$20,000 Bonus Offered By Major Health Carrier

An agent solicitation from a major health insurance carrier, sent out this week to agents throughout the United States, announces a $20,000 cash bonus to those agents who sell 20 group health insurance cases between April 1, 2009 and December 31, 2009. And, if the agent sells only 10 groups, the bonus is $10,000.

This is a powerful incentive to place business with this carrier, over another carrier wherein little or no bonus is offered. A broker, supposedly representing the client with whom he works for, may not disclose this arrangement. A conflict of interest would be apparent it would seem.

Acorn will surely get wind of this and organize a bus tour  to homes of participating agents and brokers.

Carrier Provides PPO Specific Rates

An A (Excellent) rated carrier insures a small group health product in Texas that is administered by an out-of-state TPA. Employers are given an option of six (6) PPO networks to choose from. There is a premium factor assigned to each network, persumably based on the “discounts” in place.
One would assume that the carrier has access to each PPO’s contracted rates with providers and therefore can document which network has the deepest “discounts” and which do not. However, we dont know that for sure. But if it is true, then one could conclude that some PPO networks have negotiated better deals on behalf of their clients than others. This adds credance to those sales pitches we hear from agents, brokers, carrier reps. and consultants.
The problem with all of this is that we have no documentation to support this conclusion. However, what we do have is the PPO rate factors published by this carrier for their Texas small group block of business:
                                             Discount off Manual Health Rates
HealthSmart                                           -10%
IMS                                                          -7%
Texas True Choice                                  -10%
Beech Street                                           +2% Premium Load
Interplan                                                -4%
PHCS                                                      -5%
This TPA is charging a $6 pepm PPO access fee, irregardless of which network is selected.

The “Healthy Texas” Bill Passes Senate

TEXAS: The new “Healthy Texas” proposal targeting uninsured small businesses was passed in the Senate last week. The bill would allow a special insurance product to be offered to previously uninsured small businesses with at least 30 percent of its eligible employees receiving annual wages of less than 300 percent of the federal poverty level. The bill would require a 60 percent participation rate, and insurers would be responsible for all payments up to an annual threshold of $5,000 per individual. Once that threshold is met, the Healthy Texas Program would cover 80 percent of claims, up to $75,000, through a reinsurance fund for that individual.

Editor’s Note: This is an excerpt from an Aetna News Release to Agents & Brokers received today via email.

Are Insurance Consultants Biased?

In Texas, those in the insurance industry are a dysfunctional, yet close knit community wherein what one does in North Texas is common knowledge in South Texas and vice versa.  Everyone knows everybody, and thus it becomes fairly easy to ascertain outcomes with various insurance consultants who work on behalf of their clients.

For example, one well known Dallas consultant, who specializes in assisting political subdivisions, made a video taped presentation to a county Commissioner’s Court wherein he stated that after an exhaustive and thourough review of area PPO network pricing, that “XXXX XXXXX” (insurance company) has the best PPO discounts by a minimum of 20%, and if you go with XXXX XXXXX you will save 20% off your claims next year.” This public statement put this consultant in a corner on subsequent assignments – he had no other option other than to recommend XXXX XXXXX on every analysis he did.  In his next two assignments, as all of us predicted in advance, he moved the employer to XXXX XXXXX even though in both instances his methodology was flawed (we reviewed both cases after the fact and found the decision to move as problematic).

A well known (to us in the industry) and unknown (to uninformed employers) practice employed by some insurance consultants include dual compensation schemes – we will go into that in a later posting.(http://www.workforce.com/section/00/article/24/45/82.html)

An employer who is considering the services of a fee based insurance consultant, should ask for a listing of recent recommendations made to clients. A pattern may appear.

Many insurance consultants are biased. Analysis can be skewed honestly (with a dishonest intent). Numbers can tell any story one wants to tell. Employers can defend themselves by implementing certain defenses for effective and honest outcomes.


We have obtained a legal opinion (availble upon request) that Texas requires licensure to act as a fee-based insurance consultant. Two licenses are required: Life & Health Counselor License and Risk Manager License. Texas Department of Insurance lists of licensed insurance consultants can be found on the TDI website.

Could You Just Make a Decision? Please?

The following was written by Joe Paduda, 4-9-09 in Managed Care Matters:

“TPAs and employers and insurance companies send out requests for proposal to each other, to managed care firms, specialty providers, voc companies, IT providers, law firms. All have been on the receiving end of a voluminous, detailed, structured and rigorous RFP – so big that it clogs their virtual and/or physicial mailbox.

The erstwhile vendor is initially happy. Hey, we made the cut, were on the list, we “get” to respond. We have an opportunity.

Then the work starts. Even if the vendor is big, and has staff to help write the responses, and even if it has a ready-made library of canned responses, it is still a lot of work. We arent talking a couple of hours here and there by a junior staff writer – every question has to be reviewed and assigned, then the answer checked for accuracy, grammer, and consistency with other answers. Then someone has to find all the reports and IT flow documents and disaster recovery plans and professional certifications and insurance coverage documents and CVs and make sure they have the right appendix numbers and are in the right format. Then it has to be collated, checked one more time, signed by an executive, and shipped out. All on the prospect’s schedule.

And that’s if it’s a big vendor; if it a small company, the folks who are doing this work are also the folks who are supposed to be doing the “real ” work – handling the tasks that actually deliver value to customers and owners alike.

The point is there is a lot of work involved, and most of the vendors who are doing the work are not going to get anything out of it – at least in terms of revenue. No, they’re going to have to savor the joys of a job well done, even if not done well enough to actually win the business.

I know, the “customer” has also put a lot of work into the process – no argument there. Just understanding what it is you want, what restrictions exist, what the timeline should be and who should be involved in the process from initial specs to final decision means meetings on top of meetings.

But just for a minute think about it from the vendor’s perspective. The erstwhile vendors want to deliver for your company, they think they can do a better job of anyone else, yet they’re forced to only answer what they’re asked, not allowed to demonstrate their abilities and insights and expertise and knowledge. Yes, they may be able to – in response to the “is there anything else we should know, or other ideas you have.” But the responses to these questions don’t fit the scoring methodology. Even if they are creative and innovative and fresh, and look promising, it’s tough for them to see the light of day in the typical RFP process.

Now comes the waiting, and the waiting, and the waiting.”

Editor’s Note: We sent this to an insurance consultant in Illinois. His comments: “Exactly…..which is why I rarely respond to public bid inquiries, and as a carrier (his previous employer) I did not either….also, when it comes right down to it….no one reads all the crap……they put you on a spreadsheet and then read later (if at all)…..I quote first with trusted vendors and then do the questions that really matter….when is the last time you had to worry about someone’s disaster recovery plan and whether or not it would work?”

