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State health insurance: Helping or hurting ‘the little guy’?
600,000 Montanans paying a high price
By Mike Dennison, of The Standard State Bureau - 08/05/2007
Self-employed ceramic artist Richard Notkin of Helena, shown here working with student Jess Kane at the Archie Bray Foundation, says he and his wife, artist Phoebe Toland, spend about $10,000 a year on their health insurance — and still must pay for most medical services out-of-pocket. George Lane / Independent Record.
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About this series: In Montana and the nation, the cost and availability of health care has become a burning issue. Nearly one-fifth of the state’s citizens are without health insurance and health-care costs continue to climb faster than inflation.
Last year, the Lee Newspapers State Bureau began
examining factors behind these costs, as well as looking at alternatives to our current health-care system.
The series’ second installment begins today, with a look at the nature and costs.
HELENA — Helena ceramic artist Richard Notkin and his wife, Phoebe Toland, shell out $10,000 a year for health insurance —they’re still paying most
medical bills from their own pockets.
“What we’re really doing is just protecting our life savings and our home (from bankruptcy) in case of a medical catastrophe,” he says. “It’s kind of like a
protection racket.
“I can make a living, but it would certainly be a lot easier if as much of a quarter or more of that didn’t disappear every year into this health system.”
Notkin, 58, is among the approximately 600,000 Montanans who buy some form of health insurance, many paying thousands of dollars a year for coverage whose price has steadily risen and seem more expensive than it’s worth.
Precise figures aren’t available, but in 2006, Montanans spent an
estimated $1.5 billion on health insurance. For most consumers, it’s their major health-care expense in a given year.
Nationally, the average cost of insuring a family last year was slightly more than $11,000. Families who had insurance through their employer paid about $3,000 of that cost.
Health-insurance premiums also increased 7.7 percent in 2006, according to an annual survey conducted by the Kaiser Family Foundation. That’s more than twice the rate of inflation.
From 2001-2004, annual increases in insurance
premiums were even higher, ranging from 11 percent to 14 percent, which also was higher than the
increases in overall medical spending.
The rising cost of health insurance no doubt contributes to the high percentage of people without insurance. Some 47 million nationwide and 18 percent of the population in Montana, or 170,000 people.
Insurers and health-plan administrators say they’re simply the middleman in a costly system, taking in money needed to finance Montanans’ health care and paying most of it out in claims.
They say the rising cost of insurance reflects the rising cost of health care, brought on by a host of medical and health factors that have nothing to do with insurance, such as more chronic illness and obesity, expensive technology and pricey prescription drugs.
“The rising cost of health care is medical costs,” says Sherry Cladouhos, chief executive officer and president of Blue Cross/Blue Shield of Montana, the state’s largest private health insurer. “You look at all of those (cost) drivers, and as long as those keep going up, you’re going to have more people uninsured.”
In a general sense, Cladouhos and other insurers are correct: Most of the money they collect from customers ends up paying for and processing medical bills.
Last year, Blue Cross took in $480 million in premiums and paid out $411 million in claims, or nearly 86 percent of the premium “dollar” it collected.
The difference goes to profits and administrative expenses, which include the cost of processing claims, marketing, advertising, sales commissions, executive salaries and more. (Blue Cross, a nonprofit company, still has net earnings that go back into the company)
Across the private insurance industry, these costs consume 15 percent to 20 percent of the total money pie. In Montana, that’s in the range of $200 million to $300 million a year.
Insurance executives, administrators and salespeople in Montana believe most of the industry is trying to keep these costs down and keep its products affordable. They also say the industry is not nearly as lucrative as some would believe.
“The health insurance companies are not really raking in the dough,” says Ken Shepherd, an independent insurance agent in Bozeman who has sold health insurance for nearly 30 years. “People don’t believe that. They think we’re just raking it in.”
Accurate figures on health-insurance profits sometimes are difficult to discern, because large insurance firms may sell several types of insurance, including health insurance.
UnitedHealth Group, the largest health insurer in the nation, reported $4 billion in profits last year, or nearly 6 percent of its overall revenue, while Wellpoint, the second largest, had $3 billion in profits or 5.5 percent of its revenue.
Blue Cross/Blue Shield of Montana reported a net return last year of $6.7 million, or slightly more than 1 percent of its revenue.
Whether its profits and costs are reasonable or not, health insurance in Montana and the nation is a complex layer of finance, paperwork and bureaucracy perched on top of an already fragmented health-care system.
“We spend an awful lot of money on marketing, underwriting and advertising,” says John Morrison, the state auditor and insurance commissioner. “Insurers spend money trying to find good risks, and then market to those risks.”
Only a half-dozen companies write most of the “major medical” insurance in the state, led by Blue Cross, which controls 50 percent of the private market in Montana. Still, 300 companies underwrite some form of health, accident or disability insurance each year in Montana.
It’s a patchwork system that consumes many hours unrelated to providing actual care, as physicians, hospitals and other providers must navigate a cobbled path of insurance contracts, co-payments, denied claims and procedure “codes.”
“Five percent of our entire workforce is dedicated to the process of gathering information, submitting claims and bills, following up, resolving things and collecting payment,” says Bob Wilson, chief financial officer at the Billings Clinic. “That’s 150 people.
“It’s really complex, and it’s really expensive.”
Here’s how health insurance/medical coverage shakes out in Montana:
About 49 percent of Montana’s population has health insurance coverage through their employer. One-third to one-half of these people are in families who work for government (state, federal, schools, local).
