Why is healthcare expensive? Even after the ACA passed, healthcare has gone sky high and Ben Krambeck, the CEO of Claim Doc broke down the details for me, including a band-aid that cost over eight thousand dollars.

This came up because last week, a Federal Judge in Texas ruled on Friday, December 14th the Affordable Care Act (ACA) is now being considered unconstitutional. Because the original March of 2010 ACA law didn’t have a severability clause, the law was invalidated when President Trump removed the individual mandate in 2017. This goes back to when the Supreme Court ruled the law constitutional, due to that very mandate qualifying as a tax. This got me asking, why is healthcare expensive?

So, why is healthcare expensive?

It’s a very complex issue and there are a lot of moving parts, but one issue seems to be quite simple. Inflated billing practices. Krambeck monitors healthcare billing for self-funded corporate health plans, and he knows exactly why costs are soaring. One glaring reason is the bills coming from hospitals and clinics. Some are simply hard to believe. For example, the highest cost of a band-aid he had seen was $2400 on a patients bill, but that all changed last week when that record was broken.

As of last week, the new record for a simple band-aid was $8,750.00! Although this one fact alone could easily sound like a simple clerical error, it seems less so when you understand that same bill also had latex gloves billed for $600 per pair. And no, they weren’t special diamond studded tennis bracelet gloves. Krambeck tells me error rates should hover around %4, so two line items like this on the same bill, is a red flag.

In any other industry, this wouldn’t be a problem. Customers would simply throw a fit and demand their bill be lowered. But, it’s not that easy, especially when you consider many Americans don’t actually pay the bills directly, an insurance company does. And if you do want to see that bill, it’s difficultKrambeck says. But are hospitals and clinics to blame for gouging? Not entirely.

The Minimum Loss Ratio

Premiums are going up, but that’s an effect, not the cause of healthcare’s increasing costs. The cause is rooted in a simply unintended consequence of the ACA. Its’ called the minimum loss ratio.

The minimum loss ratio forces health insurance carriers to spend 80% of the premium dollars they take in, on claims. If they go over 20%,, they have to send rebates to their members. This is a problem because prior to 2010, most insurance carriers needed more than 20% to cover their projections for shareholders. Reducing that to 15% to 20% means they lose profit, therefore they need claims to go up so their profit on premiums go up.

And indeed, their profit is going up. This is why most of the stock prices of public traded insurers have gone up 450% to 750% since 2010. Compared to the DOW and S&P500 only going up only 125-130%. If there is one thing organizations know what to do, it’s making money — they will find a way no matter what regulation the federal government decides to stick them with.

Just look around you. If you’ve noticed healthcare buildings are going up everywhere, it’s not your imagination. They’re growing at a record pace and the balance sheets and income statements of most non-profit hospitals since 2012 have gone up nearly 500% in many metropolitan areas and hospitals aren’t the only winners. But there is more to the question, “why is healthcare expensive?”

Specialty Pharma

Specialty pharmacy is over 40% of the FDA pipeline, consisting of specialty medications designed to treat only specific diseases, with no generic equivalent. There were only 10 specialty medications in 1990 and now there are almost 400, and they’re not cheap. Those medications start at 600$ per month, but their high cost isn’t a consideration for patients or doctors because of the lack of transparency. And how do patients even find out about these drugs?

These are the ads you’re seeing all over television, and being told to “ask your doctor about” seem to be a major driving force. These medications can cost 16k to 20k per month. Even if your doctor doesn’t think it’s right for you, and they are aware of the cost, they still may not guide you away from them, however, and that’s because of a little thing called defensive medicine.

Defensive medicine is the idea that doctors may not push for something truly in your long-term best interest, because they also don’t want to be sued for not doing something you wanted. Physicians don’t truly feel empowered these days to do what’s right for the patient, but instead are feeling the pull to just make patients happy in the short term. There are obviously a lot of moving parts, but insight is key in answering “why is healthcare expensive?”

What can we actually do to fix this issue?

Fixing the issue is a big undertaking, but patients and health insurance members can start right now. Krambeck suggests a few things.

Always ask if there is a generic available. Don’t let this be a quick interaction. Dig into the details and ask if you need what they’re prescribing or if there is a cheaper option. Ask to get a second opinion: Make sure you get another opinion especially if you need a specific drug or procedure. This is your health, and ultimately you are responsible for your health goals. Become an educated consumer: Demand to see every bill and make sure to do your own research. Just because someone is a physician doesn’t mean they are infallible or haven’t considered all options.

These are three very big points. Sadly, most consumers don’t look at their bills and aren’t educated in their health process. While it’s not easy to get access to your own health records, or your own bill, getting through the red tape is worth it. The only witnesses who can verify the charges are you and your doctor, but rarely does either party actually check. And you should.

Consider Krambeck’s company Claim Doc is in business for a reason. Because bills are routinely messed up and his clients are overcharged often — that should tell you something. If this wasn’t a problem, his business wouldn’t exist.

Krambeck is crystal clear doctors aren’t the problem. They want to help patients and are so focused on patients they don’t typically notice bills and erroneous charges. But it is a big problem contributing to the overall USA Healthcare disaster.

Even more alarming is that these things are happening with the blessing of your government regulators and within the confines of our current law. The question is, if we were ever to move to a single payer system, where you are cut out of the process completely, who would be checking for these inconsistencies? It’s a compelling question and worth asking.

Ben Krambeck answers: why is healthcare expensive?

Originally recorded December 15th, 2018 on WHO Radio on a two week Justin Brady and Lesia Fox special.

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