August 8, 2023 • 25 mins
Your health insurance costs and premiums have skyrocketed compared to the rate of inflation since Obamacare passed. Meanwhile, the profits of the insurance carriers have quadrupled.
"They're making unimaginable amounts of money... off of you." - Joe Getty
Craig Gottwals, aka "Craig the Healthcare Guru", talks about that and more in a new episode of A&G's Extra Large Podcast.
Listen to the Armstrong & Getty Extra Large Podcast featuring Craig below...
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
Please join me in welcoming to the show. Craig Gottwaals,
aka the healthcare Guru. You know what, Craig, I don't
actually have your website and stuff in front of me.
I forgot to grab it, so we'll get to that
in a little bit. But how are you, my friend?
Speaker 2 (00:14):
I am well, my friend, and you know, over here
at our house, we've got candles going and we're really solemn,
and it's hashtag prayers for Jack. I hope he got
the horse paste that I sent over to him.
Speaker 1 (00:24):
Nah. I think he's going with more conventional care. But
i'd ask you how the bass are biting. But it's
so hot, it's like bass soup in the lakes. I'd
imagine when it gets cooler, though, We've got to we've
got to go fishing again.
Speaker 2 (00:36):
Yeah. Absolutely. It was one of the best springs in
the last twenty years in northern California, so I expect
fall will be similar.
Speaker 3 (00:41):
My friend, excellent, Okay, enough fish and talk.
Speaker 1 (00:44):
You sent along a slide show so I could get
ready for this conversation, which I found very, very helpful
and informative. I love the quote from Warren Buffett. Buffett
medical costs are the tapeworm of American economic competitiveness. And
it's shocking some of the information gave about the rise
in healthcare costs over the last twenty twenty five years.
Speaker 3 (01:03):
You want to fill us in on some of that.
Speaker 2 (01:06):
Yeah, it's just devastating, Joe. You know, you guys have
covered this story in out of Stockton, California, with two
shop workers, two convenience store workers that are that are
watching a guy pill for their store, and there's a
there's a there's a guy commentating as he's filming, saying
nothing you can do, nothing, you can do, And meanwhile
this shoplifters filling a garbage can with cigarettes and all
(01:27):
kinds of stuff. Finally, the shopkeepers they grabbed the guy
and they just start beating his lower body and his
legs with a stick. And I think that's that's basically
where American employers are right now. They're just they're just
totally fed up with the pilfering that's been going on
on their bottom lines and American workers too. As we
look at just go ahead, sorry, Joe, go ahead.
Speaker 1 (01:48):
Well no, that's okay. I just I want to get
to those That's a great metaphor. I love that you
send along a slide that in the year two thousand,
the cost of family coverage who was about twenty percent
of the tip book workers' annual salary, and now that
twenty percent is fifty four percent, which is an astounding rise.
Speaker 2 (02:10):
It's just been it's something I've been in this in
this industry, Joe full time for twenty two years now.
And when I started twenty two years ago, everybody was saying,
this is unsustainable, this is unsustainable. How can we how
can we do this? And of course now we look
at you know, average pay has gone up from thirty
two thousand to forty two thousand dollars for the average worker.
But like you said, healthcare, the cost of family coverage
(02:32):
has gone from sixty five hundred to twenty two thousand,
five hundred, so now it gobbles up fifty four percent
of somebody's pay. One other stat just to keep the
easy one to keep in mind, premiums are up just
since the year two thousand, three hundred percent family premiums
three times average worker pay only up one hundred percent.
(02:52):
So it's just it's the hidden tax that we're all paying,
and it's a slow depth seven and a half percent
increases year after year after your year, when we're only
getting one to two percent on our pay. And of
course it's just it's just crushing workers and it's crushing businesses,
and it's.
Speaker 1 (03:09):
Wildly out of proportion to other forms of inflation too.
Speaker 3 (03:11):
Correct.
Speaker 2 (03:13):
Oh, yeah, absolutely, yeah, I mean there's nothing healthcare. The
only thing that rivals healthcare to other things your local
electric company and your college tuitions. Those are the only stition.
Yeah that keep up.
Speaker 1 (03:28):
Well, go ahead and take the ball and run with it.
What's the next step in understanding your stuff? What do
you have for us?
Speaker 2 (03:33):
Now? Many of us, many of us felt that Obamacare
was going to really be hard on the insurance companies.
You know, many of us thought that, Okay, you're putting
all these restrictions in place, You're going to force all
these extra people onto the plans without really good leverage,
to keep them on the plans without without without necessarily
getting a whole lot more money in premium. And I'll
(03:54):
be the first to admit that is a topic on
Obamacare about which I couldn't have been more wrong. Joe. So,
if we just look back to two thousand and nine,
when Obamacare was first you know, written just right before
Obama signed it. You had you look at cost increases
and stock increases since that time. So from two thousand
(04:17):
and nine to today, just to look at the S
and P five hundred as a benchmark, it's up four
hundred and twenty two percent. That's the largest five hundred
companies in.
Speaker 3 (04:24):
The US, right, Okay, got it?
Speaker 2 (04:26):
The average, the average of the five largest insurance companies
medical insurers are up nineteen hundred percent over that same timeframe.
