2020 Healthcare Analysis….and some arbitrage advice

I tend to check out a lot of books from the library. Here’s a list I currently have on my shelf.

I want to love reading books, but I find it hard to finish them because:

• It seems to me that most books could & should be summed up in a couple of bullet points.
• I find books to be less entertaining / informative / varied than podcasts, my preferred method of consuming information.
• Reading books require eyeballs, which means I can’t do it while biking / doing dishes / walking dog.
  • I think audiobooks are far inferior to podcasts.

Three of the books on my bookshelf discuss the economics of healthcare. I love thinking about healthcare economics because:

• The US spends 18% of GDP on healthcare (link).
• The US ranks 36th in life expectancy, far below countries that pay significantly less on healthcare than the us (link).
  • Overall US life expectancy is 78.9 years, compared to 84.7 for Hong Kong, 84.5 for Japan, 83.8 for Sinagpore, 83.6 for Italy, 83.4 for Spain, and 83.4 for Switzerland.
• For many US citizens, the marginal cost of healthcare is zero (e.g. those on Medicaid, those with super cushy employer plans with low deductibles)
  • This creates some wonky economics.
    • When economics are wonky, bad things seem to happen (e.g. the mess of the US healthcare system).
• During grad school, many of my friends were docs who complained about people misusing emergency rooms:
  • Many people used the ER as their primary care physician.
    • Absent a monetary dis-incentive, why not!?!?!?!?!?!?!?!?
      • An ambulance ride to the hospital is cheaper than an Uber.
        • I wish I were joking.
      • It’s open 24/7.
  • Drug-seeking patients.
• My doctor friends complain about spending more time dealing with bureaucracy (charting, dealing with insurance, etc.) than treating patients.
• I find it comically tragic that 18% of GDP is spent on healthcare services that we don’t know the price of until 4 months after the service when we finally receive the bill. No other market functions this way. When you buy a car, you know what price you’re going to pay before signing the dotted line. When you buy a meal, you know what you are paying. When you go to see the doc, you have no idea what in the hell you are signing up for. You just go and hope for the best. It’s absolutely absurd.
  • The Surgery Center of Oklahoma, featured on a recent episode of Econtalk, is a glaring counter-example that has revolutionized health transparency to the point that it attracts patients from around the globe. Apparently, the business model is working great and is highly lucrative.

It seems to me that there are few areas that are as dysfunctional as the US medical system. One of the books I’m reading, The Price we Pay, discusses the evolution of the healthcare-sticker-price-inflation game:

• To demonstrate value, insurance companies create preferred “networks” of doctors/hospitals with negotiated discounts.
• Doctors/hospitals, frustrated with low reimbursements, counter by inflating sticker prices.
• Insurance companies counter by further increasing the discounts.
• Rinse, repeat.
• The result is a completely broken down system where prices don’t reflect anything close to reality. If you are a cash paying patient, you’re screwed (unless you pre-negotiate a cash price up front).

 

Overall, I see prices spiraling out of control and doctors increasingly dissatisfied with their jobs.

 

In any regard, the above inspired me to look at our 2020 YTD healthcare spending. This is what I found:

 

Total YTD Doctor Costs by Doctor

YTD doctor spending by doctor (Dr Charges – Insurance Discounts = What I paid + What my Insurance paid). Here I show either side of that equality.

 

 

 

 

Total YTD Doctor Costs Only

YTD doctor spending by person (Dr Charges – Insurance Discounts = What I paid + What my Insurance paid). Here I show either side of that equality.

I’m not sure why there’s an extra “2” at the end of each of our names. Thank goodness I don’t have 52 children.

 

 

Total YTD Drug Costs Only

YTD drug spending by drug (Drug Charges – Insurance Discounts = What I paid + What my Insurance paid). Here I show either side of that equality.

For the purposes of this analysis, I exclude any benefits from manufacturer’s discounts since they aren’t guaranteed to persist in the future.

 

 

 

Total YTD Drug + Dr Charges

Sum of total doctor + drug costs by FP clan member (Charges – Insurance Discounts = What I paid + What my Insurance paid). Here I show either side of that equality.

