Is Canada really that different from the U.S.?

Mark Rabnett is a hospital librarian at the St. Boniface General Hospital in Winnipeg who blogs about “some of my professional hits and misses, with the occasional infusion of humour, while avoiding both ideological truculence and plodding nugacity” at Shelved in the W’s. He recently commented on a Canadian Medical Association Journal study that highlighted Canadian lawmakers’ lack of knowledge about that country’s funding for health research:

The men and women who set government funding priorities and vote annually to determine the budget of the Canadian Institutes of Health Research (CIHR), "were poorly informed about health research activities, benefits and costs in Canada." In fact, only 22% of participants were aware that CIHR is Canada's leading federal funding agency for health research, supporting the work of more than 11,000 researchers and trainees in universities, teaching hospitals, and research institutes across the country — and 32% knew nothing about its role. Although they valued health research in the abstract, participants did not seem to appreciate fully the impact of health research on the economy, nor did they understand research's role in the promotion of healthier lifestyles and the improvement of health care delivery. The study concludes: "Many of these knowledge gaps will need to be addressed if health research is to become a priority."

Rabnett also points to the fragmented political system in Canada as an impediment to progress on the issue of healthcare reform:

Part of the difficulty in achieving any kind of national solution is the way health issues often fall between the cracks in Canada's fragmented federal system, a situation in which achieving reform makes solving Rubik's Cube look easy. This is the subject of John Lavis's study of political elites and their influence on health care reform:

Who are these political elites, and how do they influence the prospects for change and for improved cooperation in bringing about change? The elites can include government officials at both the federal and provincial level who are engaged in constant finger pointing over health care, with federal government officials repeatedly saying to their provincial counterparts "administer the system better" and with provincial government officials responding "give us the money we need to run the system properly." Meaningful reform of any kind is difficult to achieve amidst such a dynamic, which some have called the "politics of blame avoidance."

Couldn't all of this could have been written about the U.S.? Absolutely. Whether you're talking about Canada or the U.S., a fragmented political system with legislators who may not be on top health policy issues is a recipe for stagnation (at best) and disaster (at worst). At least we're not alone in this mess.

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MIT Health Policy Workshop--11/6/2007

From the MIT Careers Office:

Doctoring Policy: Understanding the Intersection of Health and Law

Please join us for a conversation with two individuals who have used their legal and medical training and experiences to impact health policy. This speaker event will offer immediate opportunities in health, law and service. Dessert reception to follow.

Speakers: Joia Mukherjee, MD, MPH, Medical Director for Partners in Health and Assistant Professor at Harvard Medical School Jarrett Barrios, JD, President of the Blue Cross Blue Shield of Massachusetts Foundation and Former Massachusetts State Senator

Advance registration requested: http://web.mit.edu/career/www/events/
workshops.html

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What goes into the cost of health insurance?

There are many common misconceptions about the cost of health insurance. One of those misconceptions is that health insurance premiums are comprised mostly of profits and administrative costs (e.g., executive salaries). While profits and salaries indeed factor into premiums, the single largest component of your health insurance premium is medical costs. In order to show you exactly how much medical expenses drive the cost of health insurance, consider the following, which is based on premium data taken from taken from the OHIC’s December 2006 report, “The Effectiveness of the Small Employer Health Insurance Availability Act in Promoting Rate Stability, Product Availability, and Coverage Affordability.”

What costs factor into the price of health insurance?

The price of health insurance can be separated into three broad components:

(1) medical costs—sometimes referred to as “claims expense,” medical costs are the costs incurred by the insurance company when it pays claims for medical care. These costs often include indirect costs associated with the provision of medical care, such as quality assurance monitoring, case and disease management programs, and utilization review.

(2) administrative expenses—these include all non-medical costs incurred by the insurer, such as salaries and benefits for employees, commissions and fees paid to brokers, advertising, rent, marketing, enrolling members, billing, processing claims, provider contracting, network management, legal costs and all other services required to maintain and keep the insurer operational. Essentially, these are all the non-medical operating expenses of the insurer.

