An Odd Way To View Health Care Costs

If Rush Limbaugh weren't carrying water for the health insurance industry or Wall Street, it wouldn't make sense. But he is (always), and it does.

On July 29 Limbaugh claimed, with the emphasis mine:

"Once considered the quintessence of cool, lighting up has become a social faux pas, discouraged by withering glances and thank you for not smoking signs. Ashtrays, once a fixture ... have all but disappeared. Manufacturers have been subjected to increased, and ever more successful, investigations and lawsuits ... [P]er capita consumption of cigarettes dropped from 4,345 in 1963 to 1,691 in 2006. And the percentage of U.S. adults who smoke has fallen by more than half since 1965, to a level of around 20%." Yet nobody is saving any money. Nobody. It's not saving anybody any money. Well, the people are not smoking don't have to pay the money but in terms of health care costs it has not helped as we've documented.

There are several reasons "nobody is saving money," which is probably Rush's way of acknowledging the increasing cost of health care in this country without acknowledging it. One such reason was described on Bill Moyers Journal by Wendell Potter, former head of corporate communications for CIGNA.

Well, there's a measure of profitability that investors look to, and it's called a medical loss ratio. And it's unique to the health insurance industry. And by medical loss ratio, I mean that it's a measure that tells investors or anyone else how much of a premium dollar is used by the insurance company to actually pay medical claims. And that has been shrinking, over the years, since the industry's been dominated by, or become dominated by for-profit insurance companies. Back in the early '90s, or back during the time that the Clinton plan was being debated, 95 cents out of every dollar was sent, you know, on average was used by the insurance companies to pay claims. Last year, it was down to just slightly above 80 percent.

So, investors want that to keep shrinking. And if they see that an insurance company has not done what they think meets their expectations with the medical loss ratio, they'll punish them. Investors will start leaving in droves.

I've seen a company stock price fall 20 percent in a single day, when it did not meet Wall Street's expectations with this medical loss ratio.

For example, if one company's medical loss ratio was 77.9 percent, for example, in one quarter, and the next quarter, it was 78.2 percent. It seems like a small movement. But investors will think that's ridiculous. And it's horrible....

And they think that this company has not done a good job of managing medical expenses. It has not denied enough claims. It has not kicked enough people off the rolls. And that's what-- that is what happens, what these companies do, to make sure that they satisfy Wall Street's expectations with the medical loss ratio.

And how does an insurance company respond when Wall Street decides its medical loss ratio is too low? Apparently, by rescission, denying claims, jacking up premiums, and dropping employer groups. Potter continues:

Rescission is one thing. Denying claims is another. Being, you know, really careful as they review claims, particularly for things like liver transplants, to make sure, from their point of view, that it really is medically necessary and not experimental. That's one thing. And that was that issue in the Nataline Sarkisyan case.

But another way is to purge employer accounts, that-- if a small business has an employee, for example, who suddenly has have a lot of treatment, or is in an accident. And medical bills are piling up, and this employee is filing claims with the insurance company. That'll be noticed by the insurance company.

And when that business is up for renewal, and it typically is up, once a year, up for renewal, the underwriters will look at that. And they'll say, "We need to jack up the rates here, because the experience was," when I say experience, the claim experience, the number of claims filed was more than we anticipated. So we need to jack up the price. Jack up the premiums. Often they'll do this, knowing that the employer will have no alternative but to leave. And that happens all the time.

They'll resort to things like the rescissions that we saw earlier. Or dumping, actually dumping employer groups from the rolls. So the more of my premium that goes to my health claims, pays for my medical coverage, the less money the company makes.

This is not meant to minimize the role of big Pharma in escalating health insurance costs. But surely the reduction in smoking, despite what Limbaugh says, has not increased health care costs, but rather cut them. From an LA Times blog of November, 2008:

"Lung cancer is the big one when it comes to cancer in the United States," said Dr. John Glaspy of UCLA's Jonsson Comprehensive Cancer Center. The declines in lung cancer are due primarily to widespread reductions in smoking.

"It's very tough for anybody not to conclude that social trends [against] smoking are having major effects on human life.

California's comprehensive smoking bans and anti-tobacco education programs funded by cigarette taxes have been having a major impact, experts said. California was the only state for which both incidence and mortality for lung cancer dropped in women. In all the other states, the incidence either was stable or increased.

For men, the rate of smoking is as much as three times higher in other states.

"It's a testament to the change in the lifestyle of the people of California," (Dr. Robert Figlin of the City of Hope Comprehensive Cancer Center in Duarte) said.

And as to heart disease?

Non-smokers live longer and have less cardiovascular disease than those who smoke, according to a 30-year follow-up study of 54,000 men and women in Norway. Smoking, say the investigators, is "strongly" related to cardiovascular morbidity and mortality from various causes.

The results, presented in Stockholm at EuroPRevent 2009, reflect what many other studies have indicated, but, says investigator Professor Haakon Meyer from the University of Oslo and Norwegian Institute of Public Health, these results provide a picture of the long-term, absolute "real life" risk.

But if you're Rush Limbaugh, the big drop in smoking is "not saving anybody any money." Saving lives, perhaps, but not saving any money.