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Why Are Rates Higher in Northern CA?

By on | 6 Comments

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Question: Rates are considerably higher in the northern part of the state than in SoCal. What’s up with that? I understand San Francisco being higher because everything is costlier there, but even the rural areas of the north counties are pricier than LA and Orange County. Can you make sense of it?

Answer: In a nutshell, it’s about population and competition. More population means more hospitals, large medical groups and other providers. That means more competition with more providers willing to contract at lower rates to get a leg up. That translates to a 48% difference in premium rates between San Francisco and Los Angeles for a 40 year old buying the 2nd lowest priced Silver Plan - $373 vs $252.

6 Comments

You also mention “an example of a hospital with 900 beds that has 1300 billing clerks”.

How does that have anything to do with insurance companies? The insurance companies are paying bills generated by those hospitals. That’s a claims expense not an administrative expense.

“There is nothing socialistic about Cadillac Tax … The Cadillac tax just takes that bonanza away (indirectly) for the top-heavy plans.”

And what happens to the 40% of excess premiums the government confiscates from the insurance companies? Explain how that is not a Robin Hood scheme to “take from the rich and give to the poor” — if the money even went in that direction to begin with.

The longer your head remains buried in the sand, the greater your surprise will be when there is no longer any health insurance in America, only government-provided care — and who will get that?

Do you really think our government has the ability to manage a single payer system for all the folks under age 65, when it has already dug itself into a $127 TRILLION unfunded liability in Social Security, Medicare and the Prescription Drug Plan (Medicare Part D) from which there is no escape?

Dream on.

“You claim limiting the administrative expense to 15-20% is too burdensome. Other countries seem to manage just fine.”

Please identify which countries are “doing fine”. In Germany, taxes of all sorts deprive the citizens of about 80% of their gross incomes.

Income tax is maximum 45%, “Solidarity” tax is 5.5%, Capital Gains tax is 25%, dividends are taxed at 25%, Value Added Tax is 19%, and then there are all sorts of minor taxes, such as the Rain tax, the Internet tax, the TV/Cable tax, and estate tax (7% to 50%)

But health care in Germany is not free. On top of all these taxes, about 10% is also deducted from every wage earner’s pay (matched by the employer) to pay for health care expenses of the country’s senior citizens, the fastest growing segment of their population, as it is in the U.S. And they realize this is going to increase the strain on an already burdened system.

The same kind of declining birth rates in Germany coupled with skyrocketing healthcare costs are leading to country toward a social crisis with fewer people available to support the healthcare needs of the older generations.

Not to mention the growing divide between people who buy private health insurance compared to those who rely on the insurance plans because they pay into the central fund. Better insurance = better care.

And the state-run “single payer” systems in France and Great Britain are in even worse shape than that.

Does that sound “fine” to you? It doesn’t to me.

I do not want this forum to be a back and forth betn. two people, and this would be my last on this topic — but I feel the need to clarify some of the things which were stated as facts.

I didn’t say Insurers want to offer skimpy networks. Just that health care providers are protesting. So I am saying the same thing. But they will find a way to be more efficient. What other option do they have? Take their practice to Timbuktu? Being the most expensive in the world, there is a lot of fat to cut.

You claim limiting the administrative expense to 15-20% is too burdensome. Other countries seem to manage just fine.

The following article gives an example of a hospital with 900 beds that has 1300 billing clerks.

http://www.pbs.org/newshour/rundown/2013/11/why-does-health-care-cost-so-much-in-america-ask-harvards-david-cutler.html

The main value proposition any insurance company is risk assessment and pricing according to that underwriting. Now that underwriting has been taken out of the equation, what exactly is the value proposition offered by an insurance company? They just become another hose in the healthcare trough siphoning off the money. Do people really care whether their insurance company is Blue Cross or Blue Shield, if they know which doctor they can see for how much?

Yes, you are correct in that some (or even many) may not choose the most optimum plan taking cost sharing optimization into account. But not many people use grocery coupons either. If it is important to them they will eventually figure it out. There are zillions of example where people don’t take the best possible deal available to them. If they lose out one year, they can always learn and do better the next year.

