of the consequence for her mistake but this is exactly why liability insurance should exist.  And this is also why requiring so little liability coverage in Kansas is such a tragedy.  The people who really make out well in this situation are the insurance companies.  They are only on the hook for $25,000, assuming their client buys the state minimum.  If it weren't for the under-insured policy with MY insurance company, everybody but me would have been happy with how things turned out.  That policy made the pool of money in play big enough that lawyers and insurance companies paid attention.

In case it is not clear, here are my recommendations for buying auto insurance:

• Be responsible and buy a lot of liability insurance.  You may be able to skate by with less but this is the primary mechanism by which people are made whole by the damage you cause.  The amount of havoc that can be wrought by a car is tremendous and as such, your liability coverage should be high.  You don't want to be responsible for any unpaid moral debt.
• Buy as much uninsured/under-insured coverage as you can afford.  With my insurance company, this was less than 10% of the yearly premium I pay. This extra policy ensures that you won't be left out to dry when somebody else makes a mistake and doesn't have the appropriate amount of insurance.

What I'm Learning About Insurance - Part 2

In my last post on this topic, I explained what I had learned about collision and personal injury protection insurance.  The other two policies I purchased for my motorcycle are a bit more complex.

3. Liability - This is the policy with the most complex implications but is also the most common. If you live in a state that requires you to have auto insurance (don't they all?), then this is the type of insurance their talking about. The amount of liability coverage I buy determines how much the insurance company will pay out in the event I screw up. Higher amounts of coverage cost more.
   
   Fundamentally, its easy to explain. In the event I make a mistake while driving, the insurance company will pay for the damage I caused. This damage may come in the form of property damage (such as to another vehicle or structure I may have run into) as well as bodily harm to others.
   
   Establishing which party is liable in a given event can be tricky. Often it is up to the police to make this assessment and state laws come into play as well.  If I end up in a collision where it is established that I was 0% at fault then the amount of liability coverage I have is irrelevant; I am not liable for what took place and my insurance company won't be paying out under this policy.
   
   In the converse case, if I am 100% at fault, then all damage is paid by my liability coverage.  What if the amount of liability insurance I have isn't enough to cover all the damage caused? The short answer is that I personally am on the hook for all expenses past the coverage amount of my liability policy. For example, if I run into another car and am 100% at fault, causing $250,000 of damage and I only have $100,000 of liability coverage, then the insurance company will pay $100,000 and I personally pay $150,000. What if I don't have $150,000? This is where things get tricky and I deal with this later.
   
   If $250,000 of damage seems like it might be hard to cause, well, you haven't paid hospital bills lately. Remember that damages include bodily harm and unless you deal with the medical bills often you probably have no idea just how expensive things can be. Here's how things turned out in my case: I got an ambulance ride of 10 blocks during which time I was given an IV of fluids. Once in the ER I was carefully and simultaneously examined by a half dozen doctors, had several x-rays and an MRI of my foot taken and was administered some morphine. A plaster split was put on my foot, and I was taught how to use crutches. I spent a total of 4 hours in the ER of which half of that time I was literally laying around doing nothing in an empty room save one nurse and two student nurses. In terms of ambulance-delivered ER cases, I'm sure mine was relatively uneventful.
   
   I was billed $20,000 that morning in the ER just by the hospital. The state of Kansas requires no less than $25,000 of liability insurance.  Its easy to see that if you are liable in an auto collision that sends somebody to the hospital, $25,000 is probably not going to go very far. Most people who get ambulance rides to the ER will end up needing further medical treatment beyond that day. $25,000 just isn't enough. I think there is a case to be made for the state of Kansas to increase the minimum amount of liability coverage but that's another topic.


4. Uninsured/Underinsured - If you understand how liability coverage is supposed to work, then uninsured and underinsured policies are straight-forward.
   
   Let's say I'm involved in a collision and am 0% at fault.  Furthermore, let's say the other party has chosen to break the law and forgo purchasing liability coverage.  In this case, they are 100% at fault and the damages I sustain would be paid out by the other party's liability policy.  But if he/she has not liability coverage, then there is no insurance company on the other side to pay for the damages I have sustained.
   
