The Cost of Medical Care an opinion by Dennis Begley CLU ChFC There is lots of talk about how to resolve the spiraling cost of medical care. This is not a new conversation. All parties to this conversation want to know what can be done to make care affordable. Consumers blame the insurance companies. Insurance companies point to the providers of care. The providers say they are not to blame.  So what is the cause of the double digit increases we are seeing in health care cost? Simply put, the problem and cause of those big increases is usage. If we weren't using the medical care as often and as much, the costs wouldn't be so high. Simple answer to a complex question. We have the most expensive medical care in the world. Modern technology should share some of the blame. We are learning new things to do for old problems and that care is not cheap. Drugs of today are making dramatic impact on many medical conditions. It is easy to say we shouldn't be spending so much on the care of strangers but if that person with the problem is part of your family, the perspective is different.  In the recent history, HMO's became a factor in the equation. HMO stands for Health Maintenance Organizations. The premise was if we encourage people to come to their clinic/Doctor prior to developing a serious medical problem we should be able to detect it early. Early treatment should be less expensive. HMO's are prepaid medical care. The provider is paid each month an amount of cash based on the number of HMO clients that have signed up to that particular clinic/Doctor. So when you go to the clinic, it has already been paid for. And the clinics were reward financially for wisely using the money sent each month.  In essence, the cost of care was pre-negotiated. And the clinic had a financial interest in making sure the total cost of care did not exceed the total money received.  Did HMO's have an impact on the cost of care? Yes. Insurance companies to compete with HMO's established PPO's. PPO stands for Preferred Provider Organization. Basically the PPO networks are clinics that have pre-negotiated the cost of care. Sort of like having a pre-known cost for each type of care needed. In return, the PPO's would refer medical business to its network of providers. A win-win solution, right? Yes, the cost of care was impacted by these arrangements. Problems developed though. People had issues with being restricted to a specific network of providers. Open access was not part of the plan. Open access results in much higher cost of care. The costs have not been pre-negotiated. HMO's are the opposite of an open access plan. In fact, in an pure HMO, each client must choose a "gatekeeper" doctor that "knows" the client and his or her health history. Only a referral from the "gatekeeper" will allow the client to see any other provider of care. If a client picked up the phone book and called any provider, there would be no coverage or a large financial penalty to the client. People started accusing the insurance companies and HMO's of allowing accountants to make the determination of who should get what care. In reality, there is some truth to that, but accountants do not make the decisions or determination of care. It just seems that way.  Choosing an employee medical plan is a trade off. Better plans cost more money and "encourage" medical claims. Big deductible plans are cheaper buy passing part of the cost back to the user/employee or dependent. But an increase in out of pocket costs also does have an impact on the cost of care received which has an impact on future premiums. Its a trade off. Employees complain about having to pay a deductible, they are not happy with paying higher premiums or a larger portion of the premiums. Shouldn't the employees that use the medical care be paying a larger share of the costs than those that do not use it? You will see medical plans that recognize this issue on your next renewals. So what is the answer to what we can do to slow the spiraling cost of medical care.  We all need to understand that someone has to pay for the care.  I insure a lot of businesses and employees. I talk to employees. I see the amount of care people receive. I obtain the claims experience for each of my group medical plans on renewal. Many people are using the medical plans a lot and often. Few of my insured companies have a loss ratio under 100%. For every dollar that comes into the insurance companies, MORE than a dollar is being spent to pay for the care. Add in the cost of administration and you are easily over 100% loss ratio. Imagine if every time you sold one of your products you lost money. How long could you stay in business? Insurance companies and HMO's increase the premiums for the next year to pass the cost on. You get a rate increase of the inflationary trend. In the year of 1999, that trend was over 12%, some companies in Minneapolis had over 15% trend.  Medical care is a luxury not a right. The only way to impact medical costs long term is to decrease the usage. Take responsibility for your own health. "If I'd known I was going to live this long I would have taken better care of my self." Who is responsible for your health and well being? Your doctor? Your clinic? Your medical insurance company? Your mother? No, you are. I think it is safe to say that most medical problems are caused by lifestyle choices. What you eat and how much, what you drink, whether you smoke, & lack of exercise all impact your health long term. Over 60% of the people in this country are over weight! More than 30% are more than 30 pounds overweight and considered obese. If we are going to make any impact we have to acknowledge responsibility for our own health. As an employer, you can make an impact by providing information and educational materials to your employees. Most insurance companies and HMO's have materials and programs to assist you in that process. Being informed is a major step towards taking responsibility. Regular checkups can also have an affect. It is cheaper to treat almost all medical conditions early rather than later. Your doctor is not going to call you, you must take that step yourself. Pay attention to how often you have a physical exam. Stay informed. Be responsible for your own health. Managed Care does work. Politicians get mileage by pointing out that an accountant should not be allowed to make decisions on the level of your care. If you want to have an impact on what premiums cost, you must recognize that this is a financial question. It is difficult to  be objective about this issue, particularly if you happen to be running for an office. It is more expensive to have open access to medical care. HMO's who require "gatekeepers" of their clients are far more cost effective. Recently a law was passed that required medical providers to give 3 days of medical care to a new mother. Everything I read on that said it almost always was up to the doctor and patient as to the amount of care per delivery. What happened, right or wrong, is the cost of deliveries went up because now it is required. Care decisions should be a private matter between the doctor and his or her patient. Socialized medicine is not the answer. How will getting your medical insurance from the government have ANY impact on the cost of care? What on earth will change by replacing your insurance company with a government agency? One thing that will change is part of that cost will come from another pocket of money, your tax pocket. The issues do not change. Medical care is expensive. One of the largest groups supporting Bill Clinton's push for socialized medicine was the big employers. Why? Because the cost of care for the uninsured is being passed on to them by the providers of care. They want someone else to pay for those people. And probably rightly so. In Minnesota, the largest employer is the state. That group of insured's also have the worse claim experience of any group in the state. All major insurance companies in the state had to participate in offering coverage. Several years ago, the insurance companies came to the state on renewal and asked for a pretty large increase in premiums due to the huge cost of claims. The state said no, we will pay this lower increase. Who do you think made up the difference for the insurance companies? Every other insured person in the state. There are issues in making sure medical care is available to everyone. Taking private enterprise out of the picture is not the answer. The question is how do we pay for medical coverage to the uninsured? Why is it the self employed or for that anyone that pays medical premiums still must do so with little tax advantage. If it is that large of an issue that we would consider throwing the baby out with the wash and taking private insurers out of the conversation, why have we not make premiums tax deductible for everyone? As a business owner, you owe it to yourself to be involved with this issue. Stay informed. Do business with companies and brokers that work with you and your employees. Be politically aware. You are paying for mandates in each premium check you write because of laws that were passed by your elected representatives. As a society we should do what is right for all parties. If you do not voice your opinion, you will not be heard or your opinions considered. Not being informed or active politically will affect your pocketbook.