I listened to a great presentation this morning on the cost of healthcare and new ideas on how to tackle the current unsustainable situation we find ourselves in. Many people out there see the medical carriers as the biggest villains of all, but I believe the carriers are actually working on our side; that being the side of the consumer. And maybe not all of the carriers are, but I have to believe the large majority of them are. Because the carriers won’t have a job if the government gets its way and we move to a one payer system. So who better than the carriers to be working hard to make the current healthcare system work??
I sat through a great presentation by Blue Shield of California today and was amazed at the work that they are doing behind the scenes to bend the healthcare cost curve. I realize I am a broker and that my job is at jeopardy if healthcare reform takes on the one payer system. However, I sit in these meetings as not just a broker, but also as a consumer of the same healthcare system you all find yourself in. And I repeat, I am impressed and amazed at what Blue Shield of California is doing to try and reign in the costs, for them and also for each of us as consumers.
There are several factors that contribute to the skyrocketing costs of healthcare these days. One being the difference between what Medicare, the government run healthcare program we currently have in place, pays to providers and hospitals for services received versus the actual cost of the care, which is about 25% under the true costs. Due to this large deficit created by the government’s payments, providers and hospitals overcharge the commercial side of healthcare, which is what those of us who have benefits through our employer pay into, almost 35% more than the true cost of care. This large discrepancy in charges causes the carrier rates to be exceptionally high, and what I believe we would all agree to say, unaffordable.
A second reason for the high cost of healthcare comes from the providers of services themselves. There are many doctors and hospitals that charge “normal” rates for their services. But there are many, many providers of services out there that overcharge, and even gouge, the consumer with their costs. And this overcharging is reflected within the commercial healthcare industry in the contracting that goes on with each provider, whether it is individual doctors, medical groups, hospitals or other facilities. And this is where Blue Shield is doing some of their greatest work. Blue Shield is aggressively negotiating their contracts with all of their providers. And Blue Shield is taking the stance that they will walk away from any provider/hospital/medical group that is not willing to work on helping to cut healthcare costs to the consumer.
Using UCLA Medical Center as an example, Blue Shield recently terminated their contract with them. UCLA Medical Center has a 16.8% profit margin, which is more than four times the statewide average! And their most recent contract with Blue Shield had them at a profit margin of 35%. We cannot expect the cost of healthcare to ever get to an affordable price if the carriers are contracting with facilities and doctors that require a 35% profit margin. It just can’t be sustained. So Blue Shield did the one and only thing they could do… they terminated their contract. And they did this knowing that they would lose membership simply because consumers such as you and me want to have access to the doctors and hospitals we like. But I ask you, are you really willing to pay premiums at their current levels so that businesses such as UCLA Medical Center can make an almost 17% profit margin? Chase Corporation has a profit margin of 11% and United Airlines is at 6%. We attack the banks and airlines on a daily basis, but what are we doing with the providers we use that are gouging us? And most of us don’t even realize we are being gouged. We look at our medical premiums and assume that it is the carriers who are making all of the big bucks. Did you know that Blue Shield of California has committed to having a profit margin of no more than 2%?
I for one applaud Blue Shield of California for their efforts and for truly taking a stand and making changes that can affect the price of healthcare. It would be great if government officials could sit in on one of these meetings so they could see what is truly affecting the unsustainable cost of healthcare and then reform the system accordingly. Personally, I applaud Blue Shield of California for their efforts to help control healthcare prices, even when it is at a cost to them in losing membership. I hope the other carriers will send the same message to doctors and hospitals that they cannot continue to sign the same contracts as they have in the past. But without a more fair reimbursement level from our government, this pricing challenge will be difficult to control.