   This is where my uninsured/underinsured policy would step in.  Up to the dollar amount specified in the policy, my own insurance company would pay for the damages sustained even though it was entirely not at fault.  This would also be the case if, say, the other party liability coverage was insufficient to pay the damages.  Using the same example, let's say the other party had Kansas's state minimum of $25,000 but my damages totaled $100,000.  If I had a $100,000 uninsured/underinsured policy, their liability would pay the first $25,000 of damages and my uninsured/underinsured would pay the remaining $75,000.
   
   In my opinion, uninsured/underinsured policies are great. Though I can't control the driving behavior of others and I can't control their willingness to buy an appropriate amount of insurance (more than $25,000), I can provide myself some level of financial protection through this type of policy.  As I have found out the hard way, it is very easy to incur large medical bills and this policy can provide a lot of relief in case things go very wrong.
   
   And depending on your state, you may really need that coverage.  If the state you live in requires relatively low amounts of liability coverage, then you WILL NEED an uninsured/underinsured policy to cover the damages.  Again, in my case, even though I spent less than four hours in the ER, I incurred a $20,000 medical bill from the hospital alone. And of course, there are many, many more bills to come from doctors, the follow-up visits, the surgery I ended up having, etc. In my opinion, if you state requires less than $50,000 liability coverage, you should plan on buying yourself an uninsured/underinsured policy.
   
   And its cheap; really cheap.  After I was hit my wife and I reviewed our coverage on our car and made some changes to our coverage.  The extra uninsured/underinsured was something like an additional $50/year.  Unlike liability which will be more expensive, for the extra protection it provides it is a bargain.

That's what I've learned about my insurance so far.  My case is still pending and I am still learning; once I know more, I'm going to be sure to pass it along.

What I'm Learning About Insurance - Part 1

As part of trying to get this whole mess worked out with the insurance companies (mine and theirs), we've decided to hire a lawyer. Under the tutelage of these professionals I've been learning a lot about how insurance works. If you're like me, when it came time to buy insurance for your car, you walked away from the experience not entirely sure if you understood what happened. Thanks to this experience, that ignorance has been largely erased.

When I bought insurance for my motorcycle, I actually bought multiple policies all at the same time and I bet you did too. Most of these policies are kind of self-explanatory and in my case, I ended up with four policies. We'll look at the two easiest first and I'll cover the more complicated ones in another post.

1. Collision - This is the easiest to understand, kind of.  By buying this policy, my insurance company agreed to pay to repair the damage caused to my motorcycle in the event of a collision. These policies often have a deductible which is the amount the I must pay for repairs before the policy kicks in and covers the rest. For example, if a collision results in $750 of damage and I have a $250 deductible, I pay the first $250 and the insurance company pays the other $500.
   
   There is a slightly abnormal case that can arise with this policy. In the event that my motorcycle is not worth very much (age, mileage, style, etc) and the cost of repairs exceeds the value of my motorcycle, the insurance company can, rather than repair my motorcycle, choose to declare it a complete loss.  This is called "totaling" the vehicle.  In this case, I still pay the deductible and then the insurance company writes me a check for the current market value of my motorcycle.
   
   Additionally, in the event my motorcycle is declared totaled, the insurance company may offer to sell it back to me. Some people might be interested in this option if they have the time and ability to make the repairs themselves, sell the car, or sell parts from the car.  Here in Kansas, cars are often totaled due to dented roofs and hoods caused by hail storms. Since these dents don't affect the functionality of the car, it makes sense for the owners to buy them back after being totaled.
   
   In my case, my motorcycle ended up with a $3000 repair bill for a motorcycle worth $1500. The insurance company declared it totaled and offered to sell it back to me for $400. I declined, paid my $100 deductible, signed over the deed to them and got a $1400 check.
   
   
2. Personal Injury Protection (PIP) - In the event of a collision that injures the policy holder, PIP steps in and acts as mini health insurance and supplemental insurance rolled into one. In Kansas, the minimum coverage for medical bills is $4500, which, is not much given the cost of medical care today. If you end up taking an ambulnce ride, this minimum coverage isn't going to go very far. For most people, traditional health insurance will end up covering most of the cost of medical care.
   
   The supplemental insurance is the more interesting aspect of this policy. In the event that an injury causes you to miss work, this policy will pay up to a certain amount for a certain period of time. Similarly, if the injury prevents you from doing household chores, this policy will give you a small amount each day to pay others to fill in for you.
   