About 9 percent of Montanans buy their own health insurance.
About 18 percent of Montanans have no health insurance.
The remaining 24 percent are covered by government-financed plans, such as Medicare, which covers the elderly, Medicaid, which covers the poor, and the Children’s Health Insurance Plan, which covers kids from low- and middle-income families.
Together, the government-run plans spent about $2.5 billion in Montana last year, including the state’s administrative costs for Medicaid and CHIP.
A subset of the “employer-based” health insurance is self-insured plans, where a large employer such as the state of Montana or large corporations has their workers pay into the plan, which assumes the risk and hires an insurance company to act as the “third-party administrator” that processes claims and handles other administrative chores.
The state and university system self-insured plans cover 50,000 people. It’s not known how many additional Montanans are on self-insured plans, but it’s tens of thousands more.
The overhead on these plans is lower than regular health insurance, because the plan itself — consumers, essentially — assumes the risk, doesn’t need to market the product, and doesn’t profit on the premiums.
Connie Welsh, head of the state Health Care and Benefits Division, says the state spends only 5 percent of its health-plan money on overhead, including what it pays to third-party administrators. Other self-insured plans report similar overhead costs.
“We’re not here to make money,” Welsh says. “We’re here to pass on the efficiencies (to our customers).”
Companies who administer these plans include Blue Cross, New West Health Services, EBMS of Billings, and Allegiance Benefit Plan Management of Missoula.
Dirk Visser, chief executive officer of Allegiance, says he thinks the term “health insurance” isn’t even accurate any more. Instead, money paid for so-called “insurance” is just financing a set of health benefits for those covered by the given insurer or plan.
“We know we have this health-care budget,” he says. “So, how are we going to finance it? Do we really have ‘health insurance?’ I would say no. We have variations of a health-care plan.”
Yet for those not privy to a large employer or “pool” of insured, buying health coverage can be a very expensive prospect — no matter what you call it.
Notkin says he and his wife, also a self-employed artist, pay more than $800 a month for two separate health insurance policies.
His wife is insured by Blue Cross with a policy that has a $5,000 deductible, but Notkin says Blue Cross won’t insure him because he has sleep apnea. His policy, which has a $7,000 deductible, is from MegaLife and Health Insurance Co. of Texas, which sells policies through the National Association for the Self-Employed.
“The thing that is really disturbing is, you really have no choice — you’re at their mercy,” he says. “I call and complain about the rate hikes, and they say, ‘We’ve raised everyone.’ Since no one else will insure me, we’re stuck.”
Notkin says he and his wife formed a partnership in 2005 so they could take advantage of a new state program, Insure Montana, which offers subsidized insurance to businesses with two to nine employees.
But after going through the application process, Notkin and Toland found that their monthly premiums through Insure Montana would be $1,600 a month, or nearly double what they already paid. Blue Cross sells the insurance available through Insure Montana.
Notkin says his and his wife’s ages and the lower deductible on the Insure Montana policies apparently made it unaffordable, he says.
Agents who sell health insurance to individuals and small businesses in Montana say they usually can find an affordable product for most customers. But those policies will have high deductibles, and often must be paired up with tax-free “health savings accounts” that pay for out-of-pocket expenses.
“A lot of what I do is help educate people on what the choices are,” says Reginald Good, who owns an insurance agency in Lakeside. “It seems like the onus is on the agent to be the one who is familiar with what products are available, and to help clients find the best buy.”
Competition in the health-insurance market is adequate in Montana, Good says, but not as much as it could be, with only a half-dozen companies in the individual and small-group market here. They include Blue Cross, New West, World, Time and Companion Life.
Agents who sell health insurance, whether to larger groups or individuals, generally are paid by commission, which is part of the “administrative expense” for health insurers.
The commission can be 10 percent to 20 percent of the policy price the first year and then 3 percent to 8 percent in following years, and sometimes higher on policies for individuals, agents say.
Blue Cross/Blue Shield of Montana paid $15 million in commissions last year, or 3 percent of its total premium dollar. New West, the second largest health insurer in Montana, paid 2.3 percent of its premium dollar in sales commissions, or $1.56 million.
Visser of Allegiance says commissions on health insurance shouldn’t be paid as a percentage of the premium, because that means they automatically increase well beyond the rate of inflation, reflecting medical costs.
Instead, they should be a flat amount, with any increase tied to inflation in the Consumer Price Index, which goes up much slower, he says.
Allegiance just began selling health insurance in Montana this year and plans to price its commissions that way, Visser says: “That’s a big difference, and over the long run, we think that helps keep costs down…That puts more money to health care and lowers premiums, which is what our objective is.”
In 2006, the state’s Insure Montana program began subsidizing the private health-insurance market for small businesses. Its current annual budget is $11 million, spent on or tax credits or subsidies.
Yet while the program has been wildly popular, it has helped only 5,400 additional people to get health insurance (out of more than 170,000 uninsured Montanans), and has a waiting list of 600 businesses.
Insure Montana also hasn’t helped people like Notkin, who, like many consumers, sees vast inequities in a system where the financiers of health care often are the ones pocketing a good deal of money.
“The thing I resent the most is paying such a high percentage of my income and knowing that the CEOs of (some of) these health insurance companies are making millions of dollars,” he says. “That seems to be a very lopsided system. It’s absurd to me that anyone could make so much money while people at the bottom are not able to afford health care.”
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