Category Archives: Decision making

Analysis: Obamacare Provides Competitive and Affordable Choices

Obamacare is providing competitive and affordable choices of health plans that consistently meet minimum requirements, according to a detailed analysis of county-level data available at the healthcare exchange website, combined with demographic data provided by Synergos Technologies. premiums

The federally run health exchange offers plans in 2,512 counties located in 34 states with a total population of nearly 200 million people. The analysis revealed that the national average for a 50-plus adult for the second-lowest Silver premium is $386. The national average for the lowest-premium Bronze plan for an under-50 adult is $174.

What choices in insurers and plans are available on

On average, there are 2.5 insurers and 9 Bronze plans covering 60% of the cost of care. For Silver plans, which cover 70% of the cost of care, there are 2.6 insurers and 10 Silver plans available per county. But the availability of insurers and plans is not distributed evenly. As expected, more populous counties have more insurers and health plans. Counties with a population of more than 500,000 have twice as many choices of insurers (average more than 4 insurers) compared to counties with a population of less than 50,000 (average more than 2 insurers).

Is competition restricted in smaller counties?

There are 454 counties in which only a single insurer is offering a Silver plan and 517 counties in which only a single insurer is offering a Bronze plan. Typically, these are smaller counties concentrated in southern states such as Mississippi, Texas, and Alabama. But it is worth noting that all the counties with a single insurer accounted for less than 10% of the total population in the 34 states. In other words, more than 90% of the population in the 34 states has access to two or more insurers and 10 or more Bronze and Silver plans apiece.

Does restricted competition drive premiums higher?

Although competition among insurers generally drives premiums lower, number of insurers may be only one of the contributing factors. Lack of competition among insurers does not always drive the premiums higher.

For example, the average for the second-lowest premium Silver plan for a 50-plus single adult in 74 counties in Texas with a single insurer is $335; the comparable average among 54 counties in Georgia is $585. The average among 77 counties in Mississippi is $502, but it is only $353 among 64 counties with a single insurer in Alabama. The least-expensive Bronze premium in Texas varies in a fairly tight range around the $135 average for an under-50 adult—regardless of the number of insurers or county population.

This disparity in premiums among different states indicates that some states may have been more diligent than others in challenging higher premiums through rate reviews.

What effect does income level have on premiums?

In many states, premiums are higher in counties where the median income is lower, which is also associated with smaller populations and fewer insurers. Are higher premiums a result of lack of competition, smaller population, underlying healthcare costs, or lower median incomes? It is arguable that lower median income—and therefore higher likelihood of federal subsidies—may be one of the motivating factors for insurers to charge higher premiums.

Do subsidies make plans more affordable?

An important aspect of affordability is that federal subsidies could significantly reduce monthly premiums for people with low incomes. Because Obamacare caps the amount consumers will pay as a percentage of their annual income, it is possible that low-income consumers may not even have to pay monthly premium if they qualify for subsidies.

Kaiser Family Foundation’s subsidy calculator ( shows that the premium for one adult earning $25,000 would be capped at $144 per month (or 6.92% of income) based on a Silver plan and the associated subsidy (depending on age, location, etc.) could be applied to a less expensive Bronze plan. For example, for a 49-year old adult located in zip code 39870 in Georgia, the Bronze premium could be $0 because the subsidy would cover the entire amount of the Bronze premium!

How do healthcare exchange premiums compare to the current premiums?

Because all plans available through the exchange must offer the same essential health benefits related to doctor visits, prescription drugs, hospitalization, maternity and newborn care, and preventive care, premiums available through the exchange cannot be compared to what consumers—many of whom are grossly underinsured—may be paying now, especially for a substandard insurance plan.

While canceled policies will provide fodder for political theater, it is an unfortunate but inevitable outcome of a major policy change for the better of this scope and complexity. The government routinely fails vehicles that do not meet emission testing standards. Why shouldn’t the same hold true for substandard healthcare plans that endanger people by underinsuring them?

It’s nothing new, but there is a lot of irresponsible journalism going on. Journalists with an axe to grind are interviewing uninformed people to push their foregone conclusions and to generate misinformation. Here is a classic example as reported in LA Times as reported by Michael Hiltzik: Another Obamacare horror story debunked

What is the bottom line?

The analysis confirms that Obamacare’s federal exchange offers competitive and affordable choices while providing essential health benefits and meeting minimum actuarial value thresholds. Expanding access to healthcare for millions of Americans in the individual market is an excellent first step in reducing overall healthcare costs.

On average, however, hospitals charge 370% of Medicare payments nationally. It is not uncommon for hospitals to report a charge-to-cost ratio of 700-800%. The high cost of the healthcare system as a whole is driven primarily by opaque and exorbitant provider prices—tempered only by illusory discounts hidden inside insurance products. To truly bend the healthcare cost curve down, these excessive cost markups will need to be challenged.