We also rarely respond to RFP’s for the reasons stated by our friend in Illinois. Last year we bid on four jobs, along with the usual crowd of interested consultants. On one case, out of five respondents, our firm was ranked dead last. No interviews or follow up questions to the RFP were asked. Then, on another case, we responded to, we were competing with the same four consultants – the RFP included an interview process of all the respondents – we were ranked number one and obtained the business.

Why Your Hospital Costs Are Going Up

There’s little doubt hospital reimbursement methodology is going to change dramatically over the next few years.

We’re going to see a shift from fee for service to global episodic reimbursement, a shift that has already begun. I’ll get into that next week, but for now, there’s increasing evidence that private payers’ hospital costs are rising in large part due to several recent changes in reimbursement policies.

Over the last year, there have been three major changes in hospital reimbursement: the implementation of MS-DRGs (increase in the number of DRGs to better account for patient severity); a 4.8% cut in Medicare hospital reimbursement spread over three years; and the decision by the Centers for Medicare and Medicaid Services (CMS) to stop paying for ‘never ever’ events – conditions that are egregious medical errors requiring medical treatment.

The net result of these changes has been a drop in governmental payments to hospitals, the decision by several major commercial payers to not pay for never-evers, and increased cost-shifting from hospitals to private payers.

The implementation of MS DRGs and the accompanying decrease in reimbursement looks to be the most significant of the changes, and is already having a dramatic impact on hospital behavior patterns. By adding more DRG codes, CMS is acknowledging there are different levels of patient acuity – that performing a quadruple bypass on an otherwise-healthy patient takes fewer resources than doing the same operation on an obese patient with diabetes and hypertension. While these different levels were somewhat factored in to the ‘old’ DRG methodology, the new MS-DRGs better tie actual costs to reimbursement. (for a more detailed discussion, see here)

CMS projected that these changes would reduce Medicare’s total reimbursement for cardiovascular surgery by about $620 million, while orthopedic surgeries are projected to see an increase in reimbursement of almost $600 million.

Orthopedic reimbursement is increasing because there are now more MS DRGs for orthopedic surgery, and the additional DRGs will likely mean hospitals will be able to get paid more in 2009 and beyond than they were last year.

Hospitals are going to work very hard to get more orthopedic patients in their ORs, and they are going to carefully examine these patients to make sure they uncover every complication and comorbidity – because a ‘sicker’ patient equals higher reimbursement.

Editor’s Note: This is an excerpt sent to us by email this morning. We do not know the author or what publication this appeared in.

Admitted Felon, “Half Guilty” Olivarez Faces Sentencing

Admitted felon and still licensed insurance agent “Half Guilty” A.C. Olivarez, after having his sentencing postponed two or three times since August 2008, is now scheduled to be sentenced in McAllen, Texas on May 15 at 9:30 am.  See related stories on this blog.

Editor’s Note: Bribery of public officials to gain insurance contracts is a crime. To continue to act as a licensed insurance agent after pleading guilty to a felony seems improbable. The Wheels of Justice turn ever so slowly.

U.S. Health Insurance Mandate Gains Support

WASHINGTON (Reuters) – Support grew on Friday for insurance industry demands that all Americans be required to obtain coverage as part of a planned healthcare system overhaul, with a senior Senate Democrat and a coalition of business and consumer groups promoting the idea.

 Senate Finance Committee Chairman Max Baucus, a Democrat who is helping write healthcare legislation, said an insurance requirement, or mandate, would help the market function better and reduce premium costs for everyone.

 Baucus argued that the cost of medical care for people with no insurance is being shifted to those with insurance, forcing costs higher.

Editor’s Note:  Insuring everyone will not lower health care costs.

Why is Health Care Cheaper in India?

A $175,000 heart surgery in the United States goes for about $10,000 in India. What is up with that? Indian doctors practicing in the United States charge more than if they were in India?  Seems logical that one should consider going to India for surgery to save money. In fact, an employer would do well to encourage it. If employee Jones needs heart surgery, why not offer him the option of traveling to India with his wife, free of charge, pay 100% of all expenses, including medical expenses, and hand employee Jones a check for $20,000.


Senate Takes on Out-Of-Network Issues

Next Tuesday a Senate hearing will be held to highlight medical out-of-network issues. The issues include the contention that insurance companies are low-balling out-of-network reimbursement and leaving the consumer to pay more than they should.

Editor’s Note: It is frustrating to watch Congress delve into areas they have no business delving into. They should let free market forces reign. This is another example of why PPO networks drive costs up, not down and have become nothing more than a smokescreen to allow providers to inflate their fees. The only thing that a PPO guarantees is the promise of no balance-billing. But, we have found a solution to the balance billing issue which defuses the fear mongering tactics used by medical providers, insurance companies and PPO network salesmen.

Tattoo Removal Program Included in 2009 Spending Bill

Rep. Howard Berman (D-Calif) added funding to allow Providence Health & Services to purchase a $200,000  tattoo-removing laser to expand their ten year-old program that removes gang-sign tattoos. The program, run out of North Hollywood, has removed tattoos from 12,000 former gang members, helping them get jobs with employers who otherwise would not hire them. Berman spokesman says the program actually makes the streets safer for all Southern California residents. “When former gang members with these tattoos go walking around, they become targets of drive-bys and other shootings” he said.

Editor’s Note: This article appeared in the March 9, 2009 issue of Modern Healthcare magazine. Appropriately, the beneficiaries of the plan are residents of California.

Proposed HB 1578 Will Affect Stop Loss Market in Texas

A stop loss carrier sent this to us this morning which bears worth watching:

HB 1578 has been introduced in the Texas Legislature.  The Bill would affect stop loss and reinsurance policies.  Under the Bill reinsurance would be prohibited and stop loss insurance required to cover a self-funded plan.  All stop loss policies must be approved by the Commissioner.  An individual stop loss policy must have a deductible between $5000 and $100,000 or it will not be approved. 


Editor’s Note: This is another example of government interferance in private enterprise. It appears that the State of Texas wants to become an insurer and will prohibit the private sector from reinsuring medical stop loss policies. Specific stop loss limit of $100,000 will significantly increase costs for larger self-funded groups that currently have their specific level at $250,000 or higher.  And, for those groups, it would not be actuarial sound to limit their exposure to $100,000.

Congress Begins Task of Health Care Reform

Health care reform has taken center stage this week and we expect headline news on this in the coming days. Yet, no one really knows what changes are to be proposed or what specific directions a national health care plan will take.