(3) profit or contributions to surplus (or reserves)—insurance companies typically build profit and/or contribution to surplus (i.e., the company’s retained earnings) into their proposed rates. To the extent that expected profits and surplus are built into rates, the insurer must also include an amount to cover income taxes (and other premium taxes, if applicable). An offset for investment income is also typically reflected in the rates.

What percentage of my health insurance premium is each of these components?

Medical costs—The medical cost component is by far the costliest part of your health insurance premium. A recent study of the Rhode Island small employer market (employers with 1 to 50 employees) revealed that medical costs for Blue Cross & Blue Shield of Rhode Island (“Blue Cross”) were approximately 84% of total premium. This means that in the small group market, 84 cents of every premium dollar paid to Blue Cross goes toward medical expenses. At UnitedHealthcare of New England, Inc. (“United”), the same study showed that approximately 77% of total premium went to pay for medical costs.

Administrative expenses—In the small employer market, United’s administrative expenses are approximately 18% of premium. At Blue Cross, approximately 14% of the premium is required for administrative expenses.

Profits/contribution to surplus—In the small employer market, United’s administrative contributions to reserves and profits are approximately 5%. Blue Cross’ contribution to reserves is approximately 2%.

How does this breakdown translate into dollars and cents?

These percentages can be seen in the following 2005 small employer market premium data. In 2005, Blue Cross’ small employer base rate was approximately $399/month. United’s was approximately $392 during the same period.

These premiums break down as follows:

Blue Cross—$399 ($335.16 for medical expenses, $55.86 for administrative costs, and $7.98 for contribution to surplus)

United—$392 ($301.84 for medical expenses, $70.56 for administrative costs, and $19.60 for profits/contribution to surplus)

The real culprit here is medical costs. Even if Blue Cross and United had slashed their 2005 small employer market administrative costs and profits by one-third, their base rates for 2005 would have still been quite high. Blue Cross' rate would have been $377.30/mo. and United's would have been $361.35/mo. It is the cost of medical services that is driving the cost of health insurance higher, not administrative costs.

In my next few blog entries, I will discuss the issue of rising medical costs and current approaches to medical cost control.

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US News and World Report issues national health plan rankings—Rhode Island plans are ranked

US News and World Report has issued its latest national rankings of health plans. The rankings compared three types of health insurance plans (commercial, Medicare managed care and Medicaid managed care) based on clinical performance and customer satisfaction. The lists, labeled “America's Best Health Plans,” will be published in the November 5^th issue of US News and World Report. Rhode Island plans were ranked as follows:

Commercial plans (employer and individual coverage)
Blue Cross & Blue Shield of Rhode Island #20
UnitedHealthcare of New England, Inc. #71

Medicare plans (MedicareAdvantage)
Blue Cross & Blue Shield of Rhode Island #9
UnitedHealthcare of New England, Inc. #93

Medicaid plans (RIteCare)
Neighborhood Health Plan of RI #2
Blue Cross & Blue Shield of Rhode Island #3
UnitedHealthcare of New England, Inc. #9

Is this type of information valuable, though? Although easy to use, would it really help you (as a prospective purchaser of health insurance) choose among the plans? Me neither.

For those interested in more complete data on Rhode Island's major health plans (Blue Cross, United and Neighborhood), a wealth of information and analysis has been compiled by the Rhode Island Office of the Health Insurance Commissioner. While these reports may take some time to sift through, they provide the kind of detailed information that US News and World Report does not.

For example, do you want Rhode Island-specific information detailing health plan performance based on 29 separate measures covering 7 dimensions of performance (i.e., enrollment, utilization, prevention, screening, treatment, access, and satisfaction)? You can find it here. Do you want to see the most recent annual financial statements of Blue Cross, United and Neighborhood? How about a report that analyzes the financial performance of the three plans? What about reports that analyze how well Blue Cross (report and order) United (report and order) comply with marketing and rating requirements in the small employer (1-50 employees) health insurance market?

All this and more is available to Rhode Island health insurance consumers on the OHIC website.

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