The “underinsured” homeowner crisis: A Bizarro Perspective on Health Care

ANYTOWN, USA - While Americans and their President are fixated on reforming the health care system, a growing crisis is developing among homeowners. An increasing number of Americans, now measured in the millions, have no insurance on their homes and property. These buildings are often at higher risk to insurers due to location or weather patterns, making premiums for such policies unaffordable; if available for purchase at all. Most homeowners recognize the importance of protecting a valuable asset against catastrophic events with insurance, but many insurance industry experts and policy makers are starting to recognize the equally important issue of “underinsured” homeowners.

As the industry exists today, insurance covers only unexpected and severe damage to homes. In fact, most homeowners will never utilize their insurance - to recuperate their investment in premiums. The costs associated with homeownership have escalated in recent years – both in material goods and labor. Basic home maintenance, including heating/cooling systems, inspections and landscaping, can cost hundreds or thousands of dollars each year. A plumber typically charges $100 - $200 to fix a leaky faucet or clogged water line and electrical work is even more expensive. Home repair and improvement projects - roofing, painting, etc. - necessary to maintain a safe and functional house can be very large expenses.

Unfortunately, most insurance policies will not reimburse the homeowner for maintenance or minor repairs. “I was not able to afford the maintenance on my central heating system because my insurance policy wouldn’t pay for it, which resulted in my heater breaking last winter and costing me thousands of dollars to replace,” says Julie Jones of Omaha, NE whom had a typical catastrophic-only homeowners insurance policy. This tragic story of loss is being repeated daily in all parts of the country. The lack of insurance coverage often results in neglect of property – ultimately complicating and increasing the costs of future repairs.

Leading industry experts have recommended homeowners insurance be expanded to cover exorbitant charges of the house-service industry and “Big Home Improvement” retailers such as Lowe’s and Home Depot (for the Do-It-Yourself types). With third-parties negotiating and paying on behalf of homeowners, expenditures on home maintenance, repair and improvement can be reduced.

Several public policy mechanisms could help increase insurance rates and more importantly the capacity of coverage, leading authorities report. Many members of Congress have indicated that mandates to expand the scope of homeowners insurance may be necessary to control costs. Legislation to mandate policies cover routine and minor house-related costs is warranted say many in the beltway. “Reducing the out-of-pocket expenditures of homeowners and insulating them from the greedy home improvement industry should remain a top priority in Washington,” anonymously states one high-ranking U.S. Senator. Incentivizing private coverage through employer-purchased insurance tax exemptions could increase coverage rates and lower premiums, a recent Department of Housing and Urban Development study concluded. Regulation of which types of insurance policies employers provide workers could also help millions of “underinsured” homeowners. The highest risk homes – including Southeastern coastal hurricane zone, Western earthquake-prone areas, Midwestern tornado alley, and homes located near large bodies of water – will undoubtedly be overcharged for insurance coverage in the private sector. A safety net of government insurance programs will likely be required to achieve affordable and ultimately “universal” homeowners insurance.

Some critics argue that growth of insurance into the home repair business will actually increase costs and frustrations associated with homeownership. Opponents of reform believe that a third-party dominated system will add unnecessary administrative costs, reduce price transparency and lead to inflation of prices – ultimately raising the true cost to consumers and taxpayers. Despite reduced “out-of-pocket” expenditures, rising costs would be “hidden” in increased insurance premiums, insurance industry profit and various taxes, detractors claim. Limited choices in home goods and services may also result - as insurance contracts vary among retailers and repairmen, despite opposite claims of insurance executives. “We will strive to make responsible choices on behalf of our policy holders when a window needs replaced or exterior painting is required,” reports Matt Brown, CEO of Ranchers Insurance Group. Skeptical analysts also believe that employer-based homeowners insurance will reduce consumer choice of insurance policies - limiting the valuation of insurance and selection of the most appropriate coverage.

The future of homeownership and its associated costs will undoubtedly rise until drastic measures are taken. As has been proven by the evolution of health care delivery over the past fifty-plus years, increased control by public and private insurance plans are the only solution to reducing costs and improving quality.

Charles, I am certainly not "sheltered" from billing - in fact, I am fully aware of how the system works and review EOBs on a regular basis. I will agree that most doctors (90+%) are clueless about finances - "sheltered" as you say. I am not sure of your experience in medical billing, but I can explain how a typical "billing" (Explanation of Benefit) works for a practice (which is a ridiculous "game" played between the provider and insurance company).

Doctor provides a service > picks a code and submits a claim to the insurance (usually 150-200% of Medicare or 125% of the highest paying private insurer in town) > the insurance denies the "claimed amount" but offers their "maximum allowable" for the service rendered MINUS any patient responsibility (co-pay) and "discount" (based on contracts with companies, etc.)

