Rising Health Care Costs - Some Reasons

Part of the "Healthcare Crisis" which has everyone calling for relief is the fact that the cost of medical services keeps rising. It's getting more and more expensive to see even a primary care doctor, and the time we actually see doctors in those visits seems to keep getting shorter and shorter.

For one of the many reasons this is happening, we need to look back in history some 50 years. Back to the "good old days." What's changed since then?

Back in the day, there were insurances, yes. Blue Cross and Blue Shield policies were probably among the most popular at the time. Many plans offered an 80/20 split, where the Blues would pay 80% of the charge, and you'd pay 20% as a co-insurance.

But millions of people didn't have any. They didn't really need it.

You'd go to the doctor, he'd see you for, say, 20 minutes, and charge you $25.00. If you needed penicillin, he'd come through with the pills you needed, charge you a nominal fee for the drug, and you'd be on your way. If he wanted you to take something he didn't have in stock, he'd write a prescription, and you'd take it to the drug store.

If you had no insurance, you'd pay the $25.00 in full and that would be it. If you had the Blues, you'd pay $5.00 and be out the door, with Blue Shield picking up the $20.00. Easy, right?

Well, yeah, basically.

Then along came President Lyndon Johnson, a Democrat, with his Great Society program. They were going to end poverty, fix all the social ills, and a new utopia was going to emerge. Under his administration, the government got involved in a lot of areas where it hadn't before. Enter federal involvement in health care.

Stories abounded how grandma had to eat cat food because she couldn't afford to go to the doctor. (No, I don't think grandma should have to eat cat food, either--that's not what I'm saying!) But, something had to be done about it! So, Congress worked and worked.

The result was Medicare in 1965.

At the start, Medicare acted just like a regular health insurance. They paid 80%, and the patient paid 20%, allowing the patient to have a little more cash available for other expenses. Many doctors accepted Medicare because it was just as good as Blue Shield. Some seniors even picked up Blue Shield or another insurance policy like AARP to pay the 20% co-insurance.

But, sooner or later, with the War in Vietnam in full swing, it became time to save money in the federal budget. So, what happened?

In a cost-cutting move, Medicare began to say:

"We have decided that the office visit you're charging $25 for is really only worth $20, so that's what we're going to allow you to be paid for a Medicare patient in your care. That means we're going to pay you 80% of what we allow, or $16, and you can collect $4 from the patient."

"Oh," the doctor replies, "so what happens to the $5 you don't allow?"

"You have to write it off, of course! You cannot bill the patient for the difference."

Well, now it's time to do a little simple math.

Let's say Dr. Smith needs revenues of $50,000 per year to meet her expenses for office space, office staff, taxes, and to give herself a salary. 20% of her revenues are Medicare patients with that level of service, or $10,000. Medicare revenues are now $8,000, instead of $10,000, a hit of $2,000, or 4% of gross revenues. Maybe that's absorbable, maybe it's not.

Now, let's say Dr. Jones has an older practice, and he serves mostly the elderly. Many of his patients love him and have been with him for years. He still needs that $50,000 in revenues, but fully 50% of his practice is on Medicare. $25,000 in charges turns out to be $20,000 in Medicare allowed charges. He's writing off that $10,000 in revenue, but that doesn't meet his expenses. He's taken a 20% hit in revenue, and cannot make ends meet on that level.

What is going to happen in either case? Something's gotta give to bring the gross revenues back up to the $50,000 level, right? Well, there are five obvious answers. The doctors either have to:

*(1) Raise the prices for office visits for all patients to make up the difference in what Medicare is forcing them to write off, or

*(2) Work longer hours and see more patients to make up the difference, or

*(3) Refuse to take new Medicare patients into the practice, or, worse yet for the patients

*(4) Refuse to take any Medicare patients, forcing them to go to other doctors, or

*(5) Simply close up shop (or, like what's happening now, set a date certain, then refuse all insurances and become a "boutique" doctor, where the patient pays a large retainer to call the doctor 24/7 when needed.)

Well, of course, the most common answer was #1. Raise rates. Maybe Dr. Smith could get by with raising her rates only $5.00 a visit, but that paltry amount wasn't going to get Dr. Jones' budget back in shape. And, guess who gets hit hardest by these increases? Who else--the patient without insurance!

Additionally, every year, Medicare revises its fee schedule--the allowed amount for the coming year for a host of procedure codes.

Is this a simplistic presentation? You bet! But as simplistic as it seems, it's accurate for what has happened.

In the 1970s, inflation ran amok. Inflation was measured by the "market basket." Remember it? The cost of a specific set of products at the supermarket would change month-to-month, and, imagine that, the cost of that basket pretty much always rose. The dollar bought less and less as it fell in value. Guess what happened to all the other prices? Same thing, they had to go up.

Since medical expenses are not in a bubble, they went up, too. And, insurance policies became pretty much an absolute necessity in order to help patients pay for medical care.

Although we haven't had the roaring inflation of the 70s since then, inflation hasn't stopped, it's only moderated a bit here and there. Prices of goods still go up even though inflation is fairly low, especially over the course of 30 years.


Next post: "Managed care" comes on the scene.

Health Care Reform? The Debate Looms. . .

A brief introduction. . .

For the first few months of this year, I have been a frequent flyer as a consumer of medical care. I was an inpatient with three stays at two different local hospitals as well as an outpatient with a number of different providers, even including urgent care. Additionally, my work as a medical biller has helped me keep my own health care costs more contained. As the debate on healthcare reform nears, it is one in which I have some very definite ideas.

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Starting off, I want to say that I believe our healthcare mess did not develop overnight, and no "magic bullet" is going to fix it immediately. It's also an issue that cannot be discussed in a single post, so watch this space for new postings in the next few days. There isn't just one factor contributing to it, there are many, and they involve many different groups. In the next few posts, I will name names of those I think have had a hand in bringing the problem about. Some may even surprise you.

I don't have all the answers, and I won't claim to. I do have some ideas that should alleviate some of the crisis aspects, but they're not going to turn this situation around quickly. Nor will any of the "reforms" being discussed at this point in Washington or Annapolis.

All that having been said, welcome! Please, if you see something with which you disagree, post a comment! Likewise, if you see something with which you happen to agree, please feel free to add your comments, too. Lively discussions can be both very informative and helpful in framing an issue. Who knows? Offer a convincing enough argument, and you may get someone else to think differently. Maybe even me.

Some of the questions we'll explore will include:

* Why are health care costs so high?
* Why are health insurance rates so high?
* What about a single-payer insurance system?
* Why are people willing to gamble on no insurance coverage?
* Should people be forced to have health insurance coverage?
* Should we have a national health care system like Britain or Canada?
* Should we develop our own version of a national health care system?
* Why shouldn't the government just go ahead and regulate health care costs?

All right, then. I've already been working on my first "culprit" post, and I should have it done by tomorrow midnight or so. If real inspiration hits, there may be more "culprits" exposed by that time. Watch this space, and let's have a good discussion!