Employers of all sizes, as fiduciaries of self-funded plans, will need to implement a Cost Plus Model so that they can procure healthcare services in a transparent manner. Their focus should be on reducing the actual healthcare spend without reducing health benefits or increasing employees’ premiums.

PS: I sent out a formal press release on this topic on November 1 and it was picked up by Yahoo! Finance, MSN Money, and The Business Journal among many others.

Wrong-Headed Cure for Reducing Healthcare Costs

As the debate about how to reduce healthcare costs rages on, Jeffrey Singer, a general surgeon in Phoenix and Cato Institute adjunct scholar, has published an opinion piece in the Wall Street Journal. “The Man Who Was Treated for $17,000 Less” chronicles how the surgeon “saved” the patient, with a low-cost indemnity type of health insurance policy, $17,000 by pretending that he was uninsured, self-pay. It is a wrong-headed cure for reducing healthcare costs.

healthcare - head in the sandDr. Singer concludes among other things that it is the third-party payment system that interferes with true price competition, so market clearing prices can’t develop. He goes on to chastise Obamacare for expanding the role of the third party and practically eliminating the role of the patient in the delivery of health care.

On the face of it, Dr. Singer’s arguments to diminish the role of third-party payers seem compelling. After all, by bypassing the insurance company the patient paid only $3,000 when he was asked to pay $20,000 upfront. But that’s like saying, “I saved $17,000 by not buying a Rolex I didn’t need.” Based on the examination of assumptions and facts, I contend that Dr. Singer’s arguments are hollow and his conclusions are erroneous.

By Dr. Singer’s own admission, the true price for the procedure was $3,000, and at that price “none of the providers was losing money on my patient.” Why on earth then the providers and the hospital felt compelled to mark up the price to $23,000 for this unsuspecting patient? Could it have something to do with the fact that the insurance policy had no provider-network requirements or preferred-hospital requirements?

These absurd markups saw the light of day, when Medicare released hospital billing data and outpatient services data this summer. As reported in The Arizona Republic, for every $4 charged to Medicare, Arizona hospitals collected $1 from the federal health program for those 65 and older. My own analysis showed that New Jersey had a markup of 6.2 times and the prices were marked up by 5.4 times on average in California relative to what Medicare actually paid.

Contrary to the statements made by the hospitals and providers claiming that charges don’t matter because Medicare doesn’t actually pay them, Dr. Singer’s example clearly shows that anyone without the enormous purchasing power of Medicare or a third party behind them is highly susceptible to these astronomical charges. In other words, Dr. Singer justifies the role of third parties with his own example.

I agree with Dr. Singer that when patients are directly involved in their own healthcare decisions, they are more accountable. However, another major flaw in his argument is the utopian assumption that all patients have the medical and financial knowledge, cost and utilization data, the necessary time, wherewithal, and ability to analyze and negotiate every healthcare expense on literally thousands of diagnoses codes on the basis of quality, outcomes, and price. If Dr. Singer hadn’t gone to bat for this patient, could this patient have accomplished all of what Dr. Singer did on his behalf by himself in today’s system?

If we are truly going to bend the healthcare cost curve down, among other things we must first shine the light on incomprehensible, nationwide markups that have become the norm. As a start, maybe Dr. Singer can start by quoting to all patients regardless of their insurance status the price he actually accepted instead of the “more than enough” $2,500 list price.

If the hospitals and providers accepted and published what Medicare pays as the “standard” price, instead of marking it up 5-7 times, it would automatically diminish the role of third-party payers.  The payers will no longer have to play the game of chicken with the hospitals. And the unsuspecting patients—insured, underinsured, or uninsured—will no longer be caught in the crossfire.

Gangnam Style: Superstar Teachers and Suicidal Kids

The field of education is abuzz about “The $4 Million Teacher” piece in The Wall Street Journal. Sort of.

Amanda Ripley, in a WSJ piece plugging her upcoming book, states that South Korea’s students rank among the best in the world and its top teachers can make a fortune. She wonders whether the U.S. can learn from this “academic superpower” with a 93% high-school graduation rate. She credits tutoring services offering after-hours classes (“hagwons”) in every subject for a fee, where private tutors now outnumber schoolteachers for the success.

To me, it’s like asking to reform high school drama departments using Brad Pitt as an exemplar. Mr. Kim, the featured four million dollar man, is hardly a teacher. He is a smart and accomplished businessman capitalizing on the intense desire for rote learning in a broken public education system driven by desperate parents. This is precisely the kind of misguided hero worship (e.g. Google) I have railed against in earlier posts.

There are major contradictions in the WSJ article too. On one hand it says, “To create such trust, Mr. Kim suggests paying public-school teachers significantly more money according to their performance—as hagwons do.” On the other, it admits to a ruthless meritocracy for hagwons teachers in which “their pay is based on their performance, and most of them work long hours and earn less than public school teachers.”

