Report: U.S. Health Care Wastes up to $850 Billion a Year
Oct. 26, 2009 – As federal lawmakers wrangle over a proposed revamping of the U.S. health care system, Thomson Reuters today reported up to $850 billion is wasted each year, suggesting meaningful health care reform begins with tort reform and eliminating existing waste rather than expanding a flawed system.
The report authored by Thomson Reuters vice president of health care analytics, Robert Kelley, says between $505 billion and $850 billion are wasted each year on health care costs in the United States. The largest source of waste is a practice of over-medicating and overly treating patients to prevent potential medical malpractice, according to the report.
Because medical professionals are so concerned about being sued for medical malpractice, many will engage in unnecessary medical treatment, such as overly prescribing antibiotics and ordering useless laboratory tests, the report claims. And many health care providers refuse to share information on patients, often resulting in duplicate work being done. Up to $300 billion per year is wasted by medical professionals as concerned about avoiding a malpractice lawsuit as patient health.
The at least $700 billion cited as wasted every year amounts to about a third of total health care spending each year in the United States, according to Kelley. While the largest chunk generally is wasted on useless medical procedures, fraud accounts for the second-largest portion of health care waste in the United States with an annual tab of about $200 billion, according to the Thomson Reuters study. Fraud generally occurs in the form of fake Medicare and Medicaid claims and medical professionals being paid bribes for performing useless medical procedures and prescribing useless drugs, among other forms of fraud.
Although no dollar amount was affixed to it, the Thomson Reuters study suggests about $150 billion in annual health care system waste arises from administrative inefficiency and duplication of paperwork. The report claims U.S. hospitals on average spend about one-fourth their annual budgets on administrative costs – about double the average in Canada.
Medical errors account for between $50 billion and $100 billion in annual health care waste. And the failure to preventively treat diabetes and similar afflictions costs between $30 billion and $50 billion per year, according to a 2003 study conducted by Harvard University researcher Dr. Steffie Woolhandler.
The Thomson Reuters’ study was conducted recently by its health care analysis unit and culled through several years’ worth of health care studies and reports.
With about a third of the annual health care costs in the United States arising from waste, the Thomson Reuters report clearly illustrates the need for cleaning up the current system rather than expanding it to cover tens of millions more Americans. If the waste can be reduced, most likely more Americans would feel better about federal lawmakers promising to lower costs while further extending a blatantly flawed national health care system.
Obama’s ‘Pay Czar’ Slashes Executive Pay at AIG, Others
Oct. 23, 2009 – Only weeks after approving an up to $10.5 million compensation package for the newest chief executive at taxpayer-rescued American International Group (AIG), President Barack Obama’s “pay czar,” Kenneth Feinberg, yesterday announced he was slashing executive pay by up to 90 percent for top employees at AIG and other firms bailed out by U.S. taxpayers.
The move means AIG executives will have their 2009 pay reduced by up to 90 percent from a year ago with a 58 percent reduction the average for the top 25 earners at the ailing insurance giant. Feinberg did not indicate whether the decision would affect AIG’s newest chief executive, Robert Benmosche, but he set a $500,000 ceiling for executive pay, unless a higher amount was deserved for “good cause.” Most executive compensation is to be paid in company stock rather than cash.
Other firms affected by Feinberg’s decision include Bank of America, Chrysler, Chrysler Financial, Citigroup, GMAC and General Motors.
The move comes about six months after President Obama found himself in hot water over executive bonus pay at AIG. After accepting a taxpayer-funded bailout valued at up to $182.5 billion, AIG intended to pay its executives hundreds of millions of dollars in “retention” pay designed to retain key employees at firms being sold to repay the insurer’s massive debt to U.S. taxpayers. U.S. Senator Chris Dodd (D-Connecticut) had amended the unread and non-debated $787 billion federal stimulus to require the bonuses be paid.
When a public furor arose over the bonus pay, Dodd and Obama initially claimed they knew nothing of the matter. But when reporters pointed out Dodd sponsored the amendment requiring the bonus pay be distributed, Dodd said he sponsored it only after being requested to do so by Obama’s administration. Compounding the problem, Dodd and Obama were among the largest recipients of campaign contributions from AIG employees, and the appearance of political corruption caused the President to demand the bonus pay be taxed heavily.