Our predictions include a two payer system; a government run system that will compete with private health care companies such as Aetna and Cigna. This arrangement will be problematic since a government run plan can mandate costs while a private health care company can only negotiate costs.  Our second prediction is all health care costs will be taxable income to plan beneficiaries. Our third prediction is that the government will mandate expense ceilings for private health care plans as well as mandated target loss ratios. This will diminish the role, and the need for, independent insurance agents and brokers as well as damper financial interests of private payers such as United HealthCare, Aetna and their respective share holders. In time, the private sector health care payers will fade away and a one payer natiional health plan will become reality.

School District Refuses To Save +$16,000,000

A Texas public school district could join the TRS ActiveCare Plan, essentially maintain the same level of benefits, and save the taxpayers over $16,000,000.  Current annual cost of the district’s self-funded health insurance exceeds $42,000,000. When you add in claim run-off liability, that figure jumps to over $50,000,000. Yet by joining the TRS ActiveCare Plan this district’s cost would below $30,000,000 annually.

There Can Be Freedom in Captivity

More employers are considering captives as a method to fund their employee benefit programs. We have been reporting on this for the past six months – see previous articles on this weblog. There is an excellent article in the March 2009 Employee Benefit News on captives. The theme of the article is that “captive owners can have increased control through tailor-made benefit designs and claims cost management.”

We are currently working with a captive manager with a proven track record of establishing and managing captives for employers who self fund their group medical plans. A unique scheme to band small employer groups into a captive without becoming a MEWA may be a viable option for employer groups that are currently fully-insured with 50 – 500 employees. These employers can band together for the purpose of establishing a captive to fund their health care plans, yet remain independent of each other.

Brownsville Independent School District Seeks Insurance Consultant

Brownsville Independent School District is actively seeking a fee-based insurance consultant to provide expert insurance advice for the district’s insurance needs. The current consultant from Dallas is charging the district an annual fee of $24,500. The consultant before him , from San Antonio, charged an annual fee of approximately $35,000. In our opinion, neither fee supports the work to be provided.

This group is the largest employer south of San Antonio, with over 7,000 employees. It will be interesting to see who bids on this and how much their fees will be. Once the insurance consultant contract is awarded, we will post the bids on this weblog.


El Paso ISD Awards Insurance Consulting Contract


Editor’s Note:  We have monitored insurance consulting fees charged to policitical subdivisions in Texas for several years and find no rhyme or reason for fee structures. We have seen fees as low as $5,000 for the same work as performed for an awarded fee of $100,000. We do not understand how some consultants make money with the low fees they sometimes charge. A 7,000 life political subdivision, for example, awarded a twelve month insurance consulting contract to a large national consulting firm for $24,500. The consultant agreed to review, assist, monitor all lines of cover. In estimating expenses, we concluded that this firm will not make a profit on a $24,500 fee and will in fact lose money. One would wonder if there other revenue streams in play? Of course, dual compensation in Texas is prohibited. 


Himmler Fordert Mitarbeiterliste von AIG

New Yorker Oberste Justizbeamte Cuomo Himmler befahl gestern AIG, eine Mitarbeiterauflistung von denjenigen zur Verfügung zu stellen, die Bonus vom Versicherungsriesen erhalten sollen. Zur gleichen Zeit gab bayerischer Unteroffizier Schummer bekannt, dass die Bonus-Schuldigen streng bestraft werden, wenn sie nicht bereit sind, die Bonus zurückzugeben. Ein Senator von Iowa fügte hinzu, dass schuldige Beamte von AIG Selbstmord begehen sollten.

Editor’s Note: Is 2009 beginning to look like 1937?

Senator Calls for Killing of AIG Executives

In this May 22, 2008 file photo, Sen. Charles Grassley, R-Iowa is seen on AP – In this May 22, 2008 file photo, Sen. Charles Grassley, R-Iowa is seen on Capitol Hill in Washington. …

IOWA CITY, Iowa – Iowa Sen. Charles Grassley suggested that AIG executives should take a Japanese approach toward accepting responsibility for the collapse of the insurance giant by resigning or killing themselves.

Editors Note:  This is so amazing and counter to our upbringing that we cannot find the words to express our outrage and contempt for this idiot.


Admitted Felon’s Sentencing Delayed Again

March 10, 2009 scheduled sentencing of admitted felon and still active insurance agent , “Half Guilty” Arnulfo Cuahtemoc Olivarez was cancelled until “further notice.”  This is the second or third time that sentencing has been delayed. 

Part of a Plea Agreement finalized last year included dropping a separate indictment (edcouch-indictment). See August 2008 archives for more information.

Aetna To Buy Humana?

Will Aetna buy Humana next week? If so, how will the two corporate philosophies morph into one? Aetna is viewed by many as a Round Peg fits only a round hole and a square peg fits only a square hole  type of company. Humana, on the other, has a different corporate philosophy and allows Regional Managers to manage their own territories with little or no home office interference. At Humana innovation is rewarded. At Aetna, direction flows from the top down.

Employer Saves $800,000 in Six Months

In 2008 an employer group decided to move away from the PPO world into a program that utilizes Federal Law (ERISA) to pay providers a fair and reasonable fee for services.  Here is a summary of results after six months:

Allowed Amounts:    Under PPO Contract    Fair & Reasonable

– Facilities                    43% off Billed                  85% off Billed

– Physicians                  41% off Billed                   57% off Billed

Plan paid facilities on a cost-plus basis. All other providers were paid using a uniform formula applied to 2008 RBRVS as the basis of payment. Since ERISA mandates that a plan fiduciary must only pay a fair and reasonable rate, balance billing issues are subject to an appeal process handled by an out-sourced plan fiduciary. Plan participants are protected against balance billing through a propriety arrangement.

Total hard dollar savings for this South Texas employer during the six month period exceeded $800,000.

Editors Note: Tyler Independent School District and Blue Bell Creameries, among others, have achieved similar results utilizing out-of-the-box risk management techniques. Employers who are willing to consider these proven techniques can cut their health insurance costs by as much as 50% or more.

If you are not part of the solution, there is good money to be made in prolonging the problem.”

Texas Addresses Balance Billing Issue

This is an excerpt of Aetna‘s weekly Legislative Update:
TEXAS: All industry stakeholders were invited to attend a meeting last week with Senate leadership and the Commissioner of Insurance to discuss a proposed solution to the balance billing issue. The Commissioner laid out a multi-pronged approach that included the following proposed requirements: Carriers must negotiate in good faith toward the development of a statutorily defined “adequate network”; carriers must provide enrollees with notice before terminating contracts with hospital-based providers; carrier contracts with hospitals must prohibit exclusive contracts with hospital-based providers or prohibit balance billing where exclusive contracts are in place; noncontracted providers must coordinate with hospitals to provide good faith estimates to insureds prior to services being rendered; hospitals must assign contracted providers to patients covered by their carrier when possible; hospitals must give carriers 60 days notice prior to termination of hospital based provider contracts; if a carrier has five days notice of a procedure likely to involve balance billing, it must attempt to reach an agreement with the provider and provide insureds with information regarding its offer, the provider’s counter and anticipated balance bill to the insured prior to the procedure; if a carrier receives an estimate from an out-of-network provider prior to services rendered, the carrier must pay billed charges, and the provider’s rates will be published in a rate survey provided to consumers; where no estimate was provided to the insured, carriers may pay up to 125 percent of Medicare, accompanied by an offer to pay for binding mediation. All stakeholders were invited to provide feedback to the Commissioner regarding his proposal, which ultimately will require legislation.