So they were in on it the whole way. They
had the game was rigged. They worked with the federal government,
with hospitals, and with pharmaceutical industry to absolutely ensure that
no matter what happened, they would remain profitable, they could
(04:50):
keep the very large increases, and that we the taxpayer,
would ultimately make them whole. We the taxpayer, and we
the premium payer for those of us that still get
insurance at work.
Speaker 1 (05:00):
So just for people who aren't taking notes or driving
or what have you. So the SNP or the insurance
the average of the insurance carrier stock prices has more
than quadrupled the rise of the S and P five
hundred as a whole, which is crazy. Now, those of
us who believe in free markets are not shocked that
when the government became involved in a ginormous part of
(05:23):
the American economy, the rent seeking began, the lobbying began,
and the big powerful companies ended up getting a huge
disproportionate share of taxpayer money in a way that the
free market would never have allowed.
Speaker 2 (05:37):
Would you agree, totally agree, that's exactly what happened. There
have now been books written on this topic, and it
just turns out that every single industry, whether you're looking
at hospitals, insurers, brokers, even my industry, the pharmaceutical industry,
every single one of us had a lobbying group in
(05:57):
DC prior to two thousand and nine. We all, all
of our lobbying groups worked with the federal government, worked
with the Obama administration, and we as a combined entity,
ensured that no matter what happened, we would be made
whole and taken care of in this process. And that's
exactly what's happened. Everybody's getting filthy rich on the provision
(06:20):
of health insurance while American businesses and in US workers
are struggling now to pay the bill, to the point
where the average worker sees more than half of their
pay go to premiums.
Speaker 3 (06:31):
What's America's number one lobby.
Speaker 2 (06:35):
Number one lobby, as reported by Axios is healthcare seven
hundred million in twenty twenty one, the last reported stat
I saw.
Speaker 1 (06:44):
One year seven hundred million dollars in bribes.
Speaker 2 (06:47):
Essentially, yeah, exactly exactly. And the largest client of the
healthcare industry is the federal government, primarily through Medicare and Medicaid.
So see here's this is where you get the crazy
hidden tax that we've talked about here before, and that's
the politicians don't want to just start increasing taxes willy
(07:10):
nilly because that's bad for reelection, so they keep Medicare
and Medicaid on a path where those reimbursements only typically
go up about one percent per year, even though true
medical inflation is roughly four percent per year. So then
what happens is hospitals have to work with insurance companies
to negotiate seven or eight percent renewal increases for employers
(07:33):
to cover the fact that they're not making as much
money as they would like to make for Medicare and Medicaid.
The number one customer of the insurance industry.
Speaker 1 (07:43):
Right, So, okay, so the government is under the government
is underpaying, so private insurance has to weigh.
Speaker 3 (07:50):
Overpay for medical care.
Speaker 1 (07:53):
You know, I think I know the answer to this,
But why do the private insurance companies put up with it?
Is it because they can go ahead and go out
just for premiums and we don't see any alternative to
pay in them.
Speaker 2 (08:04):
Oh? Absolutely, because the more premium we pay, the more
they make as well. Obviously, right, the more the broker makes,
the more the insurance company makes, the more the hospital makes.
So what you really see happening in healthcare generally is
hospitals will mark up the cost of a procedure. And
again this is just hospitals, not doctors. The problem is
(08:25):
not typically with your local doctor office, it's with facilities.
So hospitals will say we're going to pay three hundred
percent of what Medicare would pay for that shoulder surgery
as an example, and that is roughly six hundred percent
of our actual costs. And you say, well, Craig, how
do you know their costs? Well, in order for them
to receive money from the federal government through Medicare, they
(08:46):
have to self report their costs. So I know exactly
what their real costs are, and I know what Medicare pays.
That's all public information. So what happens is private employers
are basically paying It works out too roughly twenty dollars
per employee per month. You're paying for the privilege of
a fifty percent discount on something that's been marked up
(09:07):
six hundred percent. And now that's a lot of numbers,
but that's what's going on. Is you have this shell game,
you have this this obscured price tag that's hidden that says, hey,
the cost of that shoulder surgery is is you know,
we will just say it's two hundred thousand dollars and
then but you know, good news, good news, we're going
to give you a fifty percent discount. With your large
insurance plan, you're only going to have to pay one
(09:28):
hundred thousand dollars. But then when you get down to
the nuts and bolts of it, the actual cost to
provide that surgery is like twenty thousand dollars.
Speaker 3 (09:38):
Wow.
Speaker 2 (09:38):
So on a large scale in our health plans.
Speaker 3 (09:41):
Wow.
Speaker 1 (09:42):
Meanwhile, the government's paying a tiny fraction of that, like,
you know, way down less than you know, the hospital
could stay in business.
Speaker 3 (09:50):
Probably on.
Speaker 2 (09:50):
Well, well, I want to yeah, I want to be
careful about that. So I have a number of hospital clients,
and I speak with these CFOs regularly, and pretty much
across the board, every hospital chief financial officer will tell
you we can survive on Medicare. What Medicare, that's the
one we pay for the old timers. I mean, we
would have to tighten our budgets, we would have to
(10:10):
run more efficiently, we would have to we would cut
out some waste and abuse. But we can probably get
by at Medicare. It's Medicaid the one that we can't
because that on average across the country pays about twenty
percent less than Medicare. So now you are getting into
a position where you're like fifteen percent under their real costs.