In the wake of the subsequent public outrage, Obama appointed Feinberg as the federal “compensation czar” in charge of reviewing executive bonus payments at companies accepting federal assistance. AIG earlier paid out $165 million in retention bonus payments to employees at subsidiary AIG Financial Products, which is responsible for crippling its parent company through exposure to risky credit default swaps tied to various mortgage markets.
When Democrats were preparing for their successful run for control of the U.S. Congress during the 2006 mid-term elections, Dodd sought campaign donations from executives and managers at AIG Financial Products. A top executive at a Connecticut-based unit of AIG Financial Products in 2006 told colleagues Dodd needed donations and instructed colleagues to donate and provide proof of their donations to company officials, according to the Washington Times report.
A Nov. 17, 2006, e-mail message sent to workers from AIG Financial Products Chief Executive Officer Joseph Cassano said Dodd was to become chairman of the Senate Banking, Housing and Urban Affairs Committee, which has federal oversight over the insurance and finance industries.
“Given his seniority in the Senate, he will also play a key role in the Democratic Majority’s leadership,” Cassano said in the e-mail message obtained by The Washington Times. “As he considers running for president in 2008, Senator Dodd has asked us for our support with his reelection campaign and we have offered to be supportive.”
Dodd’s campaign soon after collected more than $160,000 from AIG Financial Products employees at its Connecticut facility just before the Senator became committee chairman in 2007. Dodd later transferred the funds to his failed 2008 presidential campaign.
AIG employees and their spouses donated $121,378 to Dodd’s 2006 political campaign, $224,278 to his 2008 effort and $183,700 so far for Dodd’s 2010 campaign cycle, according to opensecrets.org. Cassano donated $7,118, according to the Center for Responsive Politics.
Florida Business Group Urges Property Insurance Rate Increase
Oct. 22, 2009 – A Florida business group says the state’s public property insurance business is hurting for cash and needs at least an average 10 percent rate increase to remain solvent.
Florida lawmakers in 2002 created the state-backed Citizens Property Insurance Corporation to provide insurance protection to residents and businesses in the Sunshine State’s hurricane-prone areas. But if damages exceed available funds for property damage claims, property owners across the entire state are assessed to make up the shortfall. Floridians already are paying a 1 percent assessment to replenish the state’s Hurricane Catastrophe Fund, which was severely depleted after four hurricanes struck Florida within a month during 2004 and Hurricane’s Katrina and Rita inflicted more damages in 2005.
The Florida Legislature recently approved increasing premium rates to offset potential funding shortages if a major hurricane or other catastrophe were to strike. But state insurance officials and representatives of various special interests are at odds over how much rates should be increased.
Officials representing the Associated Industries of Florida are urging an immediate, 10 percent rate increase for all policies. But state insurance officials are proposing much smaller rate increases, saying the Legislature intended for some rates to increase and others to decrease with 10 percent being the maximum potential rate hike.
Citizens has a $4 billion surplus, but officials for the Associated Industries of Florida say the state-backed property insurer currently has $413 billion in exposure on the more than 1 million properties it has underwritten. A 10 percent rate hike would be sufficient to raise more than $211 million needed to bridge a potential budgetary gap if a Category 2 or stronger hurricane were to strike, according to Associated Industries officials.
But state officials are proposing rate increases of between 5 percent and 10 percent, saying a sudden 10 percent jump in insurance rates would be too burdensome on homeowners and job providers already struggling to make ends meet in a down economy.
State insurance officials are proposing rate increases of 1.8 percent for mobile home owners, 5.4 percent for homeowners and 8.8 percent for dwelling fire insurance protection. Increases of 2.1 percent for mobile home physical damage insurance and 10.1 percent for commercial properties and homeowners association insurance plans also are proposed. If approved, the rate increases would take effect in January.
The proposed rate increases are much lower than officials for Citizens Property Insurance Corporation have expressed as necessary to adequately fund the state-backed program. Citizen’s actuaries have said rates need to go up by my more than 10 percent for commercial residential properties, such as apartment complexes, 40 percent on private homes and 140 percent for wind-only commercial policies to properly fund the program.