   In Kansas, this policy is optional for motorcycle riders as the cost is often prohibitive; it is required for other vehicles. A motorcycle rider friend of mine advocated that I drop this coverage as I had health insurance through to cover medical bills. This thinking ignores the benefits of supplemental coverage and I'm glad I didn't heed this advice.

Next up, I share what I've learned about liability and uninsured/underinsured.

Health Insurance and Me

I've ranted about this before: I have no love for the health insurance I currently have. There are many things to complain about but the one that is troubling me most lately is the plan's attempt to portray its bugs and difficulties as features; I'm talking about consumer-driven health-care. The theory behind these plans place the health insurance policy-holders in the role as consumer and thus place the responsibility of controlling health-care costs in said policy-holders hands. By placing the burden on the policy-holders to make the financial choices on how the health-care dollars are spent, a more direct relationship between those paying for the care and those receiving the care is formed. Financial self-interest becomes a factor in making health-care choices and the policy-holders/patients don't freely spend money when they think of it as theirs rather than the insurance companies.

I like the theory but the way my insurance is set up now it utterly defeats any attempt to make this work in practice. I found this out again when I tried to price out the total cost I will have to pay for a minor procedure I have soon. Due to specialization, fragmentation, multiple providers and a complicated billing system, it is practically impossible to determine the cost for this procedure before I actually get a bill in the mail. I can get a price for the doctor performing the procedure and I can get a price for procedure (if its at the only in-network hospital here in town but it could be at any other number of smaller clinics who charge their own prices). I can't, though, get a price for the anesthesiologist who will be helping during the procedure because nobody, not the doctor, not the hospital, knows who that will be anytime closer than a day or two before the procedure. Getting the incomplete prices I did took me three or four hours of phone calls.

To state it plainly, my health insurance company forces me to go shopping for the my health care providers and when I do, I find out that nothing has price tags. It is virtually impossible to try to manage my health care costs the way my insurance company says I should. The health insurance company wants to make it seem that by shopping around I can control my health care costs but I know this isn't true and it is hard to imagine that health insurance executives don't know this as well. Besides, would you choose a surgeon, radiologist, or oncologist you had never met to perform a one-time medical procedure because he or she was the most affordable? I can't think of anybody who would unless they had no choice. And don't even get me started on in- and out-of network, deductibles, co-insurance, co-pays, and the cyclical billing routine between medical service provider, insurance company and patient.

I've made this challenge before and I'll make it again: I double-dog dare you to try to find out the price you will actually have to pay for any given medical procedure a priori. Unless it is not much more than a simple visit to your everyday doctor where no testing is done (and what doctor do you know that doesn't want to "run a few tests" while you're there) you will not be able to get a price of any value before you actually go in.

At least I can't. Not one accurate enough to be useful, that is.

Obama's Healthcare Speech

Katie and I didn't have a chance to catch this evenings speach live so we read it together before going to be last night. This is the only reading we've done so far on Obama's proposals and what you're about to read is based entirely on that speech. You can be sure that I'll be doing more reading, both from those who are support and oppose this bill but for now, I'm mulling over what was said during the speech. And, as always, the devil is in the details. We've all seen good ideas get ground into worthless laws by the legislative process. The specifics of the bill (which I haven't seen yet) could make the intentions expressed by the President into a unhelpful legal mess.

Using lists as a crutch, here are my thoughts:

• Federal Cost Controls I think that our national deficit is a very significant problem that seems to be commonly overlooked when it comes to legislation. I'm a member of the generation that, unless something is done, will literally be paying the consequences of our governments overspending and want something done to address the deficit sooner rather than later. I am glad that the President wants to include provisions in the bill to require the program not add to our federal deficit and if the savings the bill is intended to produce don't arrive, then it would require cuts in the budget to keep the plan budget-neutral. Not knowing any details, I'm skeptical of the level of efficiencies to be gained through the other aspects of his proposal but I am quite glad to hear that there are concrete and realistic measures being taken to keep this program from growing out of control.
• Patient Cost Controls I was most surprised to hear the President propose a requirement for annual out-of-pocket maximums and removal of lifetime maximums from insurance policies. As a patient this is good news but it is not clear to me what the long-term consequences of this will be. Insurance companies have used things like a lifetime maximum to prevent a few patients from costing the company an extra-ordinary amount of money due to having to cover expensive treatments. This is another piece of the puzzle that prevents insurance companies from only insuring the healthy (see below) and because of that, I'm generally in favor of it. There's no such thing as a free lunch, though, and I wonder how this will play out over time.
• Required Coverage I like both sides of this coin, both requiring nearly everybody to buy health insurance and requiring insurance companies to ignore "pre-existing conditions" when writing policies. These two items go together, hand-and-glove. As the President said, many insurance companies have (logically) sought to reduce their liability by trying to only insure the healthiest individuals. By removing the ability to deny coverage to anybody based on pre-existing conditions (that is, things the insurance companies know will cost them money) this bill would force the insurance industry to treat all of us like potential customers. By requiring everybody to have insurance, we make nearly our entire country the customer-base for these companies which should be something they like. They just can't pick and choose anymore and have to treat us all the same. This is a big first step in divorcing health insurance from our employers which should give us, the workers, more security by making it easier to switch employers.
• Market Forces and Public Option The key to making me happy with a public option is that it is expected to operate more like a non-profit rather than a corporation subsidized by tax-payer dollars. This seems like a great idea to me; fighting the profit-driven insurance companies with a non-profit, patient-oriented entity. If a for-profit company can offer policies that are competitive with the public non-profit policies, then they deserve the money they earn. If they value they add is not enough to justify the price of their policies or if they become solely profit-oriented at the cost of making policy-holders satisfied, then they'll lose business. More generally, I see no problem in having for-profit businesses compete with non-profits even if in this case the non-profit is a government entity. The playing field is level as long as this government non-profit must be self-sufficient. I'm not totally clear on this but Obama said in his speech "Let me be clear - it would only be an option for those who don't have insurance. No one would be forced to choose it...." If my employer offers health insurance but I find that the public option is better for me, can I choose it? I think I need to be able to do that for there to be a true marketplace where choices force competition. In short, it seems like the public option might be a good way of introducing more market forces.
• Waste and Increased Efficiencies The $900 billion price tag (over ten years) for this reform is intended to be paid for by reducing waste and inefficiencies in the current system. Specifically, this alleged waste resides in the way Medicare/Medicaid is handled by the insurance companies in their attempt to increase profits. I'm skeptical of the amount of waste alleged in the President's speech but I'm not in a good position to know one way or the other. I hope the President has good data in this regard because the ability for this reform to work well for all relies on these savings. As the President said, if these savings don't materialize, expenses have to get slashed and the reform gets gutted.
• Subsidies From what I've read, if don't get insurance through your workplace and the open-market (with both the traditional for-profit insurance companies and the public non-profit company) can't offer an affordable policy, then a tax credit will be given to you which I assume is intended to make the policies affordable for low income earners. There is also a "hardship waiver" for individuals. I'm confused by this. Does this mean that as we move down the income scale the tax credit increases but insurance is still required until a given (very low) income level where the requirement to carry insurance is removed? If this is the case, I hope that the tax credits stop at that level as well.
• Uninsured There will still be uninsured living in the US. The President made a point of saying that the insurance reform will not help illegal immigrants and he also said that there will be a "hardship waiver" for those who just can't afford health insurance. There is nothing in the speech about hospitals being allowed to turn away uninsured so I'm assuming that those that are insured will be indirectly subsidizing those that aren't insured when they go to the hospital. (Hospitals make up the money they lose on non-paying patients by raising the prices over-all for paying patients. Its the same way stores make up money lost to theft; they raise the prices on the paying customers to cover the loss). The percentage of uninsured needs to be very low for this to work.

Katie and I came up with a few items of note that this bill didn't seem to address:

• Health Insurance Complexity As you've heard me rant about before, right now our health insurance system is quite complex. There is very little transparency in pricing, it is hard to shop around, billing overhead is significant for most providers, and the whole in-network/out-of-network stuff can drive you crazy. I heard nothing in the President's proposal to make any of this simpler. Whether you have a private or public insurance plan it sounds like you'll still be jumping through the same hoops. Providers will still have a mountain of paperwork to deal with, patients will still have to try to wade through bureaucracies to figure out how much a given procedure will end up cost them. I haven't had any personal experience with Medicare/Medicaid so I don't know if having the government as the insurer makes the process easier but I doubt it.
• Healthy Living There didn't seem to be any effort to include in the bill some kind of provision to encourage us as citizens to live healthier lifestyles. Legislation like this is not easy to write but I can't recall anything the President said that would encourage people to make better lifestyle choices. There was some talk about encouraging marketplace competition so maybe insurers will come up with a way to encourage us to reduce their costs by going through some kind of wellness program. Stealing from Michael Pollan, I would love to see our government overhaul the Farm Bill in such a way that it was not so cattle/grain/pig-centric. Are their good reasons for not subsidizing fruits and vegetables instead of corn which often gets made into either cattle-feed or corn syrup?