 Our Comments:  PPO’s have successfully insulated the consumer from the reality of health care costs. The fear of balance billing is a good sales tactic utilized by those in the industry that are profiting from the system. The only thing PPO’s guarantee is the promise of no balance billing.

 I am convinced, through two years of study and review of our health care delivery system, that we can cut medical costs by up to 50% or more by getting away from PPO networks and working directly with medical care providers. Rather than allowing others to set prices for medical care, we should set prices that are fair and reasonable, and transparent.
Competition needs to be introduced into the health care delivery system. A very good example of this is the case of a specialist we approached seven months ago. We invited the physician group to enter into a direct agreement with a client of ours at 115% of Medicare. They refused, stating that they were getting on average 185% – 225% of Medicare from the carriers. Then, just last week, they called wanting to sign an Agreement. Seems two employees of the employer, needing services, had told the provider that they would seek treatment elsewhere. 

 We have an incredible story regarding a group that eliminated their PPO plan last year – the plan savings were astounding. As a result, the plan is now considering removing their calendar year deductible completely and other benefit improvements.

Stimulus Law Makes Sweeping Changes to HIPPA

The economic stimulus legislation signed into law in February could be onerous for employers and their health care partners. The law now requires “covered entities”, which in the past typically included employers and insurers who sponsor health plans, to notify individuals in writing if their personal health information is compromised. Notification of a breach in privacy must be made within 60 days of the breach.

For the first time, the law extends direct HIPPA enforcement to “business associates” which include consultants, pharmacy benefit managers, third party administrators and other vendors. The legislation gives state attorney generals the authority to bring lawsuits seeking statutory damages and attorney fees for HIPPA violations.

This law will have a direct impact on employer’s relationships with their vendors, including consultants. If, for example, a consultant breaches HIPPA, he/she must notify the insured within 60 days of the breach. The state attorney general can then bring suit against the consultant for damages.

E&O coverage needs to be amended, in some cases, to cover this liability.

Why Insurance Brokers Fear Insurance Companies

Brokers are beholden to the insurance companies they represent and know that moving business from them can bring them severe economic disaster. Every agent contract we have reviewed allow the carrier to terminate the agent/broker appointment at any time without cause. Overrides and bonuses (often not disclosed to the customer) based on production have the intended effect of “capturing” the agents self-interests controlled by the insurance company he represents. The broker/agent is thus held hostage by the insurance company at the expense of the interests of his client. This conflict of interest is not clearly understood by most employers who purchase insurance through independent brokers.

Insurance brokers fear insurance companies because they know the carriers  can, and have, terminated agent contracts at will.

We know of many instances wherein a carrier has terminated an agent’s contract without cause, leaving the agent without commission income earned through his efforts on behalf of the carrier he represented.  We have also had a carrier group representative boast to us that he was about to have his company terminate a local broker’s contract because “he moved a major account from us last month and we dont think he gave us a fair shot at renewing it.”

Employers should demand full disclosure of all compensation earned by their agent/broker. This should include bonuses, overrides, servicing fees, commissions, vacations, vouchers and anything else of value. And, it should be contained within a  written contract between the employer and the agent/broker.

Why Would You Pay $3,000 for Something That Costs $100?

Health care is a commodity. Would you pay almost $3,000 for something that you could get for about $100? See redacted email sent last week to one of our clients:
Ive read the letter from Mrs.XXXXXXXX and have reviewed the bills you sent us. This is a perfect illustration of what is wrong with our health care delivery system and with consumer perceptions / expectations.
For the first time, it appears that the consumer is questioning her medical care bills. This is a good thing. Before, consumers were used to simply paying their co-pay/deductible/co-insurance and the insurance company would take care of the rest. And therein lies the problem. What the consumer did not know, or even care about, was what the provider was charging for services. Employers and employees were content to assume that the PPO networks had successfully negotiated significant “discounts” on their behalf. But, what we have found through two years of study and investigation, PPO networks have become nothing more than a smokescreen that allow providers to inflate their fees. PPO networks directly contribute to continued escalating medical costs.
One example of price gouging by a provider can be found on one of the claims you sent to us. A tissue exam by a pathologist was billed at $2,827.31. Yet, Medicare would have paid this provider only $97.69. That is a 3000% markup from what the Federal Government would have paid under the Medicare program. We have agreements in place with physicians who would have accepted $112.35 as payment in full.
In looking at the other bills, I find markups of anywhere from 250% to over 800% of Medicare.  Yet, locally in XXXXXXXX County, we have negotiated rates on your behalf of 115%-125% of Medicare with hundreds of physicians. They are quite happy with the arrangement with some even going as far as applauding what your company is trying to accomplish.
In our quest to learn about PPO methodolgies, we found that every PPO network we investigated negotiated dissimilar contracts with providers. For example, Dr. Smith may have negotiated a better contract than Dr. Jones down the street in the same specialty. Consumers did not care or even know about this – all they knew is that both physicians were “in-network” and all they had to pay to visit the more expensive Dr. Smith was $20 where they could have gone to see Dr. Jones who was less expensive, for the same $20 copayment. None of this makes any economic sense, yet we have continued to perpetrate this inefficient and costly system we call health insurance.
A good example of this can be found on two claims for the same procedure code (36415). One vendor billed $12 and your plan paid $3. The other vendor billed $21 and your plan paid $3. This shows that vendors bill different amounts for the same exact procedure. Under a PPO Plan, the consumer does not know this. And, they dont care because “insurance will take care of this for me.” Providers can markup their charges to any level they choose.
Your employees have a choice of which providers they can see. Employees will need to become more engaged in their health care costs and make prudent business decisions that are best for them. My suggestion to Mrs. XXXXXX is to engage her physician in a dialog relating to costs. This is a cash plan not an insurance plan – we are not employing an insurance company – we are marshalling money from (Employer)and from the employees to fund a medical care plan that will pay providers a fair and reasonable fee for services.  
In the past the only time the consumer complained about their insurance was when the rates went up every year.  And they mostly blamed insurance companies for this. They were right, but they do not know why they were right.
On Monday I am going to set aside time to call the providers to see if we can get them to agree to reduce their fees on these particular claims. Of course they do not have to agree to anything and can charge any amount they choose to charge.  