State insurance regulators have scheduled a hearing on Nov. 10 to address the matter.
CBO: Tort Reform Could Save $41 Billion in Federal Health Care Costs
Oct. 20, 2009 – A recent federal study suggests taxpayers could save $41 billion over 10 years if lawmakers placed limits on medical malpractice lawsuits tied to federal health care programs.
The nonpartisan Congressional Budget Office study runs counter to a prior report issued from the same organization last year suggesting potential savings would be much less. The report issued last year suggested the only savings from tort reform would be limited to lower premiums paid by doctors for malpractice insurance without encouraging them to improve care delivery.
Federal officials revised their estimate after further studying the matter.
“Recent research has provided additional evidence that lowering the cost of medical malpractice tends to reduce the use of health care services,” said Douglas Elmendorf, director of the Congressional Budget Office, in a letter to members of Congress.
When combined with a potential $13 billion in additional tax revenues, tort reform could net $54 billion over 10 years, according to the Congressional Budget Office report. Some federal lawmakers are attempting to place liability limits on medical malpractice suits in any proposed federal health care reform. And Elmendorf suggested the fear of malpractice lawsuits causes most doctors to perform more work than necessary on most patients, leading to higher health care costs, according to an Oct. 12 Associated Press report.
But among many arguments, patient advocacy groups and lobbyists for trial lawyers say placing liability limits on medical malpractice lawsuits could cause some victims to recoup less than they will be forced to pay over a lifetime of ongoing medical care. Others wouldn’t be compensated properly for their pain and suffering. Proponents of liability limits suggest patients would benefit rather than be harmed.
“Cutting medical liability costs would help preserve patients’ access to care,” Sen. Charles Grassley (R-Iowa), a member of the Senate Finance Committee, was quoted in the Associated Press report. “The more federal health care programs spend on unnecessary tests, the less money is available for necessary patient care.
The Senate Finance Committee recently approved a health care measure encouraging states to find ways to resolve medical malpractice cases rather than battling in court. The highly publicized “Baucus Bill” is one of several federal health care reform proposals and now goes before the entire U.S. Senate for consideration. Another Senate bill also has been approved by the Health Care Committee and awaits approval. The measures are part of federal efforts to reform the U.S. health care system.
Homeless Man Charged with Arson, Questioned About Deadly L.A. Wildfire
Oct. 21, 2009 – A homeless Nigerian man, whom local police say might have a connection to the deadly Angeles National Forest fire, was arrested and charged with arson for allegedly starting a small fire on Aug. 20 near where the deadly Los Angeles-area fire broke out about a week a later.
Babatunsin Olukunle, 25, was arrested last week and on Monday charged with one count of recklessly causing a fire, which is a felony. Olukunle allegedly sparked a small fire about the size of a picnic table along the Angeles Crest Highway north of Los Angeles on Aug. 20. U.S. Forest Service employees spotted smoke from the small fire and extinguished it. The larger, deadly Angeles National Forest fire broke out along the same roadway on Aug. 26, which fire officials say also was caused by arson. The second fire was started about 6 miles from where the earlier fire had been extinguished.
The Angeles National Forest fire was one of the largest in Southern California’s history and killed two volunteer firefighters when their vehicle drove off a mountain road. The blaze also is blamed for destroying 89 homes and 250 square miles of national forest.
Two firefighters, Capt. Tedmund Hall, 47, and Spc. Arnaldo “Arnie” Quinones, 35, were killed when the vehicle in which they were traveling careened down the side of a mountain on Aug. 30. At least 13 firefighters were injured battling the blazes in the Angeles National Forest. Because the fire was started by arson, law enforcement officials are investigating the deaths of the two firefighters as a homicide case.
Olukunle remains jailed after pleading not guilty to an arson charge in Pasadena Superior Court on Oct. 19. He has not been declared a suspect in the Aug. 26 blaze but is a “person of interest,” according to local police. Olukunle reportedly immigrated to the United States with his family in 1999 and dropped out of the University of California-Davis in 2004. He had been residing in the national forest and was known by U.S. Forest Service workers before his arrest last week.