Once you start using “socialistic plot” etc. you get emotion get the better of you and truth is the casualty. There is nothing socialistic about Cadillac Tax although the unofficial name, just like “Obamacare” may rub some people the wrong way. Healthcare benefit being a tax-free compensation to the employee is not an inalienable right. It is a historical quirk of the patchwork implementation of US health care system. If a corporation pays an employee $1000 it is clearly a taxable income. If it pays $1000 in healthcare benefit it is tax free. The Cadillac tax just takes that bonanza away (indirectly) for the top-heavy plans.

http://blogs.hbr.org/2013/11/the-cadillac-tax-a-game-changer-for-u-s-health-care/

If the company wants to still do that they are welcome. For example, Facebook gives 6 months of maternity leave — but the paid part of that leave is a taxable benefit.

Anyway, looking at all the squealing coming from all the right places, it certainly looks like it is working exactly the way it is supposed to be.

I want to address one of your comments specifically:

“c) From the insurers side, in their drive to offer attractive lower prices, they have already started offering “skimpy” networks. Although there is a general howl from everyone regarding this, I think this is exactly the intended effect, or at least should have been expected.

This is in essence the insurers telling the providers “drop your prices if you want to play in the network”. It may not bring prices down immediately, but if the exchange is successful it is bound to have an effect in the upcoming years.

For example, I cannot get any of my doctors to confirm they would take Anthem next year yet. They are all in negotiations still. Coincidentally Anthem is the lowest price plan in the exchange. Better Anthem beating them up on price now than me negotiating with the doctors when I am sick.”

It is true that insurers are attempting to force physicians (and hospitals) to accept reduced payments. But insurers are not creating smaller networks. It is the reverse, some networks have reduced in size because providers are not renewing their contracts. This actually forced Anthem BC to restore its higher rates in some areas so that they could offer a significant network.

But what is driving down the compensation rates is the PPACA’s 80%/85% Medical Loss Ratios. What other choice does the insurance company have when it has reduced agent compensation to about 4% or less, and is otherwise operating at the minimum possible staffing level?

Now as to your other remarks, they are respectfully received but do not dovetail with the realities of the insurance or healthcare industries. Anthem is NOT the lowest priced plan in most regions of California, especially here in SoCal, but they are also not the highest priced.

You also fail to understand the economic of hospitals — stating that driving down the cost of Medicare payments reduces the cost of health care makes no sense at all. Hospitals are in danger of going out of business because of the increased numbers of Medi-Cal (Medicaid) patients they will be seeing and the 20-cents-on-the-dollar they are paid to treat those patients.

How will they make up those ACTUAL losses? By increasing the cost of health care to all the other folks with private insurance. That cannot achieve the reduced costs envisioned by Obama and his PPACA.

Many “consumers” may end up with “higher deductible, higher co-pay plans” but that is not what they really want. It may be all that they can afford in premiums, but it will force them to pay much more out-of-pocket in their reach for the out-of-pocket maximum, which does nothing to reduce their cost of healthcare.

The reality is that proper analysis can show how paying a few more dollars per month in premiums for a gold or platinum plan can reduce out-of-pocket expenses by hundreds or thousands of dollars per year as a result of cost-sharing. But each situation is unique and nothing on the Covered California website helps a consumer to understand this. Certified Enrollment Counselors don’t have the ability to do this either, and many Certified Insurance Agents don’t understand the concept well enough to explain it. This is not an effect of “transparency”.

The 2017 (“doomsday year”) “Cadillac tax” is not a method for causing corporations to “rethink” health benefits, it is a Socialist, governmental form of blackmail. Why shouldn’t profitable corporations be able to provide their employees with the best healthcare they can find? Because it’s not “fair” in a Socialist state. It separates the “haves” from the “have nots”.

In a true Socialist state, no one has anything of their own, only what the government provides. That’s not what the majority of Americans really want today, but most cannot see it happening before their eyes.

Well, America is either going to remain a capitalist society or not. If we are to remain a capitalist society, socialists will have to change their attitudes. But they are the most intractable people in the country, and they have been receiving the most votes when election time comes for the past 20 years or more. Maybe the now-visible realities of Obamacare will wake up society enough to realize that capitalism is superior to socialism, and work to get government out of the way of progress.

