24 October 2007

Kaiser v Everyone Else

Health insurance isn't cheap, even for those employers in the hallowed land of large group rates.

Basic, but fairly complete, HMO health insurance, at group rates, from Kaiser Permanente, which manages bottom of the market pricing by hiring its own doctors and, as a result, limiting patients to the smallest network in the state (and by streamlining administrative costs with vertifical integration), still costs $1,000 a month for a family. And, the network is small. It has only sixteen ordinary provider officers, about three hospitals, about three more ERs (although members can go to any ER in an emergency) and about three behavioral health centers in the entire metropolitan area. In Denver proper, it provides health care at only two locations, one in the St. Joseph's Hospital complex in Uptown Denver, and the other near the Aurora border at Alameda.

A couple of hundred more dollars a month will buy you roughly comparable HMO coverage for a family from another major health insurer, at large group rates, with a much larger network that covers almost all doctors in the area except Kaiser doctors, Veteran's Administration providers, and a thin elite of doctors who charge above market rates and limit their practices to the lucky few who have non-HMO type health insurance and can afford to pay large deductibles.

Generally speaking, Kaiser's business model saves 16%-18% over comparable coverage from more conventional insurers. I don't know how much of that gain comes from administrative savings and an insistence on preventative and "by the book" care (partially savings due to lack of "unnecessary" care, partially savings from more healthy members), which could be easily scaled to larger operations, and how much of that gain comes from salary control and careful selections of productive provider staff, that might not scale nearly so well to a much larger share of the market.

The Kaiser business model also does wonders for cash flow. Conventional health insurance usually have losses some years and profits in others, as the market is more competitive than you might think and because investment returns are important to their bottom line. Many have left the market entirely because the returns on investment aren't good enough. In contrast, Kaiser's finances are much more stable, because it adds a consistent margin at the provider level on top of the fickle returns on middle man operations to the extent it operates as an insurer.

Kaiser's business model also means that it has the least to lose should there be any move towards a single payer system. Its insurance operations side administrators would be snapped up by any single payer system, because they have the most experience working in something that resembles that business model. And, Kaiser could easily simply morph into being a pure provider group and continue to do business. In contrast, single payer puts the health insurance divisions of other companies either entirely out of business, or into fringe and niche businesses providing supplemental insurance or insurance to people who through quirks of a new system don't qualify for coverage (e.g. perhaps employees of foreign embassies and counsulates).

Thus, while the Kaiser business model does save money, there are limits to how much can be saved on that front. Even a health care system that delivered large group, Kaiser rates to everyone would only result in a one time savings of 16%-18%, after which high rates of medical inflation, that have spared no provider, would continue to ratched up.

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