While the Angeles National Forest fire is one of the largest and costliest to strike the Golden State in recent years, California wildfires in general have become common over the past decade.
Wildfires destroyed more than a million acres of land and 158 homes in California last year. And nearly 2,000 homes in Los Angeles and Southern California were destroyed by wildfires in 2007, causing an estimated $2 billion in damages. Of the $2 billion in damages, insurance companies paid $1.8 billion in homeowners’ insurance claims, according to California Insurance Commissioner Steve Poizner.
California Geared Up for ‘Pay as You Go’ Auto Insurance
Oct. 19, 2009 – California officials have finalized regulations allowing residents to purchase their auto insurance as they travel instead of buying traditional 6- and 12-month auto insurance policies.
California’s Office of Administrative Law last week approved the new regulations as proposed last year by the state’s Insurance Commissioner, who says the state’s residents will be encouraged to drive fewer miles and save money by not paying for insurance while their vehicles are parked.
“Pay as you drive is an innovative way to give California motorists financial rewards for driving less, leading to lower-cost auto insurance, less air pollution and a reduced dependence on foreign oil,” said California Commissioner Steve Poizner.
California motorists choosing a pay-as-you-go auto insurance policy will have options regarding how the number of miles driven is tracked. Insurers could simply go by the odometer, allow customers to report their miles driven or by using a device to track actual miles driven, according to state officials. But state regulations do not allow insurers to use a “technological device” to monitor where people drive.
Among enabling state regulations approved last week are authorizing insurers to either charge policyholders as they accrue mileage or to allow customers to pay in advance and allowing auto insurers to offer “mileage verification” policies instead of policies based on estimated miles driven.
Auto insurers offering pay-as-you-drive plans must indicate the exact method used for mileage verification and make those methods equally available to all people applying for auto insurance protection. Although insurers may not use “technology” to track vehicle movements, auto insurers and motor clubs can offer optional devices that aid in locating a broken down or stolen vehicle or help with other services, such as mapping services and travel assistance.
While the number of auto insurers planning to implement pay-as-you-go insurance plans is unknown, officials at the non-profit Environmental Defense Fund estimate if about a third of California drivers choose pay-as-you-go coverage, the state could eliminate 55 million tons of CO2 emissions through 2020, which the organization claims would be equal to removing 10 million vehicles from California highways. The decreased driving would save state residents about $40 billion in vehicular costs and spare about 5.5 billion gallons of gasoline, according to the environmental organization. The California Air Resources Board also supports pay-as-you-go auto insurance as a way to reduce gasoline consumption.
Chinese Drywall Nixing Homeowners Insurance
Oct. 16, 2009 – American homes recently manufactured or repaired using drywall from China have become a liability for owners who suddenly have found their insurance coverage canceled as federal officials consider implementing regulatory standards for imported drywall and other construction materials.
As the U.S. housing boom hit its peak near the turn of the century, a shortage of construction materials forced many builders to utilize drywall manufactured in China. Unfortunately, some Chinese drywall contains gypsum and trace elements of strontium sulfide, which can emit corrosive sulfuric compounds and an odor similar to rotten eggs.
Many homeowners have blamed the Chinese drywall for corroding their homes’ copper pipes, causing other property damage and making family members ill. Officials for the U.S. Consumer Product Safety Commission plan to raise the matter with Chinese officials. Among potential resolutions sought are having the Chinese government pay at least a portion of the cost to replace the faulty drywall and implementing regulatory standards to ensure similar products aren’t sold in the United States. But federal officials caution Chinese officials simply can refuse to cooperate.
A recent report by the Associated Press indicates some 500 million pounds of Chinese gypsum board was imported to meet domestic construction demands – particularly between 2004 and 2008 when thousands of homes along the Gulf of Mexico were being rebuilt in the wake of four hurricanes slamming into Florida during a month-long stretch in 2004 and Hurricane Katrina and Hurricane Rita destroying large areas of New Orleans and other Gulf Coast communities in 2005.