This entire process can take weeks to months - depending on the insurance. The insurance will also deny many claims and "lose or misfile" about 10-20% of claims - adding months to actually collecting the money (if at all).

I will agree that many practices do not know how to handle the "cash paying" - and legally cannot charge less than what they bill Medicare (if they are contracted with them) under most circumstances. But the larger problem is that the "suggested retail price" price you reference is determined in the "insurance world" not for direct-payment. The vast majority of providers (inpatient/outpatient) will charge 30-40% of the insurance charge to "cash paying" patient - which makes sense because they don't have to run through the "insurance claim process" as described above.

I am sorry to hear about your brothers situation, but if you shop around you will be able to find services that are much cheaper than a "insurance reimbursement".

I have found that most doctors are great people and try to do the best by their patients despite the chaotic system which they operate. I believe that a needless moral hazard has been created for doctors - with their duty being the patient but the many decisions and their paycheck (90+%) coming from a faceless insurance entity. With declining "reimbursement" rates (especially from public programs) physicians are required to see an increasing number of patients just to maintain the same take-home salary - in fact, primary care docs (family, pediatrics, ob/gyn, internal med) have not seen a real pay raise in 10 years! While I don't think money is the only reason to become a physician, not many young people would choose to work very hard to become a doctor if they only made $80k/yr - like has happened in many European nations.

Charles, as a doctor - I certainly have not seen health care providers "up-charging" the uninsured. If fact it is usually just the opposite - most doctors will drastically reduce prices for those paying with cash ("uninsured or otherwise"). Which makes sense as they can collect the money directly without the hassle of going through a maze to get "reimbursed". Most doctors actually "charge" way more to an insurer (200-300%) than they actually expect to receive (as part of some twisted negotiation!). The one exception would be for doctors who contract with Medicare (the majority) which prohibits charging a "non-Medicare" patient less that what they charge Medicare. In reality, a doctor "discounting" services can bring investigations and fines! Ridiculous indeed.

Thoughts on Health Care from a young physician: Part 3 of 3

The “employer” problem:
Much like expanding the scope of insurance, the government (with support from union leaders) has also adversely impacted how we obtain insurance. Currently, 90% of private insurance (again, loosely defined) is delivered through employers. During the wage and price controls of WWII era, bureaucrats allowed “tax-exemptions” on health insurance purchased by employers – which continues today. This effectively placed a 10-30% after-tax penalty (depending on tax bracket) on individually purchased insurance. As one can imagine, this has created a passive system where we do not shop for insurance or seek “value” in care. It also creates a situation that provides very little “incentive” for insurers to provide good service to the end-user. Can you imagine if your employer pre-paid for your groceries and sent you to designated supermarkets to pick up your “allotment”? How fresh would the apples be?

The “employer” solution:
While I see no problem with employers taking a vested interest in the health of employees (in fact, it’s a smart business decision) – individuals should not be punished for shopping for health care and insurance outside of what an employer provides. The creation of Health Savings Accounts (HSAs) were a step in the right direction – but only available if an employer offers them and cannot be used to purchase insurance premiums on the open market. We should make HSAs (or some equivalent) universally available and able to purchase insurance policies regardless of employment.

Sorry for the length, but a mess as big as health care sometimes requires a long answer!

Dr. W. Ryan Neuhofel, DO, MPH

Thoughts on Health Care from a young physician: Part 2 of 3

The "uninsured" problem:
There is a large misconception that "uninsured" are the primary cause of medical inflation - when the exact opposite is the case. Medical inflation has resulted in an increased number of people (or employers) unable to afford inflated premiums. Some people will argue that many people are “uninsurable” due to pre-existing conditions (diabetes, cancer, etc.) and we must have a government run system to cover these people. While that may be true in the current system – where risk is socialized and profit is privatized – it would not be so in a truly free-market. People buy homeowners insurance policies on 5 million dollars homes built on a dirt cliff surrounded by firewood! I also believe that Medicare/Medicaid is paternalistic care that demoralizes the recipient and actually discourages personal responsibility.

The “uninsured” solution:
For those who receive taxpayer money to help with medical care, the benefit should be distributed to them directly (not the health care provider) in the form of a “voucher” (similar to food-stamps). This would be far superior to government “insurance” in many ways for the taxpayers and the recipient. Administrative costs would be drastically reduced – leaving more money to actually help people! (sorry government employees!) It would allow the individual to choose most appropriate medical care and insurance for their situation (one size does not fit all). It would empower individuals to make more informed medical and related-financial decisions – ultimately leading to more ownership and better health outcomes.