So it's Medicare that causes the problem. Medicare. Excuse me, Medicaid, Medicare,
(10:33):
most hospitals can get by it.
Speaker 3 (10:35):
Bass fishing tip number one. Slow down. He's always telling me,
slow down, don't slow down.
Speaker 2 (10:41):
Let him come to it anyway, Right when you get
to the point where you think you cannot go any slower,
slow at the hell that.
Speaker 3 (10:48):
I'm a little bit more, all right, beautiful.
Speaker 1 (10:51):
So if you want to get in contact with Craig
for bass fishing tips or advice on healthcare and benefits
and that sort of thing, all the informations going to
be at Armstrong and Getty dot com will make it
easy to follow. Plus this discussion will be edited up
into an Armstrong and Getty.
Speaker 3 (11:06):
Extra Large podcast.
Speaker 1 (11:07):
Having said that, I'm looking at the map you sent
of employer payments for a given medical procedure as a
percentage of Medicare you poor chumps? We poor chumps with
private insurance in California are paying three hundred and eleven percent.
In Texas it's a mere two hundred and sixty nine percent,
three hundred and sixteen percent.
Speaker 3 (11:28):
Is that Colorado or Nebraska?
Speaker 1 (11:29):
Rather, it's three hundred and four percent Washington State, On
and on and on and then the slide you sent
about the fair price for a CT scan, for instance,
in the San Francisco Bay area, can you explain that
to us?
Speaker 2 (11:43):
Yeah, so you exactly nailed it, Joe. Across the country,
we're roughly we have if we're in that thirty percent
of people that are roughly paying for our own health care,
there's only about thirty percent of us in that boat anymore.
We pay three times what the federal government pays with Medicare,
and hospital CFOs will tell you we can we can
make money on Medicare. Okay, So hospital CT scan, So
(12:05):
this is just I sent you a couple examples as
will just walk through one of them. This is a
real hospital in the Bay Area. We won't name any names.
They bill an average of thirty five hundred dollars for
a CT scan, and.
Speaker 3 (12:17):
They're the cheapest one in the chart.
Speaker 2 (12:19):
But go ahead, they're the cheapest on the chart, that's right.
They self report the cost of that two hundred and
fifty four dollars. Okay, Medicare applies its formula, so they
do a little bit of markup on the cost. Typically,
and the Medicare would pay three hundred and three dollars
for that procedure. But the average national insurance company of
which there are four or five depending on how you
(12:41):
count them, would would give you a fifty percent discount
off of that pie in the sky fantasy unicorn riding
cotton candy eating build rate of thirty five hundred, So
they would they would reimburse seventeen hundred for that thirty
four hundred or thirty five hundred, whatever you whatever you
want to call it. So you know, you look at
the bill, you think, wow, it's thirty five hundred. I'm
(13:02):
going to pay seventeen fifty. I'm getting fifty percent off.
That's awesome until you find out Medicare pays three hundred
and three dollars. And I tell you that facility operators
tell you, yeah, we can make money on Medicare.
Speaker 1 (13:13):
Yeah, it's like your babysitter walks in and says, normally
I charge one hundred bucks an hour, but I'll let
you go for fifty or whatever. And you're thinking, oh,
a fifty percent discount. Not boy, I'm a chump. And
the important thing to realize, and I'm looking at the clock.
I think next segment we will get to the solution
because we barely have two minutes. But what people need
to understand is that you're paying twice, three times, four
(13:35):
or five six times as much as a Medicare patient does,
which still gives the medical provider a fair amount of profit.
And that enormous difference that you're paying in premiums and
everything that is a tax, that is money from you
going to pay for a government program, and I don't
(13:57):
think people really comprehend it that simply. Meanwhile, and if
you're just tuning in, we mentioned this last segment, the
insurance companies are making scads of money because they're in
bed with the government on the scheme, and really the
only loser is the private insurance consumer.
Speaker 3 (14:15):
Am I correct?
Speaker 2 (14:17):
You've got it better than any media person ever has.
Speaker 1 (14:22):
Wow Wow gold star for me any anyway, So in
thirty seconds, can you describe slash tease what we're going
to talk about in the next segment, the cure to
this or reference based pricing?
Speaker 2 (14:38):
Yeah, reference based pricing, fair market pricing, value based pricing.
There's a lot of different names for it because it
is so new and revolutionary. In a nutshell, if you
take the premise that they can make money on medicare,
what happens if we go ahead and just offer to
pay one hundred and forty percent of medicare, which is
still half of what your employer plan pays. We can
cut our costs darn near half at that point, right.
(15:01):
What happens if we do that? What kind of acceptance
will we get in the marketplace if we decide to
pay forty percent more than their largest customer, which is Medicare.
Speaker 1 (15:11):
Your health insurance costs have skyrocketed.
Speaker 3 (15:16):
Compared to the rate of inflation.
Speaker 1 (15:19):
Your insurance premiums have skyrocketed since Obamacare passed. All those
costs to people with private insurance through their employer whatever
have gone sky high compared to inflation. Meanwhile, the profits
of the insurance carriers have been quadrupled the rise of
(15:39):
the S and P five hundred. They're making unimaginable amounts
of money off of you as you subsidize Medicare and Medicaid.