While construction crews and contractors quite innocently installed the Chinese-manufactured drywall thousands of homes in recent years, homeowners are getting a jolt from insurers who refuse to renew their homeowners insurance policies and refuse to cover claims, citing a manufacturing defect. Compounding the problem for homeowners is the requirement for insurance on financed homes. When an insurer learns a home contains Chinese drywall and ceases coverage, mortgage companies can foreclose on the homes for failing to provide proper insurance protection.
Officials for the U.S. Consumer Product Safety Commission said they have received 1,500 complaints of property damage and health problems from residents of 27 states and Washington D.C. Health-related complaints generally were about breathing problems, recurring headaches and nose bleeds.
Federal officials estimate about 100,000 homes in the United States contain Chinese drywall. The total cost of replacing the faulty drywall could reach $25 billion, according to the Towers Perrin consulting firm. Some Chinese drywall manufacturers have said their products are safe and suggested bad gypsum tainted only some of the materials shipped to the United States in recent years.
Making Health Insurance More Affordable for Individuals
Oct. 15, 2009 – Group health insurance plans generally are more cost-effective and accepting of individuals with pre-existing medical conditions, but most people with no health insurance coverage don’t realize they can qualify for group health insurance benefits in a number of ways other than through job providers.
The federal Health Insurance Portability and Accountability Act of 1996 (HIPAA) requires insurers to cover people with pre-existing medical conditions if previously covered by a group health insurance plan within a predetermined period of time – usually about 6 months. But even with no prior health insurance coverage, individuals obtaining group health insurance coverage can have their conditions covered after a standard waiting period of between 12 and 18 months.
While HIPAA offers protection for individuals with group health insurance – where about 60 percent of Americans obtain health insurance coverage, it only applies to group health insurance and not individual health insurance plans. People who are self-employed, work part-time or are unemployed typically don’t have group health insurance benefits. And the Kaiser Family Foundation indicates about 21 percent of people applying for individual health insurance are refused coverage, charged higher premiums or provided a plan excluding their pre-existing medical conditions.
But what many don’t realize is in a dozen states an individual can qualify as a “group” to obtain health insurance, and in all other states any two or more individuals can form a “group” and obtain more affordable and effective group health insurance.
As federal lawmakers grapple with various national health care reform proposals, health insurers have said a meaningful federal mandate requiring all Americans to purchase health insurance coverage would be enough to enable insurers to provide health coverage at lower costs and cover people with pre-existing medical conditions.
But the measures recently approved by two U.S. Senate committees propose a maximum annual tax of $750 charged to individuals incapable of proving they have health insurance coverage while requiring health insurance providers to cover people with pre-existing conditions. Health insurers say the potential penalty is too low and would only result in fewer people purchasing health insurance while increasing costs for those whose premiums ultimately would be increased to offset the additional cost of covering people with pre-existing conditions.
Colorado, Connecticut, Delaware, Florida, Hawaii, Maine, Massachusetts, Mississippi, New Hampshire, North Carolina, Rhode Island and Vermont are states allowing individuals to form “groups of one” for the purpose of purchasing group health insurance plans, according to the Kaiser Family Foundation. All other states and the District of Columbia require at least two individuals to qualify for group health insurance coverage. States allowing groups of one have varying regulations defining the types of coverages available to them.
As the nation’s unemployment rate has risen, more people have lost their employer-provided group health insurance benefits but have the option of continuing them for a period of time through the federal COBRA law, but they are responsible for all premium costs, including what their former employers’ paid to provide group insurance for an individual and his or her family. Often times, the COBRA costs are too high for people drawing unemployment, forcing them to drop their health insurance coverage.
If an individual loses health insurance coverage, he or she can apply for coverage with another health insurer within 63 days of losing group benefits and still be covered for pre-existing conditions with no waiting period. And every state has a designated “insurer of last resort,” which must accept individuals if they apply within 63 days of losing their prior health insurance coverage. The “Catch 22” is that in some states, there are no limits on the amount of premiums charged and deductibles can be very high.
Many professional organizations also offer group health insurance plans for their members, who often are self-employed.
Regardless their situation, for people lacking health insurance coverage, waiting for meaningful and effective federal health care reform could take years. But taking some initiative could result in immediate savings while ensuring their families’ health care will be covered.