Dr. W. Ryan Neuhofel, DO, MPH

Thoughts on Health Care from a young physician: Part 1 of 3

The "insurance" problem:
Health "insurance" has become synonymous with health "care". Currently third-parties (public and private "insurance") account for 90% of all expenditures on health care. Most Americans do NOT have health "insurance" as it’s defined, rather "pre-payment" of care. Doctors work for insurance companies, NOT patients. This pre-payment system was promoted and mandated by several pieces of legislation in the 1970-1980's (supported by both parties) as a way to reduce health care costs (which really weren't inflated to begin with!) by "managing care" . . . the HMOs were not created by supply and demand, they were propped-up by politicians. The effects of a third-party payer system has lead to massive inflation of the true cost to the consumer - hidden in premiums and taxes - as basic economics would predict (via price transparency, administrative costs, etc.). As "out-of-pocket" (a silly phrase in its own right) expenditures decreased, the cost of medical goods and services has inversely increased. Insurance-driven care has also had a horrible impact on the “patient-doctor” relationship, especially in primary care. Issues of discontinuity of care are common with ever-changing contracts between providers and insurers (and employers).

The "insurance" solution:
We should use insurance as it is intended - for unexpected or catastrophic costs (major illness and injury). We don't expect (or frankly want) our homeowners insurance company to dictate who mows our lawn or fixes a clogged pipe, or our auto insurance company to tell us when and where to change our oil or fix a flat tire. Each individual will have a different level of "comfort" in protecting against unexpected events, but everyone can relatively predict what type of care they will require in a given year (totally healthy to those with chronic disease). Paying for preventive, maintenance and minor care directly would drastically reduce prices (50-70%) in primary care. A small number of primary care physicians are returning to "direct-medical practices" (no insurance), but the vast majority of out-patient (primary, specialty and minor procedures) practices should be structured as primarily a “direct-model”.

Dr. W. Ryan Neuhofel, DO, MPH

Health Care in America: One young physician's perspective.

We must make a clear distinction between “health insurance” and “health care” - with the former (as it exists now) being mostly a pre-payment for the latter. Unfortunately, the current debate on health care is solely focused on the “uninsured”, which is a product of medical inflation NOT the cause. The increased control of third-parties in the health care industry - with the intent of protecting people from any “financial” relationship with providers and “managing care” - is the true root of rising health care costs … leading to rising costs of insurance premiums … making them “unaffordable” on the private market. While the “uninsured” do have an inflationary role in health care, “insuring” every last American will not significantly reduce costs if the current system (controlled by public and private third-party payers) remains the standard.

Third-party payers account for 90+% of expenditures of health care. We can reduce the funneling of health care money through government and insurance companies IF we expand the purchase of preventive, maintenance and minor care directly from health care providers.

The relationship of "health care" with "employment" must be eliminated (of course, created by horrible legislation from Washington - see Wages and Price controls during WWII). Very few of us actually shop for the best insurance - and are stuck with what our employers provide or paying a "penalty" for purchasing privately. This has also lead to a reduction of choice (resulting in higher price and often poor service) from insurers. This problem can be solved by making Health Savings Accounts (or some other tax shelter) universally available (regardless of employment) - and make paying for all insurance premiums tax-free.

The issue of government aid is another topic entirely. If taxpayers money is used to pay for “health care” for the poor, it should be distributed as a “cash” benefit (similar to food stamps) that can be used to pay for health care directly and purchase appropriate insurance coverage. While politicians would oppose such a plan, the poor would receive much better care and not be subjected to the political whims of bureaucrats - while also reducing the tax burdens on those who pay.

Dr. W. Ryan Neuhofel, DO, MPH

Is this discussion even productive? I think the purpose of this 9-12 project is to discuss principles, values and ideas . . not back-and-forth about individual politicians!

Unfortunately, a good number of Americans (including many physicians) believe we can take a "moral high-ground" and eliminate money (aka. economics) from health care delivery. As I heard one economist say, "Economic forces are at work whether we choose to acknowledge them or not . . . even in a fully socialized industry".

I think all Americans want their fellow citizens to have "access" to health care, but we (including "conservatives") have a very distorted view of "insurance". By it's very definition, it should only cover "unexpected" or "catastrophic" events. If the current system of "pre-payment" works so well, why don't we expand the scope of homeowners or auto insurance . . . or maybe grocery insurance!? and have those policies delivered through our employers? I wonder what kind of service and value we would get when we "fixed a clogged water line" or "changed our car's oil" or "bought a steak" if it was dictated by a third-party whom already had collected our money.