It's a hidden tax. You're paying hundreds or thousands of
dollars a year to pay for those government programs.
Speaker 3 (15:59):
But it's not a tax.
Speaker 1 (16:01):
It's your insurance premiums because your insurance company pays sky
high prices to the hospitals to cover, you know, the
government programs to make sure everybody makes plenty of profit.
And nobody's talking about this. Did I get anything wrong
in that description, Craig.
Speaker 2 (16:17):
No, you do so good at that, Joe, I would
just the only nuance I would add is that is
that it's not just because of government underfunding, which we
know it certainly is with respect to Medicaid for sure,
but it's also because, hey, what this private industry likes
to do. It likes to maximize profit. So pharmaceutical companies, hospitals, insurers,
(16:38):
and brokers are all maximizing profit on this hidden tax
that's obfuscated by the fact that typically people don't see
the prices they pay for healthcare. They don't know. They
just know their paycheck isn't what it should be. And
so one of the things that's made this more possible
in the last few years. Joe Is and you and
I and Jack did a podcast about this probably four
years ago now where Trump put in some transparency rules
(17:02):
and then thankfully when Biden came into office he kept them.
So there's and I think I told you way back then.
I said this is going to be a landslide. This
is going to change healthcare forever, and now we're finally
starting to see it. That's what's going on. These employers
are taking that wooden bat like those gents in the
in the convenience store in Stockton, and they are starting
to whack away at this system that's been pillaging them
(17:25):
for so long.
Speaker 1 (17:26):
Okay, and there's there was one more nuance I wanted
to get to it flitted out of my mind. Dang
it about the whole Oh, it doesn't matter. So so
because of that transparency that Donald J. Trump, God rests
him or God bless him, He's not dead because of
that transparency. Now that's given a tool. Oh you know
(17:49):
what I was going to say was, so you've got
all that profit being made, maximizing the profit in the
insurance companies, the hospitals whatever. I'm pro profit, and I
know you are too. We're pro the free market. But
this is the last thing. This is the free market.
It's accommodation of monopolies. And then the government so heavily involved.
(18:10):
The companies have to beg and lobby the government, and
they're all in on it together.
Speaker 2 (18:16):
It's a government healthcare complex because and I'll tell you
what made this made Obamacare so bad, Joe. Prior to Obamacare,
Democrats generally wouldn't take money from the pharmaceutical industry and
from big insurers. That was kind of a thing Democrats
wouldn't do. Well. Obama changed all that because Obama realized
that to get this legislation passed, he was going to
(18:36):
have to take that money from those players and so
once those floodgates opened, once you had okay, now Republicans
and Democrats can dip their hands into the largest industry
in America and just take as much as they want
from lobbyists, then you had the complete proliferation of all
of this, I would say, corruption influencing any regulation or
(18:58):
laws we might have had.
Speaker 1 (19:00):
Ok So, let's get back to the transparency that Trump
introduced and Biden continued, Now, you know the hospital self
reported costs and stuff.
Speaker 3 (19:08):
So how has that been helpful? How's that been a tool?
Speaker 2 (19:13):
Well, so what has happened is, and here's the free market.
There are entities called reference based repricers that have popped up,
and what they're doing is they're aggregating that data and
they're saying, Okay, we know at Hospital X, a rotator
cuff surgery is actually costs We'll say fifteen thousand dollars
(19:34):
and Medicare would pay twenty thousand dollars for it, but
their typical insurance company is giving them sixty thousand for it. Right,
So they're saying, Okay, don't pay an insurance company, pay us.
What we'll do is we will reprice that claim. We
will pay the claim for you, and we'll negotiate with
the provider if you get pushedback. And so we're reference
based repricing these claims. We're just cutting out insurers all
(19:56):
together because we're saying, no, the employer's going to self
insure this plan and we're going to pay at one
hundred and forty percent of Medicare instead of three hundred
and ten percent of Medicare.
Speaker 1 (20:05):
So the hospital is not they're not making that same
crazy profit, but they're making profit. You say, it's working
to what extent our hospital's saying, okay, we'll do that
for that price.
Speaker 2 (20:19):
Yeah, So depending on what part of the country you're in,
you get, we would say is one percent to ten
percent pushback. And when I say pushback, I mean the
hospital says, hey, no, one hundred and forty percent of
Medicare is not enough. We need more, we want more.
Then we get involved in negotiation. Once we get involved
in negotiation, it's ninety nine percent acceptance. And the worst
(20:40):
case scenario for the employer is they capitulate and they
pay what the giant insurance company would have paid.
Speaker 3 (20:46):
Anyway, you see, if it almost never happens.
Speaker 2 (20:50):
Well very rarely. Yeah, that you're talking about a handful
of claims per year for hundreds of employees. Yeah, because ultimately,
what you're doing is you're saying, hey, hawk, I'm going
to pay you forty percent more than your largest customer.
And if the hospital really wanted to dig in their
heels and say sue the member, sue the plan or
the employee for not paying more, ultimately you're going to
(21:12):
end up in a court of law and the CFO
at the hospital is going to have to testify that
somebody offering to pay forty percent more than their largest
customer is an unreasonable price and they need to do it.