The big take-away: health insurance will be required by law just like auto insurance is. For those who already have insurance, the cost of complying with this law should not increase and may decrease (depending on how effective this new insurance market works and other devilish details). For those currently without insurance, this will be an increased cost that there won't be any legal way around. I don't know if, on average, the dollars spent on health-care per person will increase or decrease. The hope is that by growing the market and forcing it to run more efficiently (by introducing a public non-profit into the competition) that the average will stay roughly the same while providing insurance to many more people. In short, economies of scale might just make this a win-win.

Health Insurance Reform (part 2)

(Part 1 here.)

One of the podcasts I listen to (Planet Money) has lately been exploring the health insurance reform from an economics angle. They had a guest on this last Friday (Aug. 21st 2009) who made an excellent point that further illuminates to me that something is fundamentally wrong in the way health care works in the US.

DNA testing is slowing and surely growing in common practice. We aren't even close to something on par with the ultra-fast and comprehensive testing portrayed in Gattaca but were clearly headed in that general direction. There are tests now that can identify genetic markers that have been correlated to many types of cancers and other common genetically-induced maladies. All other things being equal, these tests are valuable for patients because they allow us and our doctors a more insightful view of our health. With more information we can make better decisions and, depending on a situation, may have incentive to make lifestyle changes to counter-act some of our genetic pre-dispositions. Using a very broad brush, I would say genetic tests are good for patients health...

... except if that information is by some means conveyed to a health insurance company and they use it to deny coverage. If I know that I have a genetic marker for a certain disease and don't disclose this to the insurance company when I try to buy a policy on the open market (that is, not through work or some other group plan), the insurance company has the ability to cancel my policy if or when they find out (called a rescission) . There was a recent hearing in Congress where health insurance executives were called to account for abusing this area of the law; it was not pretty. I am better off not having this information if I am trying to buy an individual policy because it isn't lying if you don't know the truth. Ignorance of my medical condition works to my advantage...

... except that this is my health we're talking about. I don't want to avoid information that could help improve my health so that I'm eligible for health insurance to treat the life-threatening disease I am genetically pre-disposed to. You see the problem? The incentives in our current system are all wrong. The health insurance companies don't want to have to cover people who are more likely to develop serious medical problems due to genetic pre-dispositions and patients want health insurance but shouldn't have to remain ignorant of any the results of any genetic testing for fear that they won't be able to get coverage.

The problem, once again, is revealed in the semantics: health insurance isn't really thought of as insurance any more, at least not by patients. We all get sick, we all need to go to the doctor, we all will have medical bills to pay. It isn't a matter of "if" but "when" and "how much". For the health insurance companies, I think "insurance" is the right word. They are thinking entirely in terms of liability and risk. We are insuring 500,000 right now: How many are going to get cancer? How many will be in a car accident? What is the average cost per patient? What can we do to improve our odds of having to make a big pay-out? Its all a numbers game and they are in it for a profit.

The fact that health insurance companies would like to have as much genetic testing information as possible so that they can remove as much risk from their pool of customers shows that something is wrong: who is going to cover all of us with genetic propensities that are completely out of our control? The insurance companies want to make as large a profit as possible and, to the extent the law allows, are going to do what they can to maximize that profit. That corporations are interested in profits should not surprise anybody. They have a strong incentive to reduce and eliminate costs by being as selective as they can with who they cover.

Our system is broken when information that is good for our health turns out to also be too expensive to know for our own good.

Health Insurance Reform

I don't know much about the specifics of the current discussions and debate regarding health insurance reform. Since Congress has not finalized a bill in both houses prior to their August recess, I believe a lot of the details are still up for debate. What I do know about is my experience with health care and health insurance when I injured my back a few years ago. Based on that experience, I have some thoughts and opinions on how this system should work. More specifically, my thoughts are more along the lines of identification of problems I experienced. Its much easier to point out flaws than develop solutions and after thinking over this stuff for a few years, good solutions still allude me.

