JCL Blog

Doctors Paid to Make You Sick

The 800,000 physicians in the US comprise a large and intensely managed partner program for the drug companies.  We are about to find out how intensely managed as the Affordable Health Care Act (AHCA aka Obamacare) now requires the drug companies to disclose how much they pay your doctor to prescribe drugs to you.  It should not be a surprise that the drug companies pay doctors quite a bit, and those payments change doctor behavior.  So it should be no surprise to find that some people may be diagnosed with ailments they don’t actually have -- so the doctor can prescribe the pills and get the money.

Sales managers know that salespeople are “coin operated”.  Better performance from salespeople is purchased with commission plans that compensate for more sales, more upsells, more referrals, more attached sales, more anything.  Since our business is technology sales, and specifically channel partner programs, we think a lot about how to properly incent our client’s partners to sell more.  We have seen this produce intended (improved sales) and unintended (systemic cheating) outcomes.  Broadly speaking, generalized incentives are better than highly specific incentives when it comes to getting a constructive result.  Sure if you have to move one product by the end of the quarter and you don’t care about the long term effects – a specific incentive will do the job.  But if you want customers satisfied and loyal for the long term, working with partners to grow their business for the long term is better than quick hits.

Over incenting salespeople in technology might result in a consumer or company with an overly large hard disk or a bigger video card or a router with enough capacity for 10 years of growth.  Over incenting doctors might result in a generation of kids on Ritalin, parents on anti depressants, and in the worst case, deaths.  Here is more reading on the subject should you be interested:



Update one week later:  Great article in the NY Times today about the 3 million children on Ritalin -- and how there is not evidence that it helps!

Our Healthcare Story

My hat is off to the Obama team for getting the healthcare legislation rolling.  I admit I have spent less time than I should following this because I did not give it much chance of getting off of the ground.  Frankly, I really do not know how this is going to impact our business or our employees, but at this moment I am willing to give the thing the benefit of the doubt and assume this is a step in the right direction.  In thinking about what value I may be able to bring to the dialog, I thought I would post what I learn as I learn it and therefore provide one real world data point for people to follow.  

With that in mind, here is a condensed overview of the current healthcare situation at CSG.  

Current Situation:  We are in our fourth year of what some people would call self insurance, and I call a do it yourself healthcare plan.  With the help of a broker, an administration service provider, and two reinsurance companies, we have assembled our own healthcare solution.  We struck out in this direction with two stated goals:  1) get control of costs and 2) prevent our benefits from sliding back any further.  Our costs (equivalent of a premium) are $414.04 per individual and $1,182.99 for a family, and we use a preferred provider network that gives our people access to a good number of doctors for a reasonable co-pay and a manageable deductible of $500 per individual and a maximum out of pocket of $2,000 per year per individual.  For this we require individual employees to pay 25% or $103.51 per month (and the company pays $310.53).  We also offer dental at $40.91 total with an employee contribution of $10.23.  For families we require the employee to pay 75% -- which is quite a burden on the employee, but we do it that way because the cost to the company is the same as for an individual.

When I started the company in 1997 we paid $129 per individual and had lower co-pays, lower deductibles, and lower max out of pocket.  We never had a year with less than double digit premium increases (by percentage) and by the time we bailed out of that system in 2004, our premiums were up over 3X to $496 per employee per month.  Our benefits were diminishing every year and our people were fighting with the insurance company over far more claims than we thought they should.  

We offer healthcare coverage on these terms to every employee that has been with the company for 90 days or more.  We do not require our employees to purchase healthcare and some elect not to because they get coverage elsewhere or perhaps they go uncovered.  Because of these variations in the number of employees electing coverage, the company's portion of the cost of healthcare has ranged from a low of 4.09% to a high of 7.40% and an average of 5.92% over the four years 2006-2009.  Because of the mix of individuals to families, the company only pays 67% of the total cost, making the average total cost as a percentage of payroll 8.83%.

I will do my best to share how the new healthcare laws impact our company.  Feel free to post your experiences.


How Data Changes the Idea of Insurance

The more we know the less we need insurance.  The whole idea of insurance is to protect oneself against an unknown potential loss.  Insurance works because of pooled risk.  A group of people with diverse risks contribute into a pool.  The funds paid by those not experiencing a loss are paid to those who experienced the loss.  Along the way the insurance company gets paid a bit for managing it all.  This applies to all insurance of course.   Hear are some thoughts about health insurance.

People were much more willing to accept this structure when they were reminded daily of the risks inherent in life and their general inability to avoid those risks.  Insurance companies were much more likely to be satisfied with this arrangement at a time when they had no way to know who presented the greatest risk to the pool.

All of that is different now.  Many people believe they have enough data about their exposure to risks -- that they may not need insurance at all.  When employees pay their full healthcare premium they can easily see that they are paying out more every month than they are getting in benefits.  Combine that with a sense of security regarding potential risk and you get a pretty good explanation for some of the 50 million uninsured in the US.  The fact that 27% of those aged 18-29 are without insurance and 28% of those making under $36,000 go without insurance -- compared to the national average of 16% -- leads me to believe that many of the uninsured could afford insurance.  A study conducted by Mark Pauly of the University of Pennsylvania and Kate Bundorf of Stanford, concluded that nearly three-quarters of the uninsured could afford coverage but chose not to purchase it.  (this last sentence was lifted from this article on the Cato Institute web site).  

The greater ability to analyze data has given insurance companies the hope of making money off of every customer -- instead of the pool.  This can be done through the all too common tactic of just denying every claim -- which ends up contributing to more individuals opting out.  It can also be done by gathering more and more data about the risk associated with each additional insurance customer and customizing the pool to have as little risk in it as possible.

As we progress down this road, we leave the realm of insurance and enter into the realm of expense management.  Maybe if we just let the industry evolve on its own, we will end up with more and more individuals responsibly managing their health care expenses on their own.

Would You Pay $4 Per Hour for Healthcare?

We do.  I suspect just about every other company in the US that is actually trying to provide healthcare to their employees is paying over $3 per hour and many probably pay even more than the $4 that we pay.  A high wage individual may be willing to pay more for healthcare than a low wage individual, but the cost does not change as income levels change.  So this is a much bigger issue for low wage earners than the others.  Most employees don't think about this all that much because they don't participate very much in paying the bill.  Many economists argue that if healthcare costs go down, wages could go up.  If that did happen, the low wage earners would benefit the most because a $1 per hour increase for someone at minimum wage is a 13% pay increase.

It will never happen because there is no one in DC representing the interests of the employee.  Our government cannot control healthcare costs because they don't want to.  They are beholden to the very people (health insurance industry) that would be hurt by cost containment.  It is never going to happen.

The only shred of good news in the whole story is our government is also highly unlikely to pass any reform, so we may be able to avoid a whole bunch of pork piled on our broken system.