To put it in the right context, let’s consider this. According to the CIA’s World Factbook, South Korea is a country that is slightly larger than Indiana, but has a population of nearly 49 million. Mother’s mean age at first birth is 29.6—nearly 5 years older than in the U.S. South Korea spends 5.1% of GDP on education expenses compared to 5.4% for the U.S.

And there is a darker side to this rat race. In all likelihood the competition is incredibly intense and the peer pressure absolutely brutal. “Eight out of 10 South Korean parents say they feel financial pressure from hagwon tuition costs. Still, most keep paying the fees, convinced that the more they pay, the more their children will learn,” says Ms. Ripley.

A Yahoo! Finance article by Naomi Rovnick says, “The country has the highest suicide rate in the OECD and the fourth-lowest fertility rate.” Ms. Rovnick also cites a BBC article which quotes child psychologist Kang-ee Hong: “From the beginning of childhood, the importance of money and achievement are emphasised by their parents, so they feel that unless you are successful in school grades and a good job, good prestigious college, you’re not successful, and the parents behave as if ‘you’re not my child’.”

Now, you are scaring me if the parents’ obsession with money and status is driving young people to suicide. I guess you have to be careful what you wish for. Besides, is this hagwons system making South Korean kids smarter? “That is a surprisingly hard question to answer,” says Ms. Ripley. “The most affluent kids can afford one-on-one tutoring with the most popular instructors, while others attend inferior hagwons with huge class sizes and less reliable instruction—or after-hours sessions offered free by their public schools.”

Jeffrey Pfeffer and Robert Sutton, both of whom I had the pleasure of meeting in April, have written that “The logic behind what works at top performers, why it works, and what will work elsewhere is barely unraveled, resulting in mindless imitation.”

Bottom Line: Blind copying of so-called best practices in vacuum without properly understanding the logic, culture, context, or implications often leads to disastrous consequences.

Hiring at Google: GPAs are worthless!

Same old, same old. In a recent interview with NY Times, Laszlo Bock of Google was uncharacteristically frank with his self-assessment about hiring at Google. He basically admitted that GPAs are worthless and brainteasers are a complete waste of time.

hiringThe prevailing notion for success, particularly fueled by successful tech companies, has been that you interview the smartest kids on earth—based on 4.0 GPAs from top colleges and universities­, you hire them based on some irrelevant questions that make the interviewer feel really smart (e.g., how many golf balls would fit in an airplane), and then you lavish them with a dining room that used to be run by the Grateful Dead’s former chef, café stations to eat free food, snack rooms stocked with goodies, game rooms with video games, foosball, pool, and ping-pong tables.

And voilà! That’s the tried and true formula for eternal success and a trillion dollar market cap.

And then some overeager reporter looking to write the next most-viewed story or some good-to-great consultant looking to write the next bestseller writes a one-size-fits-all, 20/20 hindsight piece based on “scrupulous research and extraordinary access.” The circumstantial evidence as to how Google is reinventing the world order becomes an urban legend and everyone rushes to buy foosball tables.

Nobody stops to think that Larry Page and Sergey Brin probably didn’t have Grateful Dead’s former chef making meals or that nobody wasted their time by asking dumb brainteasers. Hardly anybody remembers the huge part luck may have played repeatedly in their success. For one, they were quite fortunate that their offer to sell Google for less than $1 million, a year after founding, was turned down because the buyer thought the price was too high.

Now Google crunches “Big Data” only to find out that it’s not really a big deal after all. It analyzes tens of thousands of interviews to determine whether anyone there is particularly good at hiring only to find out that there is “zero relationship” and that it’s a “complete random mess.” What? You don’t say! Google rediscovers that structured behavioral interviews work well. Yeah? How else do you find out in a few hours about collaboration, interpersonal, or communication skills or the ability to deal with ambiguity, manage multiple priorities, adaptability, or decision-making?

It is amazing to me how the halo effect of random success becomes folklore. Next thing we may find out is that earth is not flat.

Google’s jobs page says: “We’re looking for smart, team-oriented people who can get things done.” Really? Last time I checked, nobody was looking for dumb, selfish people who drop the ball. “We’re also observing people working together in different groups and have found that the average team size of any group at Google is about six people.” No way! J. Richard Hackman, an expert in team dynamics, has written books about the optimal team size being six.

In all fairness, Bock freely admits in his WSJ interview that “it’s not stuff that the world has never seen before.” If only others would ignore.

Nobel Prize winner Daniel Kahneman sums it up beautifully in his book Thinking, Fast and Slow: “The ultimate test of an explanation is whether it would have made the event predictable in advance. No story of Google’s unlikely success will meet that test, because no story can include the myriad of events that would have caused a different outcome. The human mind does not deal well with nonevents.”

Let’s start by treating the NY Times interview with Bock as a nonevent.

Everyone together now: The more things change, the more they stay the same.