The trend in health-insurance I've noted is the move to HDHP (high-deductible health plans) and HSA (health savings accounts) and which usually are presented right along with the buzzword-BINGO term of "consumer-driven health care". The idea behind consumer driven health care is to bring a market-based approach to making health care better and more affordable.

The first part in this plan is the HDHP. Deductibles are raised to several thousand dollars in an effort to make the health-care recipient have "skin in the game". The "consumer" (more on the use of that term later) aka "patient" is responsible for paying all of that deductible and so has an incentive to shop around and find the most economically efficient way to get the services he/she needs. Its the consumer's money paying for the service and just like consumers have for ages, they will force the market (health care system) to provide quality products/services at competitive prices.

The trick to making HDHPs work is the second prong of this new idea, the HSA. The HSA is a tax-advantages account that holds funds used to cover costs of health care for the account owner. Money from these accounts can only be used for approved health-care services (physicals are OK, going to the witch-doctor is not) and all contributions are tax deductible. Also, this account is independent of the employer; when I lost my job at Cessna I kept my HSA and can continue to use that money for any health expenses I may have in the future.

The first real catch in consumer-driven health care shows up when the question of who is mainly responsible for funding the HSA arises. At Cessna, the employee is. The company contributes about 20% of the annual maximum contribution and the employee can choose to contribute more (tax-deductible) money or not. In my case, as a Cessna employee, the result of this was a significant increase in the cost of health care by me, the employee. I was responsible for 80% of the annual deductible whereas before this change, it was more like %40. I know of two other companies that have HDHP/HSAs and the employer provides the majority of the funds. In these cases, the employee bears roughly the same cost burden as they might under a more traditional plan but now has an incentive and discretion to use those funds more wisely.

The HSA funds aside, though, "consumer-driven health care" has a fatal flaw that will somehow need to be addressed if it is ever to take hold. The root of the problem is actually revealed in the syntax: "consumer". Consumers are people who shop around, look for good deals, make informed purchasing decisions, do their research, drive markets to better value and better products. Very few of these apply in a health-care setting.

Firstly, patients have a SEVERE knowledge gap regarding what kind of treatment and care they need. This will always be true and this is why we go to doctors. Granted, if an individual has a long-term specific condition, he/she can actively educate him/herself and ask intelligent questions of the doctors. Cancer patients tend to become more educated over time because they have an incentive and the time to become more educated. But nobody, when presenting with a severe pain in the stomach for example, will wait to hear the doctor's diagnosis, go home and read up on it, and decide whether he/she agrees with the doctor. As patients, we must place or trust in the our doctors and do the best we can to be informed as we go through treatment. In this regard, we are never informed consumers in the health-care market.

Secondly, as things stand right now, patients/consumers have a very hard time determining the price for a given procedure. Have you ever tried to shop around for routine treatment, trying to get the best price? I dare you to try. I started and gave up quickly. The structure of the health insurance system right now is not designed to easily define the price of a given procedure; there is no price tag for a colonoscopy (as was my case).

I know I won't get this exactly right but here is how the billing system worked when I was under the health insurance at Cessna. The health care provider has a number that most closely approximates the sticker price for a given procedure. If you were independently wealthy but had no insurance and walked in and asked for that procedure, that's how much you'd pay. If you do have health insurance, though, your insurance company has signed up with one or more "networks". I don't know all that goes into being part of a network but I do know part of it: price control. My health insurance, by being part of a given network, had gotten the health care providers to agree to charge a certain amount for a given procedure. By being in that network, the health care provider has a greater likelihood of seeing more patients because the health insurance company provides financial incentives to the patients/consumers to use in-network providers. So, if I go to in-network providers, rather than charging me the sticker price for the procedure, they charge me the lower network price and the provider sees more people like me who are trying to control their own health-care cost. You still with me?

