Colorado health care series, part 3: Mountain health care costs decoded
April 4, 2017
Editor's note: This is the third installment of a six-part series on health in the mountains.
People in the mountain resort towns of Colorado are used to spending 10 percent or 15 percent more for gasoline, groceries and housing. But why 50 percent or 80 percent more for health care?
Aren't we healthy? Aren't we responsible?
They in particular want to know why Colorado nixed the idea of putting the entire state in one geography zone so people from all corners of the state would pay about the same for health insurance.
“Our cost of care in the mountains isn’t double what it is in Denver, yet we’re paying double. To cover your whole family, you are paying as much as you do on a mortgage for a $400,000 house.”Tom JankovskyGarfield County Commissioner
There are reasons why that didn't happen, some that make grudging sense to High Country residents, some that don't.
Before Obamacare, "No one paid attention to what things cost," Colorado Insurance Commissioner Marguerite Salazar said. "Now, there's much more transparency."
While transparency generally is good, in this case it illuminated the differences in health costs between metro Denver and the mountain resorts. And that difference was huge.
Under ACA, no longer could insurers charge more to those with pre-existing conditions, and limits were placed on how much extra they could charge older people or women of child-bearing age.
They could charge more to people who admitted being smokers, but couldn't charge more to people who were couch potatoes or made bad judgments or went to the emergency room for all their care. And they couldn't exclude a long list of services that are required under the tenets of Obamacare.
So, the focus was on geography — and the data showed that in places such as Aspen, Vail and Glenwood Springs, health costs in many categories were double what they were in places such as Denver, Boulder and Colorado Springs.
Outpatient care per person per year was $2,022 in Zone 9, but $1,075 in Colorado overall in 2014. People here were using MRIs and other imaging services, as well as pathology and lab work at three times the rate of the rest of Colorado.
• Advanced imaging (MRIs, CT Scans, etc.) cost $185 per person per year in Zone 9, vs. $47 statewide.
• Physical and occupational therapy was $49 per person per year in the mountains vs. $19 statewide.
• Outpatient surgery was $852 here vs. $409 statewide.
It's a combination of higher costs and more use of services, Salazar said. Yes, many people are in good shape in the mountain resorts, what with their snowboarding and hiking, rock climbing and bicycling, she said. But with those pursuits come the danger of fractures, tears, lacerations and separations of body parts.
The new rules say an insurer must contract with a local orthopedic specialist, must pay for MRIs and CT scans and such. When it's a small town, that often means there is only one of each kind of specialist. And that means that specialist has the clout to keep prices high. The insurers can't negotiate the steep discounts that they could if they had their choice of a dozen specialists to play off against each other.
Pitkin, Summit, Routt and Eagle counties have only one hospital each, and the choice of insurers is thin, what with Humana and United Healthcare leaving the individual market last year. "When a hospital has that kind of monopoly, it can make it difficult" for an insurance company to offer affordable rates, said Colorado Lt. Gov. Donna Lynne.
Insurers that want to compete in a geographic area of the state must by law establish contracts with providers and hospitals that are reasonably close to clients' homes. "In that respect, sole community hospitals have a lot of leverage over the health plans."
And so, the prices are high, the usage is high, therefore what people in the mountains and valleys pay in monthly health care premiums also is very high.
But not all the data agree. The state's single geographic area study found that outpatient care in Zone 9 was indeed double the statewide average, but that the overall health care cost here was about $6,300 in 2015, compared to $5,100 in Denver and $5,200 statewide.
That's just about a 21 percent difference, say mountain resort residents. Why the 50 percent to 90 percent differences in monthly premiums?
"Our cost of care in the mountains isn't double what it is in Denver, yet we're paying double," Garfield County Commissioner Tom Jankovsky said. "To cover your whole family, you are paying as much as you do on a mortgage for a $400,000 house."
The overall health care cost is only about 21 percent higher here than statewide, but that includes everyone, from Medicaid and Medicaid customers to the more than 50 percent who get their coverage from their employers to the self-employed purchasing their own plans. It is in the individual market that premium prices are double here. And for better or worse, insurance companies showed that the costs of covering that group justified the big jumps in premiums, according to the DOI.
Eagle County Commissioner Jill Ryan recalls the high hopes when a coalition of county commissioners, state lawmakers and other stakeholders first tried to get the state to look at changing the geographic zones.
State lawmakers and county commissioners from the ski counties eventually pushed to make all of Colorado one zone, so everyone would pay approximately the same, whether they lived in Carbondale, LaJunta, Denver or Basalt.
Consumers testified before the task force and lawmakers.
"They described their rates as paying a second mortgage — $1,200 to $1,900, and that's with a high deductible," Ryan said. They couldn't afford to go without health insurance but couldn't afford to pay for it. Several said they were on the verge of giving up on their dream of being independent businesspeople — that they would have to get a "real job" where the employer foots most of the insurance costs, or move to Denver or somewhere where the premiums are about half the cost.
Experts studied it, and concluded that a single zone would raise costs for more people than it would lower them — 19 percent less for those in Zone 9, but 10 percent more for those on the Front Range. And they said that with one zone, insurance companies would likely drop out of the state, reducing competition and causing rates to soar even more. Also, a single Colorado zone would spark a rush to enroll in the formerly high-cost zones, but an exodus from the system by people in the formerly low-cost zones — driving up prices for all.
