Wednesday, April 26, 2006

Let's talk sense on health care

Jay Bullock and the Daily Koss-ers are pointing to column in the LA Times by conservative writer and NRO contributor Cathy Seipp. The Koss-er sees it as an indictment of our "atrocious and immoral system."

Seipp has lung cancer and is frustrated with her insurer, suspecting that it wants her to hurry up and die. This is supposed to be exhibit A for health care reform, presumably single payer.

I can empathize with anyone's frustration with an insurer and am going to cut a river of slack for someone who is battling cancer, but I think Seipp's column gets at a problem that plagues every type of health care decision-making. Who gets how much?

Health care is unique in that, when you really need it, your demand for it is insatiable and completely inelastic. We all would presumably pay any price not to die.

But, at the end of the day, society at large will not be willing, or able, to pay any price to save us, so there must be some vehicle for rationing. Single payer systems ration health care just as much - arguably more - than our system. That's one of the reasons that they are cheaper.

Seipp admits the company generally pays for her very expensive treatment (as it should). Her problems amount to this. First, she has a large deductible - $7500. She has a $30 co-pay on prescriptions but they add up for her because they must be refilled frequently. She doesn't say she can't afford all this, but she understandably doesn't like it and her share is apparently higher than when she first bought the policy. On the other hand, she apparently pays a premium of $395/month - that is dirt cheap. It doesn't surprise me that a policy like that would have high deductibles. In fact, one might argue that such a policy makes the most sense. Insurance is generally thought to be a hedge against extraordinary expense. Everyone is going to have a certain amount of health care expense every year just as they will have to pay a certain amount for gas, food, etc. As a friend of mine once said, "you don't buy grocery insurance." So why would we expect a predictable amount of health care to be free as opposed to acquiring insurance to cover the much higher costs associated with serious illness or injury. Seipp's deductible is high, but her premium is low.

Second, the insurer has failed to approve certain treatments that it regards as experimental, but that her doctor believes would be helpful. That's something worth getting angry about, but every health care system in the world does that. She acknowledges that she has the right to appeal and notes that, with respect to the denied treatment, her doctor and the drug company has said they will eat the cost if her insurer won't pay.

Understandably frustrated, she blames the problem on the desire for profit, noting that Wellpoint, the parent of her insurer, Blue Cross of California, earned a profit of 2.5 billion. The treatment it has denied as experimental runs $5000 every two weeks. Couldn't they throw an extra $130,000 per year her way?

Again, I understand how she feels but here is the reality. Wellpoint earned a net income of 2.5 billion on operating revenue of 44.5 billion. That's a margin of a bit over 5%. Hardly outrageous. Earnings amounted to a little under 4 bucks per share and Wellpoint trades at a bit over $69. Once again, not stupid profitability.

What would it cost Wellpoint to throw an extra $50,000 at anyone who can make a case that it "might" help? Wellpoint had 33.9 million insureds at the end of 2005. Let's say 1% were in that situation. The company would go from a 2.5 billion profit to a 1.9 billion dollar loss. Would even 1% be in that situation? Or would it be more? I don't know. The point is that, at some point, we run out of money. Eventually, in this or any other type of system, we reach a point where the answer must be "no."

I'm not saying all this to make insurance companies look like heroes or to say Cathy Seipp is not entitled to the treatment she wants (and is getting). The former is not true and the latter is a medical question.

What I am saying is that it is overly simplistic to think that everyone can have the health care they want (or maybe even that they need) and the only thing preventing it is someone's greed.

1 comment:

Anonymous said...

It is unfortunate we do not have leaders who are willing to talk sense on health care.