Now, with the reduced price, the health care provider sends the bill off to the insurance company (as a courtesy to the patients, rather than making them deal with this mess). The insurance company takes that bill and looks at the specific agreement they have with me, the consumer/patient to determine what, if any part of this they will pay. Have I met my annual deductible? Am I in the cost-sharing payment zone? Is this preventative care that the insurance company pays for entirely? Is treatment even covered? (Have I gone to the witch-doctor who is then trying to get paid by the insurance company?) The health insurance company runs the claim through their computers and comes up with the amount they will pay the health-care provider. A payment for that amount is made.

The ball is back in the hands of the health-care provider. Odds are, the amount that the insurance company paid is not sufficient to cover the bill they sent. The provider then has a choice; do they bill the patient for the remainder or do they just absorb the loss. Most of the time, I'm guessing they bill the patient. To me, the end consumer/patient, this is my actual out-of-pocket cost.

Do you see all the machinations that number went through before I eventually got the bill? Trying to predict this number can be very difficult. The health-care provider should be able to quote the in-network cost they will bill the insurance company and it should be possible to call the insurance company and, if given the right information, they should be able to have a very good estimate on how much they will pay the health care provider but I'll let you guess how easy and how many phone calls it would take to figure out the final cost to the consumer/patient. If it was two phone calls totaling less than 30 minutes, I would be thrilled. In my experience, it was nowhere near that simple.

(As a side note, this billing shenanigans is entirely avoided for organizations like Kasier Permenante, a health care provider that is also an insurance company. There is no external billing, no passing-the-buck. All of these costs are monitored and set in-house and because there is no distinction between insurer and provider, the final cost is much more easy to determine up-front. Also, the patient never has to wonder if a given procedure is covered by insurance; if the doctor's prescribe it, the procedure is covered.)

In my case, it gets worse. As an example, my doctor recently suggested I have a colonoscopy done and I started trying to look into how much this would cost. It turns out that there are several parties involved in a colonoscopy. There's the facility (provides the location for the procedure), the doctor (the one actually doing the procedure), an anesthesiologist (keeping the patient safely unaware during the unpleasantness) and if a biopsy of something in the colon needs to be done, a pathologist of some sort. In the case of my health care provider, my doctor would perform the operation and the clinic I went to had a colonoscopy suite. When I called asking about prices, my clinic was able to quote to price they would bill the insurance company with a high degree of certainty for those two parts of the bill. The anesthesiologist, though, was brought in from out-of-house and any one of several may be used during that procedure. Each anesthesiologist has a different cost, I had no control over which one was used the day of The complications for the pathologist was similar.

So what I am supposed to do as an empowered consumer in this consumer-driven health care? How am I supposed to compare prices when there is literally no define-able price tag? Do I go look for a larger clinic here in town that also has a colonoscopy suite and also staffs an anesthesiologist and a pathologist so that all costs could be known ahead of time? That wouldn't even solve the problem because then I would only have a price for that clinic and not knowing what I was getting for that price doesn't really help me. How can I compare prices when I can only get one place in town to even get me a quote, anyway?

My point, if it is not utterly obvious, is that consumer-driven health care is dead in the water until a price tag for procedures is readily available. There is no way it can work until I can call five colonoscopy providers in Wichita and get five prices. Even then, I face the difficulty of not knowing what I'm getting for my money? Do I go with the cheapest provider? Do I go with the provider I know best? How do I learn about each of these providers? Online reviews for doctors? Ask around?

You see, we aren't consumers when it comes to health care; we're patients. There may be some areas of health care that could eventually fit a market-based model. Colonoscopies are routine; it may be possible to create a health-care system where a consumer can effectively shop around for a colonoscopy using a traditional consumer mind-set. Maybe there will be online reviews for colonoscopy providers. Maybe a clinic in town will specialize in colonoscopies and find a way to provide a cheap and effective way of doing the procedure and they end up doing most of the colonoscopies in town. It could happen and I don't necessarily think it would be a bad thing. I also agree that one way to control health-care costs is to provide incentives for patients to get the least expensive, best treatment they need. Having skin in the game is not a bad thing at all.

But we're patients, not consumers. We're not customers and clinics are not merchants selling wares. At some point, health care is a highly personal and personalized/customized system. Whatever the reform brings, if it forgets this point we all loose. There is no other way to keep people healthy than by treating, handling, and caring for them on an individual basis, case-by-case. This is why we go to see doctors in person, often ending up waiting longer than we'd like in some lobby. We need that individualized care and market-based models, if permitted to control the entire system, do not afford the individual.