 

 

Thoughts

• Doctors billed $21,372. Insurance negotiated this down to $12,282, corresponding to an average insurance discount of 43% from the sticker price.
  • Again, this completely reinforces the idea that “sticker prices” are completely removed from reality.
• Our primary care physician charges $145/visit, but insurance negotiates this down to $88.50/visit, a discount of 39%.
  • I’m more than happy to pay this each visit. I love our primary care physician and he gives us great advice. I love that he rationally considers economics in his giving of advice.
• Our non-MD behavioral counselor with a master’s degree charges $225/hr, but insurance brings this down to $131/hr.
  • Our primary care physician recommended behavioral counseling for our ADHD child. It’s a source of active debate in the FP household whether the several thousand dollars per year is well spent. The counselor runs a near-zero-overhead operation with no extra staff.
  • I’m a little irked at the $225/hr sticker price. Who ethically charges $450k/year (annualized) to tell kids to hug a teddy bear when they are feeling frustrated? It strikes me as a bit egregious, but perhaps it’s just a part of playing the sticker-price-inflation-game.
• Chronic asthma meds are insanely expensive due to unethical patent shenanigans (link).
  • It costs about $2-3k/person/year to manage asthma. There are 3 kids with it in the FP household.
  • Given how common asthma is, I’m surprised there isn’t more regulatory pushback on these egregious inhaler prices. Imagine a single parent with a couple asthmatic kids trying to scrounge up a cool $6k/year for asthma inhalers.
• ADHD meds aren’t cheap either:
  • Concerta runs $4k/year and it requires a doctor’s office visit quarterly to renew the medicine (another $88.50 x 4 in our case).
  • I’m 100% in the general skepticism of excessive healthcare & drug camp. However, this drug is a miracle drug for our child and it’s the best money I spend all year.
• Because we’d already hit our OOP max this year, I went to see an allergist for the heck of it (it was free, so why not!?!?!). I’m allergic to everything, which he confirmed, but it hasn’t bothered me much in my current location. The allergist recommended allergy shots for the next 5 years, which isn’t a cheap proposition, but seemed reasonable enough. A few of our kids are already doing this. He also recommended a daily sinus rinse, which is basically waterboarding yourself. I was shocked to learn, however, that the Xhance prescription he wrote as I left the office costs $500/month (something I learned when first filling it). The generic of this drug, generic Flonase, is available at Costco but doesn’t have a plastic blow tube. Mercifully, there is a manufacturer’s coupon for the drug or I wouldn’t have filled it.

 

How much do doctor services cost?

• Broken wrist (including xrays, etc)
  • Charged $1,017, but insurance discounts brought this down to $612.
  • Included a few x-rays, a cast, and a follow-up trip.
• Ganglion cyst removal (including everything)
  • Charged $4,624, but insurance discounts brought this down to $2,632.
• Sinus infection treatment by ENT
  • Charged $674, but insurance discounts brought this down to $463.
  • Seeing the specialist is something our primary care physician recommended after a normal dose of antibiotics didn’t clear the infection.
• Maintenance allergy shots, per year:
  • Charged $871, but insurance discounts brought this down to $646.
• My annual physical
  • The doctor charged $345, but insurance discounts brought this down to $142. I think my plan is legally required to cover the entirety of this $142.
  • Additional lab fees charges were $105, but insurance discounts brought this down to $36. I think I’m usually on the hook for this charge but had already hit my OOP max this year.
• Repairing two broken front teeth
  • Dental is another beast entirely with different economics, but I just got the bill so here you go. My child tried a slam dunk on our hoop only to plow his face into the supporting pole.
  • Charged $731, insurance negotiated down to $556. Insurance paid $335 and I paid $210.
  • Now I now the price of an errant slam dunk.

 

Is anyone aware of a website that crowdsources the above information? I’m aware that these “negotiated prices” are top secret, but there is nothing preventing consumers from sharing their bills to a communal database. A communal database would solve the information asymmetry issue and empower consumers to make more informed decisions.

 

 

What I learned about my insurance plan this year (finally, some actionable advice?!?!?)

• This year, i found out that manufacturer’s coupons counted towards my deductible!!!!!!
  • We had a manufacturer coupon for an asthma drug Annuity Ellipta this year. The coupon stated that it’d cost us $10 to fill even though the cost of the drug was $176. The arbitrage is that I got full credit for the entire $176 to count towards my deductible every time I filled the prescription. Since two of my kids qualified for this coupon, every month I filled their prescription, I walked away $332 richer than I had been 5 minutes earlier.
  • The above saved us several thousand dollars this year since it artificially lowered our deductible.
  • I’m unsure how well this generalizes to other insurance plans & medicines, but I’m hoping for the best next year.
• GoodRx expenditures did not count towards our deductible, but they appear to have counted towards our OOP max. I find this odd, but I’ll recrunch the numbers at the end of the year to reconfirm.
  • It’s still my opinion, however, that GoodRx is not worth the bother unless you’re almost certain you won’t hit your deductible in a given year.