Equalizing cost for all rewards the person who doesn't take care of himself, the hospital that doesn't cut costs to the bone, the provider who is too quick to order up a test, said Bill Lindsay, who chaired the Colorado Commission on Affordable Health Care that delivered a report to Gov. Hickenlooper and state lawmakers last year.
The commission still doesn't have all the answers as to why costs and utilization are higher in the mountains. It has hired an actuarial firm to "do a deeper dive for us."
It could be that more people here than in, say, metro Denver, got health insurance for the first time, and therefore booked a flurry of appointments to catch up on long-neglected medical issues.
If that is true, then in a couple years, the mountain region's costs should creep closer to the state average. But no one knows for sure yet.
Ultimately, Salazar nixed the idea of one geographical zone for Colorado. Lt. Gov. Diane Lynne agreed, saying redrawing zones "wasn't the right answer."
County commissioners from the mountain resort regions were distraught.
"We had hung our hopes on one single geographic zone, so to get a no answer, we were all profoundly disappointed," Ryan said.
The experts at the request of lawmakers also looked at creating one big rural zone in Colorado to widen the pool and lower the risks. That would have lowered rates in Zone 9, "but not significantly," Salazar said. They would have gone up in the Arkansas Valley and most other rural areas of Colorado, she said. The data showed doctors in the western part of the state are paid much more than doctors in the eastern part of the state.
Mitsch Bush wishes the DOI had given more thought to rezoning, particularly one proposal to make six metro zones and two western zones — one in the east, one in the west. That would have given a reduction to people in five of the regions and a relatively modest rise in the single digits to people in Boulder, Denver and Colorado Springs, she said.
Another proposal by lawmakers was to force insurers to offer plans in all counties if they offered them anywhere at all. But the DOI can't force insurers to do that, Salazar said. "Kaiser's network doesn't work in all areas of the state," she said. "Colorado Choice works in Alamosa, but it can't cover the whole state."
Last year, when United Health Care and Humana dropped out of the individual plan market, it left 20,000 Coloradans scrambling for an alternative. "That's their prerogative. We can't get into their business," Salazar said.
Lt. Gov. Lynne agreed, noting that in America, health insurance is a business. "At the end of the day, health plans want to take business away from other health plans and hospitals want to take business away from other hospitals."
"The big problem is that health care is too expensive," Salazar said. What is driving the cost, and what can we do about it?
Insurance companies have to justify their proposed premium increases each year, and have to show that for every $1,000 they collect from customers they pay providers $800 for health services, Salazar noted.
Insurance companies argue that after paying benefits and administrative costs, their margins are skinny: Collectively, there was a negative 3 percent margin in 2014 in Colorado's individual market. Cigna Health and Life reported a negative 12 percent margin; Anthem a positive margin of less than 1 percent, according to the Colorado Health Market Review 2015.
Of the two companies that left Colorado's Individual Market this year, Humana reported a 5 percent margin in 2014; and United Healthcare a minus 18.9 percent.
But those skinny margins reflect the net after not just essential administrative costs, but such things as bonuses and handsome compensation packages for company executives. Those will be especially huge if the big companies merge with each other. Anthem wants to buy Cigna, and Humana wants to merge with Aetna, but so far courts are blocking the attempts on grounds that it will be bad for consumers, leaving them little choice and driving up prices.
SALARIES AND COSTS
According to Modern Healthcare Magazine, UnitedHealth Group CEO Stephen Hemsley earned $14.5 million in 2015, but has shares worth $430 million.
• Cigna's David Cordani earned $17.3 million but would get an $82 million golden parachute if there is a merger.
• Humana's Bruce Broussard earned $10.3 million but would get $40 million more if a merger deal closes.
• Aetna CEO Mark Bertolini made $17.3 million but will get $131 million if a merger goes through.
By comparison, Vail Valley CEO Doris Kirchner was paid $762,543 in 2014; Valley View CEO Gary Brewer was paid $913,700; and Yampa Valley CEO Frank May was paid $358,577.
Richard Backe of Carbondale is grateful for his subsidized Obamacare plan that saved him and his wife from possible financial ruin. But he blames insurance companies, hospitals and other large providers for failing to rein in costs. And he blames Colorado's Insurance Commission for rejecting the proposal to turn Colorado into one insurance zone so everyone would pay about the same for health premiums.
The rural population is small, so doesn't have the clout to force a change, he said. The commission has "chosen to ignore the exorbitant insurance and health care costs in rural areas of Colorado … causing our costs to skyrocket."
In part, it comes down to values.
If the healthy weren't subsidizing the sick, or if the middle-class wasn't subsidizing the poor, premium prices would drop for the middle class. But a lot of poor people and seniors might die sooner rather than later.
About 40 percent of the American population and about 40 percent of the population in the mountain resort areas of Colorado have their health care subsidized in the form of Medicare for seniors or Medicaid for the poor. And the reimbursements from the federal government only cover about 70 cents on the dollar for those two programs, say hospital administrators and doctors.
So, to recoup that $3,000 on the $10,000 cost of a service, hospitals theoretically need to collect a bill of, say, $12,000 for $10,000 of costs from the majority of the population that has private health insurance.
Meantime, insurance costs stay high in Pitkin, Routt, Eagle, Garfield and Summit counties.
The western Colorado coalition isn't giving up on its efforts to bring all stakeholders together for an honest conversation about prices and geographic zones, Ryan said. But it's a conundrum. "Every solution seemed to have some kind of negative consequence somewhere else."