And even then, we negotiate up to three hundred percent anyway,
so they would have to argue that three times what
Medicare pays is unreasonable and they can't. There's been one
case that went to the Merrit's Supreme Court of Colorado
(21:34):
and the hospital lost. So now you've got floggates. We've got,
like I said, instead of four or five national carriers,
we've got ten different repricers that have popped up. And
this is the wild West shoe. It is absolutely crazy
what I see going on, but in a good way,
in a wonderful way. Now this is the free market.
You've got these repriss that have popped up. You've got
(21:56):
employers who are early adopters grabbing that stick and willing
to whack up the person that's been pilfering them. And
we're cutting employer claim costs in half, and then once
you bake in all the other costs we have to
have for reinsurance and repricers, employers who do this are
saving twenty five to thirty five percent year one every time,
and they're not losing access to any providers. The message
(22:17):
to employees is, hey, if you guys insist upon going
to the top five or ten percent of providers in
your zip code, you're going to probably have to pay more.
But for ninety percent of you, you're going to see
no change to your plan at all other than we're
going to charge you a heck of a lot less
for it.
Speaker 1 (22:31):
Well, and that's about the average work in man and woman.
I mean, that's where you bring it home, because you know,
and people will understand basic economics.
Speaker 3 (22:42):
Get this.
Speaker 1 (22:43):
If my employer has to pay through the nose for
my health insurance, it's great that they're doing it, but
that comes out of my potential salary. It all comes
out of my pocket. The part I pay comes out
of my pocket, and the part my employer plays comes
out of my pocket. Because there's a certain amount you
are worth to your employer, and instead of it going
to you, it's going to some insurance company.
Speaker 3 (23:02):
Would you agree totally?
Speaker 2 (23:04):
It's just total compensation, your compensation, Zach. And the problem
is right now, fifty something percent of that's going to healthcare,
when just twenty years ago it was thirty percent of it.
Speaker 1 (23:14):
So as a small business person, I'm just I want
to make sure this is clear to me. This is
this reference based pricing or whatever you want to call it.
It's mostly helpful to companies that are big enough to
like self ensure pay their own claims.
Speaker 2 (23:25):
Yeah, so so people ask me for a head Can
I say, general, two hundred and fifty plus employees. We
can probably do this depending on where you are. And
now some companies are smaller than that, they're already self insured.
You can do it right now, but you roughly need
two to three hundred employees to get enough to get
enough volume to be predictable, to get stop loss, et cetera.
So it's this is not a solution for you know,
(23:46):
a sub one hundred company.
Speaker 1 (23:47):
Yeah, okay, fair enough, since I'm not in this business
and certainly don't make any money talking about this, is
there any way you could see using these same forces
to help out, you know, employees of small companies, self
employed folks down the road.
Speaker 2 (24:05):
Yeah, because what's happening is and again, we're so on
the front end of this. Just a year ago, less
than two percent of companies we're doing this. Now it's
three percent of companies, and people like me are out
there hitting it hard and I'm busier than I can stand, Joe,
because it's growing so fast. But what's happening is we're
negotiating real prices, we're putting transparency on it, and ultimately
(24:27):
we're going to be developing new provider network that will
work for one hundred and forty percent of Medicare, so
that that small company can just do a direct contract
with the two hospitals in their neighborhood at one hundred
and forty percent of Medicare instead of three hundred and
ten percent of Medicare. So this will trickle down eventually
because we're shining a spotlight on the problem we've had
for fifty years in healthcare, and that's that we never
(24:49):
knew what the prices were.
Speaker 1 (24:51):
I've known Craig for many, many years, and you get
so excited when you get a chance to stop the
government screwing people well, and certain private companies that are
in bed with the government. It's kind of fun to watch.
That's one of the reasons we're old friends. Craig, thank
you so much for the time. We appreciate the thoughts
and then the expertise.
Speaker 2 (25:12):
Appreciate it. Joel can't wait to see you again.
Speaker 1 (25:14):
All right, thanks buddy. All right, Yeah, we'll talk soon.
So if you want to ask questions or whatever. Craig's
contact information is at Armstrong and Getty dot com.
Speaker 2 (25:25):
Armstrong and Getty
Please join me in welcoming to the show. Craig Gottwaals,
aka the healthcare Guru. You know what, Craig, I don't
actually have your website and stuff in front of me.
I forgot to grab it, so we'll get to that
in a little bit. But how are you, my friend?
Speaker 2 (00:14):
I am well, my friend, and you know, over here
at our house, we've got candles going and we're really solemn,
and it's hashtag prayers for Jack. I hope he got
the horse paste that I sent over to him.
Speaker 1 (00:24):
Nah. I think he's going with more conventional care. But
i'd ask you how the bass are biting. But it's
so hot, it's like bass soup in the lakes. I'd
imagine when it gets cooler, though, We've got to we've
got to go fishing again.
Speaker 2 (00:36):
Yeah. Absolutely. It was one of the best springs in
the last twenty years in northern California, so I expect
fall will be similar.
Speaker 3 (00:41):
My friend, excellent, Okay, enough fish and talk.