Your final comment about “nudging everyone to have some sort of insurance” is exactly where the PPACA falls flat on its face. With 45,000,000 or so uninsured today, there will still be 25,000,000 uninsured ten years from now — the government has admitted that.

That is not a solution to the problem. And that was/is the only problem the PPACA ever should have addressed to begin with. This is what America voted for in electing their representatives to Congress, whether they realized it or not at the time.

It is a common refrain that “Obamacare does nothing to drive down the cost”.

This was not stated in the comment above, but it said “Obamacare does nothing to solve the issue of demographics”. Not sure if the cost was implied.

I do not think any program can explicitly fight the demographics juggernaut (short of outright population control and drastic immigration policy etc.)

But as far as driving down the cost, off the top of my head, ACA does try to address in the following ways.

a) It have provisions to reduce the reimbursement for hospitals and services through medicare. This is one of the funding mechanisms for ACA.

b) On the average, by making the plans uniform and price comparison transparent it drives rational consumers towards higher deductible, higher co-pay plans, which presumably bends the cost curve down by deterring over use of services and shopping for medical services.

c) From the insurers side, in their drive to offer attractive lower prices, they have already started offering “skimpy” networks. Although there is a general howl from everyone regarding this, I think this is exactly the intended effect, or at least should have been expected.

This is in essence the insurers telling the providers “drop your prices if you want to play in the network”. It may not bring prices down immediately, but if the exchange is successful it is bound to have an effect in the upcoming years.

For example, I cannot get any of my doctors to confirm they would take Anthem next year yet. They are all in negotiations still. Coincidentally Anthem is the lowest price plan in the exchange. Better Anthem beating them up on price now than me negotiating with the doctors when I am sick.

d) The Cadillac tax, which penalizes companies if their health plan is top-heavy and too rich, is a way of forcing the corporations to rethink the way the health benefit is structured. The way it is structured the employees overuse it because the rich plans typically have zero or no deductible/copays. Copays and deductibles are a proven mechanism to reduce needless overuse of healthcare usage.

e) By reducing or eliminating “primary care in ER”, by nudging everyone to have some sort of insurance and making primary care visits and immunization free it the ACA brings the costs down. Emergency room services are one of the most expensive way to see a doctor.

“it’s about population and competition”

Actually, a better word than population is DEMOGRAPHICS. 30 years ago, health insurance was less costly in Northern California for the same reason it is now more expensive: DEMOGRAPHICS.

In the past 30 years, Northern California has gotten OLDER, while Southern California has gotten younger. Younger folks cannot afford to live in and around the Bay area, so they live where it’s less costly.

It’s true that rural “networks” may be insufficient, but Northern California’s demographics are beginning to look a lot like Southern Florida, where the cost of health care is also more costly than here in SoCal — with the cost of care being driven up by (A) an older population on average, and (B) physicians who over prescribe services in order to bump up their compensation from Medicare.

A study done about 15 years ago by Univ of Pennsylvania found that seniors in Florida were consuming 30% more services per capita than their peers in Minnesota, even though both groups had about the same incidence of health issues.

A similar study today comparing Northern CA to Southern California on a “per capita” basis would probably show a 30%-40% difference, like the premiums show. I also agree that fewer healthcare providers (both hospitals and physicians) make it harder for the HMOs and PPOs to drive down reimbursement rates.

Obamacare does nothing to solve the issue of demographics. All it does is redistribute the wealth in the form of tax credits, which although higher in Northern California, are also harder to qualify for because incomes are also much higher on average. It’s a “what goes around comes around” matter.

If the hippies of the 60s & 70s hadn’t gotten so comfortable in San Francisco and the surrounding area, it might not be aging as fast as it is today. But now you’ve got a lot more seniors there than was once the case, and insurance companies are not fools. They will continue to make a profit from health insurance until they no longer can and then they’ll exit the marketplace. Unless things change in 2014 and 2015, 2017 will be the doomsday year.

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