Picture of the arbitrage in action.

 

Manufacturer Coupons that I’m aware of for 2021:

• Athsma:
  • Digihaler (both rescue & maintenance): https://www.digihaler.com/#savings
    • Coupon says as low as $20/inhaler, but you must have insurance
    • The maintenance inhalers are incredibly expensive (~$350/mo) without coupon
• ADHD
  • Concerta: https://www.concerta.net/coupon.html
    • Apparently $4/month instead of $348/month
• Allergy
  • Xhance: https://xhancecopay.com/download
  • Apparently $50/mo instead of $500/mo

 

I’d be very curious to hear if anyone has other asthma drug coupons that they are aware of.

To the extent that any of the above manufacturer discounts count towards my deductible in 2021 like they did in 2020, I could potentially hit my deductible having spent practically nothing, bringing my total out of pocket healthcare costs down to almost zero for the year. To the extent that the same arbitrage doesn’t exist next year, at worst I’m saving some cash on drugs I was going to buy anyway.

It’s impossible for doctors to be aware of all drug coupons at all times. Further, some doctors don’t seem to care about costs at all. What I’ve personally found is that “google” + “<drug name> coupon” is a worthwhile endeavor every year. At worst, you’ll waste two minutes of your life. At best, you’ll be thousands of dollars richer thanks to a two minute query.

It’s also been my experience that manufacturer coupons don’t persist year after year. Consequently, to fully exploit the above you’ll have to be willing to switch to a substitute drug across years, if available.

 

Conclusion

Eat your broccoli, wash your hands, and have strong social connections so you hopefully can avoid needing to see the doctor. If you can’t avoid it, prepare to pay up. If you don’t want to pay up, try rubbing dirt on whatever hurts; it worked okay for me as a kid.

Once you hit your deductible, the rational thing to do is front-load all healthcare and drug costs until the clock strikes midnight and the deductible resets. Doing so is rational for the individual, but when aggregated, is systemically costly and an obvious problem to be solved by someone smarter than me.

Also, drug discounts seem to be an active area for arbitrage, at least under my current plan. Again, I’m unsure how well this generalizes, but perhaps this post will inspire someone to run the numbers.

Until the economics of healthcare are fixed, I don’t see how healthcare costs exit this death spiral.

 

 

If I Ruled the World

The below isn’t terribly well thought out…..

•  Medicaid:
  • Require physicians to disclose prices before any healthcare transaction.
  • Give $5k prepaid card to each Medicaid family to be used like a HSA.
    • A more sophisticated solution would base it on family size. Perhaps $1k/person.
  • Primary care physicians incur $0 copay.
  • Generic drugs incur $0 copay.
  • ER visits are paid in full with the $5k prepaid card.
  • Specialist visits are paid in full with the $5k prepaid card.
  • Brand-name drugs are paid in full with the $5k prepaid card.
  • Half of unused funds are reimbursable at the end of each year.
  • If prepaid card is exhausted, healthcare becomes zero marginal cost.
    • I don’t like this, but can’t think of an elegant solution around this short of requiring a modest $5 copay for any subsequent service.
• Private insurance:
  • Require physicians to disclose prices before any healthcare transaction.
  • Everyone is dumped into high deductible plans.
  • Health and drug costs are combined into same deductible/OOP max.
  • Deductible starts at $10k. OOP max is $20k. Coinsurance is 50%, implying that you hit your OOP max at $30k (=$10k + ($30k-$10k)*50%)).
  • Premiums are cheaper to offset the higher deductibles. Systemic lowering of prices as  result of discerning consumers would help too.
  • HSA contribution limits rise to $20k/year.
    • Generous employers will fund employee HSA’s. Frugal employers will not.
  • At the end of each year, up to $10k/year of unused HSA funds can be withdrawn for non-health reasons.
  • Once OOP is hit, healthcare becomes zero marginal cost.
    • I don’t like this, but can’t think of an elegant solution around this.
    • Maybe the solution is that there is no such thing as OOP max, but rather it’s the point at which a 10% coinsurance kicks in (where the insurer is responsible for the remaining 90%).

 

 

Further Reading

David at OchoSinCoche did a similar analysis of his (large) family’s 2020 healthcare spending here: https://www.ochosincoche.com/2020/11/06/health/