Tuesday, August 01, 2006


Let's go Krogering

Kroger, one of the nations largest grocery stores, is in a bit of a fight with a North Carolina Union regarding health insurance costs. Kroger is home-officed here in my hometown, Cincinnati, OH. They have about 300,000 employees nationally and pull in more that $60 billion in annual sales.

One thousand employees from the United Food and Commercial Workers Local 204 are preparing to strike over proposed increases to their health insurance. According to a US Newswire release the NC Kroger health fund has a balance of over $4 million. Driven by "corporate greed" Kroger wants to increase employee cost sharing by $1 million annually.

Sounds like a lot of money right? Let's do some math. Assuming the increases only effect union employees, we divide $1 million by 1,000 employees. That comes out to $1,000 annually per employee or $83 and change a month. So 1,000 employees are going to strike over $83 a month? Certainly it's possible their existing health insurance costs may already be steep. If so they have a valid complaint.

However, in my experience most union members pay little to nothing for their health insurance. For example, take the recent transit worker strike in New York City. It provides a rare look at the total disconnect between the cost of health insurance and employee perception. Prior to the strike the transit workers paid nothing for their health insurance. The MTA wanted workers to pay a whopping 1% of their annual salary for health care. According to KFF's annual survey the average employee cost in 2005 was $50/month for single coverage and $226/month for family coverage. The average pay rate for an MTA bus driver in NYC is $63,000 a year. Essentially the entire Big Apple was locked down because the "average" bus driver didn't want to pay more than the national average for health insurance. (Note: The workers had other complaints and demands, but their stance on health insurance was certainly far fetched)

Whether it's Kroger employees or MTA workers, virtually every day we hear about another union threatening to strike over rising health insurance costs. Human Resources and the insurance industry need to shake things up and bring expectations back down to earth. Is it really too much to ask that employees contribute as much to their health insurance as they pay for satellite or cable? The golden years have passed. If employees want quality healthcare today they just might have to give up HBO and settle for 200 channels of basic cable.

Monday, July 31, 2006


Can HSA's work?

A recent study at Health Affairs is making waves. According to the study HSA's work very well at reducing expenses for the very healthy and the very sick, but actually increase costs for larger middle ground. From MSNBC's analysis:
So can the healthcare industry be reformed to bring down costs for everyone? The study's thoughts are to add more "bite" to HSA, either by increasing cost-sharing or adding more coinsurance. However, that would put consumers at more financial risk.

"It's a trade-off between more cost-sharing and less insurance protection," said Remler. The more you move away from insurance funding, the more vulnerable people are because they'll be spending more out-of-pocket costs. That means less protection for people who get unlucky and end up having serious illnesses."
It's very rare that you can have your cake and eat it too. The paper is available here for a few bucks.


Offshore Healthcare

This weekend's LA Times had a fascinating article on a growing practice of offshore healthcare. Used as another cost containment strategy, self insured employers have begun looking oversees for operations that are very costly in the US.
Carl Garrett of Leicester, N.C., will fly to a state-of-the-art New Delhi hospital in September for surgeries to remove gallstones and to fix an overworn rotator cuff. His employer, Blue Ridge Paper Products Inc. of Canton, N.C., will pay for it all, including airfare for Garrett and his fiancee. The company also will give Garrett a share of the expected savings, up to $10,000, when he returns.

Garrett chose to go abroad rather than have the operations locally, where he would have paid thousands of dollars in deductibles and co-pays.

"I think it is a great thing," the 60-year-old technician said. "Maybe it will drive down prices [of surgeries] here in the U.S."
Certainly globalization of healthcare is inevitable. But will offshoring procedures really help costs and patients?
U.S. hospital operators say that doesn't bode well for them.

"This is not the solution," said California Hospital Assn. spokeswoman Jan Emerson. "In fact, this could make problems worse."

Hospitals must deal with rising costs just like other parts of the healthcare system, she said, and California hospitals lost $6.65 billion last year caring for the uninsured. Hospitals rely on paying, well-insured patients to keep them afloat in the face of costly government regulations and low-paying government programs like Medicare and Medicaid, she said.

Exporting the best-paying patients, she said, "will only add to the woes of the entire healthcare system."
Read the whole thing.


How much is too much?

Today's WSJ asks whether or not aggressive health insurance profits are beneficial in the long run. Last week Aetna shares fell 17% on news of rising medical cost versus premium ratios as well as a 30% cut in their projected participant growth for the remainder of the year.
Last year, the top seven U.S. health insurers earned a combined $10 billion -- nearly triple their profits of five years earlier. The windfall came as insurers raised their prices faster than underlying health costs.

Now the good times may be rolling to a halt. Health insurance has become so expensive that many smaller employers are dumping insurance altogether. If insurers don't do something, they may find their business shriveling. Yet if they restrain price increases, or appear to, they get hammered by Wall Street.
The industry's aggressive stance on pricing is largely due to shifts in overall strategies that now emphasize keeping profits and premiums quite a bit ahead of medical costs. Only now it appears that medical cost inflation is slowing. According to WSJ the average operating margins in the late 90's were around 4 percent in a good year. Today they are much closer to 8 percent. Some analysts are fearful that investors' demands of higher profits will create an environment ripe for adverse selection. Those that need health insurance the most will be forced to continue enduring premium inscreases, while healthy pools will be cherry picked by low cost providers pricing for growth. These conditions create unsustainable pools of risk for insurers, leading to falling stock prices.

I for one would welcome increased competition with open arms and think it would ultimately help, not hurt, the industry as a whole. Certainly in order for there to be new winners, some insurers in the winners circle today will have to lose.