Speaker 1 (00:44):
You sent along a slide show so I could get
ready for this conversation, which I found very, very helpful
and informative. I love the quote from Warren Buffett. Buffett
medical costs are the tapeworm of American economic competitiveness. And
it's shocking some of the information gave about the rise
in healthcare costs over the last twenty twenty five years.
Speaker 3 (01:03):
You want to fill us in on some of that.
Speaker 2 (01:06):
Yeah, it's just devastating, Joe. You know, you guys have
covered this story in out of Stockton, California, with two
shop workers, two convenience store workers that are that are
watching a guy pill for their store, and there's a
there's a there's a guy commentating as he's filming, saying
nothing you can do, nothing, you can do, And meanwhile
this shoplifters filling a garbage can with cigarettes and all
(01:27):
kinds of stuff. Finally, the shopkeepers they grabbed the guy
and they just start beating his lower body and his
legs with a stick. And I think that's that's basically
where American employers are right now. They're just they're just
totally fed up with the pilfering that's been going on
on their bottom lines and American workers too. As we
look at just go ahead, sorry, Joe, go ahead.
Speaker 1 (01:48):
Well no, that's okay. I just I want to get
to those That's a great metaphor. I love that you
send along a slide that in the year two thousand,
the cost of family coverage who was about twenty percent
of the tip book workers' annual salary, and now that
twenty percent is fifty four percent, which is an astounding rise.
Speaker 2 (02:10):
It's just been it's something I've been in this in
this industry, Joe full time for twenty two years now.
And when I started twenty two years ago, everybody was saying,
this is unsustainable, this is unsustainable. How can we how
can we do this? And of course now we look
at you know, average pay has gone up from thirty
two thousand to forty two thousand dollars for the average worker.
But like you said, healthcare, the cost of family coverage
(02:32):
has gone from sixty five hundred to twenty two thousand,
five hundred, so now it gobbles up fifty four percent
of somebody's pay. One other stat just to keep the
easy one to keep in mind, premiums are up just
since the year two thousand, three hundred percent family premiums
three times average worker pay only up one hundred percent.
(02:52):
So it's just it's the hidden tax that we're all paying,
and it's a slow depth seven and a half percent
increases year after year after your year, when we're only
getting one to two percent on our pay. And of
course it's just it's just crushing workers and it's crushing businesses,
and it's.
Speaker 1 (03:09):
Wildly out of proportion to other forms of inflation too.
Speaker 3 (03:11):
Correct.
Speaker 2 (03:13):
Oh, yeah, absolutely, yeah, I mean there's nothing healthcare. The
only thing that rivals healthcare to other things your local
electric company and your college tuitions. Those are the only stition.
Yeah that keep up.
Speaker 1 (03:28):
Well, go ahead and take the ball and run with it.
What's the next step in understanding your stuff? What do
you have for us?
Speaker 2 (03:33):
Now? Many of us, many of us felt that Obamacare
was going to really be hard on the insurance companies.
You know, many of us thought that, Okay, you're putting
all these restrictions in place, You're going to force all
these extra people onto the plans without really good leverage,
to keep them on the plans without without without necessarily
getting a whole lot more money in premium. And I'll
(03:54):
be the first to admit that is a topic on
Obamacare about which I couldn't have been more wrong. Joe. So,
if we just look back to two thousand and nine,
when Obamacare was first you know, written just right before
Obama signed it. You had you look at cost increases
and stock increases since that time. So from two thousand
(04:17):
and nine to today, just to look at the S
and P five hundred as a benchmark, it's up four
hundred and twenty two percent. That's the largest five hundred
companies in.
Speaker 3 (04:24):
The US, right, Okay, got it?
Speaker 2 (04:26):
The average, the average of the five largest insurance companies
medical insurers are up nineteen hundred percent over that same timeframe.
So they were in on it the whole way. They
had the game was rigged. They worked with the federal government,
with hospitals, and with pharmaceutical industry to absolutely ensure that
no matter what happened, they would remain profitable, they could
(04:50):
keep the very large increases, and that we the taxpayer,
would ultimately make them whole. We the taxpayer, and we
the premium payer for those of us that still get
insurance at work.
Speaker 1 (05:00):
So just for people who aren't taking notes or driving
or what have you. So the SNP or the insurance
the average of the insurance carrier stock prices has more
than quadrupled the rise of the S and P five
hundred as a whole, which is crazy. Now, those of
us who believe in free markets are not shocked that
when the government became involved in a ginormous part of
(05:23):
the American economy, the rent seeking began, the lobbying began,
and the big powerful companies ended up getting a huge
disproportionate share of taxpayer money in a way that the
free market would never have allowed.
Speaker 2 (05:37):
Would you agree, totally agree, that's exactly what happened. There
have now been books written on this topic, and it
just turns out that every single industry, whether you're looking
at hospitals, insurers, brokers, even my industry, the pharmaceutical industry,
every single one of us had a lobbying group in
(05:57):
DC prior to two thousand and nine. We all, all
of our lobbying groups worked with the federal government, worked
with the Obama administration, and we as a combined entity,
ensured that no matter what happened, we would be made
whole and taken care of in this process. And that's
exactly what's happened. Everybody's getting filthy rich on the provision
(06:20):
of health insurance while American businesses and in US workers
are struggling now to pay the bill, to the point
where the average worker sees more than half of their
pay go to premiums.