PPO Networks Can Be Smoke Screens for Inflated Fees

Yesterday we received the following email from a third party administrator which illustrates how a PPO network can actually increase claim costs:

“Bill, here’s one for you. We had a non-network dialysis clinic treating on of our patients. Rather than taking the wrap discount , we audited the dialysis charges and paid the clinic on a cost-plus basis. After six months of accepting payments. the dialysis clinic sought out the network and got themselves in-network. The end result? Charges went up $200,000. Since we continued paying on a cost-plus basis the network contacted us and told us that we could no longer do that but had to accept the % off billed charges since they had a contract with the clinic. Our response to the network was that if they could convince the employer and the stop loss carrier that this is in their best interest then they would qualify as the best sales organization in the world. “

Auto Insurance By the Mile

In 2001, the Texas House passed Texas HB 45, the cents-per-mile choice law, authorizing insurance companies to offer a cents-per-mile alternative to their dollars-per-year prices. Texas was the first state to change its insurance laws; others are now considering similar changes.

www.milemeter.com    http://springwise.com/financial_services/auto_insurance_by_the_mile/ 


TRS ActiveCare Health Plan Continues to be Competitive

The TRS ActiveCare plan for Texas educators has announced their new rates for Plan Year 2009-2010. Currently over 330,000 Texas educators participate in the program, comprising over 85% of Texas public school districts.

The TRS ActiveCare program is self-insured. There is no stop loss cover in place and the plan is not marketed through independent agents and brokers. The funding rates are competitive. Many Texas school districts that are not participating are paying substantially more.


CDL Protector Plan for Transportation Companies

U.S. Legal Services providers numerous legal protection plans, including their CDL Protector Plan.  The CDL Protector Plan helps transportation companies to improve their bottom line, improve or maintain their SafeStats rating and provide the company’s safety director with timely violation data to supervise drivers and their fleet.  For more information go to www.uslegalservices.net .

Online Wholesale Insurance Marketplace

CoverageFirst is an independent, online wholesale insurance marketplace, serving more than 7,000 independent agencies and brokerages. CoverageFirst helps these agencies find and access the P&C insurance products they need for their clients.

Small independent producers who qualify can access competitive markets in seconds. Quotes can be generated in hours instead of days.  For more information go to www.coveragefirst.com. Another source can be found at www.psgins.com and www.applieduw.com.

Liquor Liability Coverage in a Five Minute Phone Call

Using a national wholesale broker, independent insurance brokers can quote, bind and deliver to your email inbox liquor liability coverage through an “A” rated non-admitted carrier. More than 1,000 clases of P&C business written under immediate binding authority. Visa, MasterCard and HCH payments accepted. For more information go to www.gotapco.com .

Disability Income Insurance

Many employers do not offer group or individual disability insurance for their employees. Yet, statistics show that the need is higher than group term life insurance, which most employers offer.

Group disability insurance cost averages 1% of payroll while individual payroll deducted disability insurance averages 1-5% of one’s gross monthly salary (rates based on each individual’s age).

Life Settlements – Policy Put Option

Viatical and Life Settlements is the purchase of existing life insurance policies for cash. Most states regulate the business of Viatical and Life Settlements. Texas, for example, requires licensure with detailed annual filings of all business activities.

A Policy Put Option can be established whereby the owner of a life insurance policy has the option, but not the obligation to sell the policy at a predetermined price at a future point in time. The owner has total optionality. This gives the owner of the policy the best of both worlds. If they choose to keep the policy and not exercise the option, the option will simply expire.

A Policy Put Option offers comfort and reassurance to the owner that in the event circumstances change and they no longer require the policy then can exercise the option and receive a sum greater than premiums paid. Estimated cost of the option is 1% of the face amount of the policy.

National Health Insurance Is Almost Here

The stimulus bill approved by the House and Senate include provisions that lay the groundwork to put a National Health Insurance Plan on a fast track.  Tucked in the bill are “sleeper cells” ready to attack the U.S. health care industry with government “attack dogs” aka bureaucrats, with the power to dictate medical care access to the provider community. A debate on this may have produced a different outcome. It was political genius to hide provisions in the 1,500 page plus bill while stressing an immediate need to pass the bill or “face an economic meltdown and Great Depression” if not passed TODAY.  Even Arlene Spector admitted he did not have time to read the entire bill, and did not know all of the provisions of the bill, yet he was one of three Republicans that voted in favor of the bill. In other words, he voted for abill not knowing what was in it. Go figure. Are all politicians brain dead?

Insurance Agent to be Sentenced for Corruption

Arnie Olivarez

Arnulfo “Half Guilty” Olivarez, admitted felon, will be sentenced in McAllen, Texas on March 10, 2009 at 9:30 am. See August archives for details.



Hospital Stimulus Bill

Seems everyone is screaming for their fair share of the Stimulus Bill now before Congress. Banks, Loan Companies, Insurance Companies and others are clamoring for a portion of the Golden Goat. But, we hear nothing from the hospitals. Why are they silent? After all, hospitals have been complaining for years that they “give away” millions in “free” care to those who can’t afford to pay. You would think that hospitals would need help too, especially in this economy.

Maybe a review of hospital finances will provide a clue – hospital-net-income 

Individual Investors Back New Sidecare Syndicates at Lloyd’s

Wealthy individuals (names) are set to back other new sidecar syndicates at Lloyd’s of London. The number of names slid to 907 in 2008 from 1,124 in 2007. Attractive tax breaks and the ability to effectively use their capital twice always have made Lloyd’s a magnet for the rich, but the risk of losing their entire fortunes if hit by big claims has deterred many. However, recent changes that allow individuals to invest on a limited liability basis means names will not have to endure the financial nightmare experienced by previous investors. Lloyd’s, with expected increased capacity, may be looking for risk exposure in the U.S. medical stop loss market.

Pay-Check Fairness Act


The Lilly Ledbetter Fair Pay Act of 2009, approved by the Senate, will ease time limits on wage discrimination claims which could lead to increased litigation and administrative headaches for many employers.

If it becomes law, Richard Gisonny, a principal with Towers Perrin in Valhalla, New York, said “it will lead to an increase in costly litigation and that would come in the midst of a difficult economic climate” where companies are laying off employees “and trying to stay in business.”

Editor’s Note: This country (USA) is turning towards socialisim faster than a speeding bullet.

COBRA Expansion Worries Employers

Business Insurance, January 26, 2009

Employers would be required to offer COBRA health care coverage for at least a decade to many former employees and retirees under legislation likely headed for a vote by the full House this week.