Speaker 3 (06:31):
What's America's number one lobby.
Speaker 2 (06:35):
Number one lobby, as reported by Axios is healthcare seven
hundred million in twenty twenty one, the last reported stat
I saw.
Speaker 1 (06:44):
One year seven hundred million dollars in bribes.
Speaker 2 (06:47):
Essentially, yeah, exactly exactly. And the largest client of the
healthcare industry is the federal government, primarily through Medicare and Medicaid.
So see here's this is where you get the crazy
hidden tax that we've talked about here before, and that's
the politicians don't want to just start increasing taxes willy
(07:10):
nilly because that's bad for reelection, so they keep Medicare
and Medicaid on a path where those reimbursements only typically
go up about one percent per year, even though true
medical inflation is roughly four percent per year. So then
what happens is hospitals have to work with insurance companies
to negotiate seven or eight percent renewal increases for employers
(07:33):
to cover the fact that they're not making as much
money as they would like to make for Medicare and Medicaid.
The number one customer of the insurance industry.
Speaker 1 (07:43):
Right, So, okay, so the government is under the government
is underpaying, so private insurance has to weigh.
Speaker 3 (07:50):
Overpay for medical care.
Speaker 1 (07:53):
You know, I think I know the answer to this,
But why do the private insurance companies put up with it?
Is it because they can go ahead and go out
just for premiums and we don't see any alternative to
pay in them.
Speaker 2 (08:04):
Oh? Absolutely, because the more premium we pay, the more
they make as well. Obviously, right, the more the broker makes,
the more the insurance company makes, the more the hospital makes.
So what you really see happening in healthcare generally is
hospitals will mark up the cost of a procedure. And
again this is just hospitals, not doctors. The problem is
(08:25):
not typically with your local doctor office, it's with facilities.
So hospitals will say we're going to pay three hundred
percent of what Medicare would pay for that shoulder surgery
as an example, and that is roughly six hundred percent
of our actual costs. And you say, well, Craig, how
do you know their costs? Well, in order for them
to receive money from the federal government through Medicare, they
(08:46):
have to self report their costs. So I know exactly
what their real costs are, and I know what Medicare pays.
That's all public information. So what happens is private employers
are basically paying It works out too roughly twenty dollars
per employee per month. You're paying for the privilege of
a fifty percent discount on something that's been marked up
(09:07):
six hundred percent. And now that's a lot of numbers,
but that's what's going on. Is you have this shell game,
you have this this obscured price tag that's hidden that says, hey,
the cost of that shoulder surgery is is you know,
we will just say it's two hundred thousand dollars and
then but you know, good news, good news, we're going
to give you a fifty percent discount. With your large
insurance plan, you're only going to have to pay one
(09:28):
hundred thousand dollars. But then when you get down to
the nuts and bolts of it, the actual cost to
provide that surgery is like twenty thousand dollars.
Speaker 3 (09:38):
Wow.
Speaker 2 (09:38):
So on a large scale in our health plans.
Speaker 3 (09:41):
Wow.
Speaker 1 (09:42):
Meanwhile, the government's paying a tiny fraction of that, like,
you know, way down less than you know, the hospital
could stay in business.
Speaker 3 (09:50):
Probably on.
Speaker 2 (09:50):
Well, well, I want to yeah, I want to be
careful about that. So I have a number of hospital clients,
and I speak with these CFOs regularly, and pretty much
across the board, every hospital chief financial officer will tell
you we can survive on Medicare. What Medicare, that's the
one we pay for the old timers. I mean, we
would have to tighten our budgets, we would have to
(10:10):
run more efficiently, we would have to we would cut
out some waste and abuse. But we can probably get
by at Medicare. It's Medicaid the one that we can't
because that on average across the country pays about twenty
percent less than Medicare. So now you are getting into
a position where you're like fifteen percent under their real costs.
So it's Medicare that causes the problem. Medicare. Excuse me, Medicaid, Medicare,
(10:33):
most hospitals can get by it.
Speaker 3 (10:35):
Bass fishing tip number one. Slow down. He's always telling me,
slow down, don't slow down.
Speaker 2 (10:41):
Let him come to it anyway, Right when you get
to the point where you think you cannot go any slower,
slow at the hell that.
Speaker 3 (10:48):
I'm a little bit more, all right, beautiful.
Speaker 1 (10:51):
So if you want to get in contact with Craig
for bass fishing tips or advice on healthcare and benefits
and that sort of thing, all the informations going to
be at Armstrong and Getty dot com will make it
easy to follow. Plus this discussion will be edited up
into an Armstrong and Getty.
Speaker 3 (11:06):
Extra Large podcast.
Speaker 1 (11:07):
Having said that, I'm looking at the map you sent
of employer payments for a given medical procedure as a
percentage of Medicare you poor chumps? We poor chumps with
private insurance in California are paying three hundred and eleven percent.
In Texas it's a mere two hundred and sixty nine percent,
three hundred and sixteen percent.
Speaker 3 (11:28):
Is that Colorado or Nebraska?