The COBRA provisions embedded in the $825 billion economic stimulus package that cleared by the Ways and Means Committee last week, would be a huge expansion of the COBRA law and saddle employers with health care costs few could have imagined when Congress enacted the health care continuation law in 1986.

Under HR 598, employees who stop working as young as age 55 could retain COBRA coverage until becoming eligible for Medicare at 65, regardless of how long they worked for the employer. In addition, any employee who worked at least 10 years for a company could keep COBRA until eligible for Medicare, an entitlement that could stretch for decades in the case of younger workers.

Editor’s Note: We have one employer who called us about HR 598. If the COBRA extension is passed, they say they will terminate their group health insurance program altogether and advise employees to seek medical insurance in the individual market. This is just another sign that employers are becoming increasingly fed up with government meddling in their corporate affairs.

Pooling Design Aims to Cut Stop-Loss Costs

Setup helps groups leverage buying clout, eliminate fronts
by Dave Lenckus
Published March 26, 2007

TUCSON, Ariz.—Health plan sponsors that are having problems finding affordable medical stop-loss insurance should pool their plan funding and reinsurance risks through a newly designed arrangement that promises a plethora of cost-saving and plan flexibility advantages, a consultant says.

The arrangement would allow groups of plan sponsors or an association—on behalf of its members—to set up a risk retention group that would cover a portion of the sponsors’ assets that are dedicated to paying health claims and then purchase commercial excess-of-loss reinsurance for the remainder, said Stace C. Bondar, managing member of Exlman Re L.L.C. of Baltimore.

Among other things, the pooling design would allow plan sponsors to leverage their large group buying power, eliminate fronting insurers, legally avoid state-mandated benefits and avoid having to obtain U.S. Department of Labor approval, Mr. Bondar said during a session at the Captive Insurance Cos. Assn.’s International Conference in Tucson, Ariz.

Mr. Bondar is seeking approval for the first two arrangements of this kind in Montana and the District of Columbia and is in the process of developing it for nine others in six domiciles. Montana regulators said the facility has been tentatively approved. The facility, AD-COMP MED RRG Inc., is owned by 271 automobile dealership franchises in California, Mr. Bondar said. He declined to identify the District of Columbia facility’s owners.

Need for the arrangement has intensified significantly in the past five years, he said, during which U.S.-based medical reinsurance sources have dwindled from about 300 to fewer than 50.

Among remaining reinsurance markets, many have long “ineligible industry” lists, and others charge certain industries “significantly higher rates” than they charge others, he said. Industries having the most trouble finding coverage are hospitals, law firms and trucking companies, he said.

Under the arrangement that Mr. Bondar is seeking approval for in the District of Columbia, a group of self-funded health plan sponsors with core businesses in the same industry banded together to form a risk retention group without any involvement from an association.

Each sponsor designed its own plan, including its own benefit design and its own deductible or retention level. Under the Employee Retirement Income Security Act, each self-funded plan is exempt from state laws relating to benefits, including mandated health benefits.

Still, in that kind of arrangement, each plan sponsor has a contractual obligation to participants to fund the plan with the sponsor’s assets.

That is where the RRG comes in. The facility’s members/owners determine how much of the aggregate retention the facility will accept.

The RRG then quotes, underwrites and issues to each of its members/owners a contractual liability policy that promises to cover or reinsure their contractual obligation to their health plan participants to fund the plan with their own assets.

The RRG then goes to the commercial market to buy reinsurance for the portion of the risk its members/owners decide to cede. The commercial policy responds when losses exceed a plan sponsor’s per claim and aggregate retention levels.

So, for example, a group of plan sponsors with $1 million of total health plan risks decides to retain $250,000 of that risk in the aggregate, with each plan sponsor selecting a different retention level. The total risk is ceded to the plan sponsors’ RRG, which retains $250,000 and cedes the remaining $750,000.

The key to this arrangement is that the policy does not cover a medical claim but instead covers a plan sponsor’s assets against losses resulting from a large medical claim, Mr. Bondar said. “The key to success here is to pool at the reinsurance level, not the health plan level.”

In Montana, the process for establishing a reinsurance mechanism for a group of health plan sponsors was more complex but demonstrates how an association can become the driving force behind one, Mr. Bondar said.

In that case, service vendors for a self-insured workers comp pool wanted to help pool members with their self-funded health plans.

The group of accountants, lawyers, bankers and other service providers formed an association and then sold shares in it. With that capital, the association formed a captive that issued a surplus note to the RRG that the workers comp pool members formed for their health plans. Since the RRG was not designed to insure the association and its members are not in the same industry as the plan sponsors, federal law precluded the association itself from forming the RRG.

The RRG also could cede part of its members/owners’ retained risk to the association captive. Like the District of Columbia-domiciled RRG, the Montana facility would purchase excess-of-loss reinsurance for the part of the risk it and the association captive does not retain.

The surplus note, which the RRG has to pay back over time, was accepted by Montana regulators as appropriate capitalization as long as each RRG member/owner demonstrates it made a capital contribution to the facility, Mr. Bondar said.

To that end, Mr. Bondar negotiated an agreement under which each member/owner would have to make only a small capital contribution up front but would have to surrender all of its equity in the facility if the member/owner pulled out of RRG in less than three years.

After three years, the portion of the surplus note that would be repaid out of the facility’s surplus would be considered an adequate capital contribution, he said.

A major advantage of either the District of Columbia- or Montana-domiciled RRG is that a fronting insurer is not necessary, since an RRG can issue its own policy, Mr. Bondar said. “Fronting carriers can charge as much as 10% of premiums paid in order for a program to use their paper,” he said.

In addition, because a plan sponsor would not be in a single-parent captive, the sponsor would not have to obtain a prohibited transaction exemption from the Department of Labor.

The exemption would be necessary if a pure captive were used, because the DOL wants to ensure that the captive owner has not devised a system that provides it advantages to the detriment of plan participants, Mr. Bondar said. The exemption is not required when a plan sponsor participates in an RRG because the odds of pulling many plan sponsors into a scheme that could hurt their plan participants are considered very low, he said.

By pooling risks in an RRG, reinsurance availability increases and costs decrease because reinsurers see little risk of having to pay a claim above a retention that far exceeds those that an individual cedent would maintain, Mr. Bondar said.

Over time, RRG members/owners should be able to build surplus to gradually raise the retention level so the facility can reduce or even eliminate its reinsurance needs, he said.

He said the only similar arrangement in use today involves the interplay of voluntary employee beneficiary associations set up by seven highway contractors and the RRG the contractors have set up (BI, Sept. 11, 2006).

But Mr. Bondar said plan sponsors cannot pull their capital out of VEBAs unless they convert to a fully insured plan and that VEBA recertification costs are expensive. He asserted that his mechanism would be 25% to 30% less expensive.


Coca-Cola Seeks Ok For Retiree Captive Plan

Excerpt from Business Insurance, January 19, 2009

If Coca-Cola Co. wins regulatory approval to fund retiree health care benefits through a special trust and its captive insurance company, it could blaze a trail for other employers looking to do the same.

Under it plan, the company would use assets now held in a voluntary employees beneficiary association to purchase medical stop loss policies from Prudential Insurance Company of America to pay claims. The medical stop loss would pay claims that fall between an attachment point and an upper limit.

Can Anyone Explain This to Us?

Here we go again…………..our office was asked to investigate a provider claim to determine if the billed charges were fair and reasonable. The provider is a radiology group in a large metropolitan area in Texas.

The provider’s billed charges were, on average, +370% of 2008 RBRVS. We ran the charges through a large PPO network and discovered the billed charges were reduced down to +235% of 2008 RBRVS. This significant “discount” would certainly look good on an EOB. It would also look good on a year-end PPO claim anaylsis report. You would think that the PPO people really negotiated a great deal for you, right?

However, on behalf of the employer’s self-funded group medical plan, we have negotiated fees of 115% of 2008 RBRVS with similar providers in the same geographic area.

So, why would you want to pay a bill that is 120% higher for the same exact service you could get from a provider just down the street? Can anyone explain this to us?    

Deviated Septum Repair Costs $58,000, Dr. Fees Extra

Recently an employee took his dependent son to a physician owned out-patient surgery center for a 45 minute operation to repair a deviated septum. This facility was out-of-network (they have not joined any network). Prior to the surgery, the employee was told by the business office of the clinic that his portion of the claim would be about $1,400 (included deductible and estimated co-insurance). The employee wrote the check and the surgery was performed successfully.

The claim was received by the employer’s third party administrator who negotiated the $58,000 in billed charges down to $56,000, and wrote a check for that amount on the employer’s claim account. A weekly check register sent to the employer for review prior to releasing claim checks for that week, caused the comptroller to question this claim as appearing to be too large for such a simple surgical procedure. The claim check for $56,000 was put on hold pending our investigation.

Medicare would have paid the clinic approximately $2,700 for this procedure. In contacting a medical care supplier that supplies this particular surgical center, the sales representative told us that the supplies used in a typical deviated septum surgery such as this one was less than $500.  In contacting the Bexar County Medical Society about this claim, we were told that it was certainly cause for concern and they would be more than happy to have their peer review committee review the claim.  Then we met with the business manager of the clinic, showed him our research, and told him that we would pay him $2,000 as payment in full for his services (employee already had paid $1,400, so with our $2,000 the total payment to the clinic was $3,400).  His response was “we hardly ever get questioned on our bills, and most insurance companies just pay us!”

This is just one example of what we have documented regarding inflated medical billing. What amazes us is that most employers, insurance companies and third party administrators don’t question medical charges and blindly pay claims. After all, it seems, it is not their money and any losses are simply passed on to the employer in the form of a rate increase.

Consumer Questions Doctor’s Charges

Yesterday we received an email from one of our clients, asking us to review his recent medical charges from a local physician. He wanted to know how the charges compared to 2008 RBRVS. Here is what we found:

CPT 86000        Billed $292.80                2008 RBRVS    $9.75  

This represents a +3000% markup from Medicare reimbursement formula.

About 6 months ago we moved an employer from a PPO plan to a plan that pays claims using 2008 RBRVS as a claim payment benchmark. To date the plan has saved approximately $500,000. And, we put in place a mechanism that addresses the balance billing issue so often raised by PPO representatives as a tactic to hold employers hostage to the PPO method of controlling costs.

Consumers should compare medical costs but most don’t

PPO Discounts: “My Discounts are 37-55% Better Than Yours”

A large health insurance carrier has been touting their PPO discounts as being as much as 37-55% better than anyone else. And, three licensed consultants, each independent of each other, has “verified” those discounts. One consultant “proved” that average discounts on one rental PPO was 23%, while the large health insurance carrier PPO averaged 57% discounts. The PPO discount differential in this case, is a whopping 248%.
So, you would think that going with the better PPO discounts offered through this large health insurance carrier, the employer would see immediate and significant plan savings.
What we have found is the opposite. Not only are the so called discounts a figment of a salesman’s imagination, but provably untrue. Plus, in certain instances, the costs to the client actually went up, all things being equal.
We are in the process of documenting this using multiple case studies utilizing documented claim data. Once completed, this report should put an end to the unfair and untrue sales tactices employed by some.
A quote from an email received recently is a basic truth and shows the fallacy of comparing PPO discounts off billed charges:
“Our audits represent a complete flip to status-quo. We start at cost and add a margin (ground up) rather than start with the (phantom) original bill and take a percentage-off (top-down). This is much more in line with (A). common sense, (B). typical American business practices, and (C). fiduciary duty.

Former CEO Alleges Bid Rigging Conspiracy

Attorneys for Antonio Juarez, BISD’s former chief financial officer, on Friday filed a lawsuit alleging a conspiracy by former and current school board members to coerce his participation in the “manipulation of the bidding procedures” used to award a district basic life and stop-loss insurance contract. 

The lawsuit alleges that when Juarez would not participate, current majority members of the Brownsville Independent School District Board of Trustees coerced Superintendent Hector Gonzales to obtain Juarez’s resignation. Gonzales then reassigned Juarez as BISD’s grants administrator. 

At the same time, the lawsuit alleges that current and former BISD trustees sought to coerce Juarez into a conspiracy to oust Gonzales, for which Juarez was promised support for restoration to his status as chief financial officer. 

The lawsuit says the board members attempted to force Juarez to file a grievance against Gonzales prior to a Jan. 6 board meeting concerning the superintendent’s contractual status. It says Juarez was threatened with retaliation if he did not. 

The lawsuit was filed against Gonzales, in his capacity as the district’s chief executive officer, as well as any successor; Mike Saldaña, who serves as BISD’s counsel, and board members Rolando Aguilar, Joe Colunga, Ruben Cortez Jr. and Rick Zayas. 

“ C o m p l a i n t a n t (Juarez) has chosen not to participate in the Board’s conspiracy, and fears that termination will result by not taking action,” the lawsuit states. 

The lawsuit is a petition for declaratory judgment that seeks an injunction to prevent BISD from firing Juarez or taking action that would affect his contractual status. 

It was filed by Brownsville attorneys Ben Neece and Star Jones in state District Judge Janet Leal’s 103rd District Court.

FBI – Brownsville, Texas  (956) 546-6922

San Antonio Insurance Agent Becomes Speaker of the House

It appears the House will be getting a new Speaker, Rep. Joe Straus. Known as a moderate Republican, he has served only two terms in the House but has lined up significant support. A wealthy San Antonio businessman, Straus held minor posts in the Bush and Reagan Administrations. He is a principal in the insurance and executive benefits firm of Watson, Mazur, Bennett & Straus, L.L.C. He also is affiliated with National Financial Partners, a leading financial services company in the insurance, investments, and benefits industry.

Texas Bill Would Mandate Medical Loss Ratios

TEXAS: A bill was filed last week that would require insurers to report their medical loss ratios to the Department of Insurance on an annual basis and to maintain those ratios at 75 percent. The bill further gives authority to the Commissioner to order rebates, rate rollbacks or take other necessary steps to penalize any carrier in violation of the minimum ratio.

Text of Bill: texas-house-bill-medical-loss-ratio-hb00531i

Evercare of Texas Fined More than $1 Million

DALLAS — A health-care company hired to manage a program for elderly Texans as part of a broad privatization plan was fined more than $1 million by the state in the past year over mounting complaints that included delayed or denied medical care.

Evercare of Texas, a unit of Minnesota-based UnitedHealth Group, has drawn the ire of some powerful Austin lawmakers over its management of preventative and long-term care for the state’s most vulnerable, The Dallas Morning News reported Sunday in the first of a four-part investigative series.

Food Insurance PPO Network

Excerpt from an email received yesterday:
This morning I had some tests run at Valley Diagnostic Clinic in Harlingen, Upon finishing the tests, I was directed to go to the cashier to settle my bill.
The clerk said “Mr. XXXXXX, I have already checked with your insurance company and you have a $10,000 deductible! Therefore I am going to have to ask you for your payment now please.”
I said “well, why don’t we wait to see what my PPO allows for these charges, so go ahead and file the claim, then I will return and pay you the discounted rates your clinic has negotiated with my insurance company.”
“Oh, Mr. XXXXX, that won’t be necessary. I can reprice your charges right now on my computer!”
That really surprised me. So I inquired “can you re-price claims through all the PPO networks that your patients use?”
“Of course, Mr. XXXXX! We are fully automated!”
“Are all services priced the same for all patients, or is there pricing differentials among PPO networks?’, I innocently asked.
“Oh no Mr. XXXXX, prices vary from one PPO to the next.”
So the nice little clerk entered the data into her computer, and a total came out, which I promptly paid.
Upon driving home, I reflected upon this interchange with the insurance clerk, and I thought;
This is like buying donuts at HEB. Ten different people go to HEB and buy the same dozen donuts but each is charged a different amount based on their Food Insurance PPO network. This is an amazing way to conduct business.

Editor’s Note: HEB is a large chain of grocery stores in South Texas

Health Care Costs – By George Will

Washington Post Writers Group

Sunday, January 04, 2009

Washington —- Health care, says the man most concerned with that 17 percent of America’s economy, can be “a nation-ruining issue.” As Michael Leavitt ends four years as secretary of health and human services, he offers this attention-arresting arithmetic: Absent fundamental reforms, over the next two decades the average American household’s health care spending, including the portion of its taxes that pays for Medicare and Medicaid, will go from 23 percent to 41 percent of average household income.

It is, Leavitt says, “predictable” that today’s traumatizing economic turbulence, by heightening Americans’ insecurity, will complicate reforming entitlements. This, too, is predictable: By curtailing revenues, today’s recession will bring closer the projected exhaustion of the Medicare Part A trust fund, from early 2019 to perhaps 2016. That should get the president-elect’s attention.

When Medicare was created in 1965, America’s median age was 28.4; now it is 36.6. The elderly are more numerous and medicine is more broadly competent than was then anticipated. Leavitt says that Medicare’s “big three” hospital procedure expenses today are hip and knee replacements and cardiovascular operations with stents, which were not on medicine’s menu in 1965.

After being elected to three terms as Utah’s governor, but before coming to HHS, Leavitt headed the Environmental Protection Agency. He came to consider it a public health agency because the surge in Americans’ longevity in the last third of the 20th century correlated with cleaner air and fewer waterborne diseases. Longevity is, however, expensive, and demography is compounding the problem.

In the 43 years since America decided that health care for the elderly would be paid for by people still working, the ratio of workers to seniors has steadily declined. And the number of seniors living long enough to have five or more chronic conditions —- 23 percent of Medicare beneficiaries —- has increased. Many of those conditions could be prevented or managed by better decisions about eating, exercising and smoking. The 20 percent of Americans who still smoke are a much larger percentage of the 23 percent who consume 67 percent of Medicare spending. Furthermore, nearly 30 percent of Medicare spending pays for care in the final year of patients’ lives.

Suppose, says Leavitt, buying a car were like getting a knee operation. The dealer would say he does not know the final cumulative price, so just select a car and begin using it. Then a blizzard of bills would begin to arrive —- from the chassis manufacturer, the steering-wheel manufacturer, the seat and paint manufacturers. The dealership would charge for time spent there, and a separate charge would cover the salesperson’s time.

Leavitt says that until health care recipients of common procedures can get, upfront, prices they can understand and compare, there will be little accountability or discipline in the system: “In the auto industry, if the steering-wheel maker charges an exorbitant price, the car company finds a more competitive supplier. In health care, if the medical equipment supplier charges an exorbitant price, none of the other medical participants care.”

Medicare is a price-fixing system for upward of 12,000 procedures and drug codes —- and for hundreds of categories of equipment, the providers of which tenaciously oppose competition. Leavitt began implementing a tiny program of competitive bidding covering just 10 products in 10 cities. Based on the 15 days it lasted before Congress repealed it, savings were projected to be substantial. That is why equipment providers got it repealed.

Rather than ruining the new year by dwelling on Medicare’s unfunded liabilities of about $34 trillion (over a 75-year span), ruin it with this fact: In the next 50 years, Medicaid, the program for the poor —- broadly, sometimes very broadly defined —- could become a bigger threat than Medicare to the nation’s prosperity.

This is partly because of the cost of long-term care for the indigent elderly, some of whom shed assets to meet Medicaid’s eligibility standard —- sometimes as high as income under 200 percent of the federal poverty level. And many states, eager to expand the ranks of the dependent with the help of federal Medicaid money, use “income disregards” to make poverty an elastic concept. For example, they say: A person who gets a raise that eliminates his eligibility can disregard the portion of his income that pays for housing or transportation.

Governments with powerful political incentives to behave this way will play an increasingly large role in health care. As is said, if you think health care is expensive now, just wait until it is free.