Speaker 1 (11:29):
Rather, it's three hundred and four percent Washington State, On
and on and on and then the slide you sent
about the fair price for a CT scan, for instance,
in the San Francisco Bay area, can you explain that
to us?
Speaker 2 (11:43):
Yeah, so you exactly nailed it, Joe. Across the country,
we're roughly we have if we're in that thirty percent
of people that are roughly paying for our own health care,
there's only about thirty percent of us in that boat anymore.
We pay three times what the federal government pays with Medicare,
and hospital CFOs will tell you we can we can
make money on Medicare. Okay, So hospital CT scan, So
(12:05):
this is just I sent you a couple examples as
will just walk through one of them. This is a
real hospital in the Bay Area. We won't name any names.
They bill an average of thirty five hundred dollars for
a CT scan, and.
Speaker 3 (12:17):
They're the cheapest one in the chart.
Speaker 2 (12:19):
But go ahead, they're the cheapest on the chart, that's right.
They self report the cost of that two hundred and
fifty four dollars. Okay, Medicare applies its formula, so they
do a little bit of markup on the cost. Typically,
and the Medicare would pay three hundred and three dollars
for that procedure. But the average national insurance company of
which there are four or five depending on how you
(12:41):
count them, would would give you a fifty percent discount
off of that pie in the sky fantasy unicorn riding
cotton candy eating build rate of thirty five hundred, So
they would they would reimburse seventeen hundred for that thirty
four hundred or thirty five hundred, whatever you whatever you
want to call it. So you know, you look at
the bill, you think, wow, it's thirty five hundred. I'm
(13:02):
going to pay seventeen fifty. I'm getting fifty percent off.
That's awesome until you find out Medicare pays three hundred
and three dollars. And I tell you that facility operators
tell you, yeah, we can make money on Medicare.
Speaker 1 (13:13):
Yeah, it's like your babysitter walks in and says, normally
I charge one hundred bucks an hour, but I'll let
you go for fifty or whatever. And you're thinking, oh,
a fifty percent discount. Not boy, I'm a chump. And
the important thing to realize, and I'm looking at the clock.
I think next segment we will get to the solution
because we barely have two minutes. But what people need
to understand is that you're paying twice, three times, four
(13:35):
or five six times as much as a Medicare patient does,
which still gives the medical provider a fair amount of profit.
And that enormous difference that you're paying in premiums and
everything that is a tax, that is money from you
going to pay for a government program, and I don't
(13:57):
think people really comprehend it that simply. Meanwhile, and if
you're just tuning in, we mentioned this last segment, the
insurance companies are making scads of money because they're in
bed with the government on the scheme, and really the
only loser is the private insurance consumer.
Speaker 3 (14:15):
Am I correct?
Speaker 2 (14:17):
You've got it better than any media person ever has.
Speaker 1 (14:22):
Wow Wow gold star for me any anyway, So in
thirty seconds, can you describe slash tease what we're going
to talk about in the next segment, the cure to
this or reference based pricing?
Speaker 2 (14:38):
Yeah, reference based pricing, fair market pricing, value based pricing.
There's a lot of different names for it because it
is so new and revolutionary. In a nutshell, if you
take the premise that they can make money on medicare,
what happens if we go ahead and just offer to
pay one hundred and forty percent of medicare, which is
still half of what your employer plan pays. We can
cut our costs darn near half at that point, right.
(15:01):
What happens if we do that? What kind of acceptance
will we get in the marketplace if we decide to
pay forty percent more than their largest customer, which is Medicare.
Speaker 1 (15:11):
Your health insurance costs have skyrocketed.
Speaker 3 (15:16):
Compared to the rate of inflation.
Speaker 1 (15:19):
Your insurance premiums have skyrocketed since Obamacare passed. All those
costs to people with private insurance through their employer whatever
have gone sky high compared to inflation. Meanwhile, the profits
of the insurance carriers have been quadrupled the rise of
(15:39):
the S and P five hundred. They're making unimaginable amounts
of money off of you as you subsidize Medicare and Medicaid.
It's a hidden tax. You're paying hundreds or thousands of
dollars a year to pay for those government programs.
Speaker 3 (15:59):
But it's not a tax.
Speaker 1 (16:01):
It's your insurance premiums because your insurance company pays sky
high prices to the hospitals to cover, you know, the
government programs to make sure everybody makes plenty of profit.
And nobody's talking about this. Did I get anything wrong
in that description, Craig.
Speaker 2 (16:17):
No, you do so good at that, Joe, I would
just the only nuance I would add is that is
that it's not just because of government underfunding, which we
know it certainly is with respect to Medicaid for sure,
but it's also because, hey, what this private industry likes
to do. It likes to maximize profit. So pharmaceutical companies, hospitals, insurers,
(16:38):
and brokers are all maximizing profit on this hidden tax
that's obfuscated by the fact that typically people don't see
the prices they pay for healthcare. They don't know. They
just know their paycheck isn't what it should be. And
so one of the things that's made this more possible
in the last few years. Joe Is and you and
I and Jack did a podcast about this probably four
years ago now where Trump put in some transparency rules
(17:02):
and then thankfully when Biden came into office he kept them.
So there's and I think I told you way back then.
I said this is going to be a landslide. This
is going to change healthcare forever, and now we're finally
starting to see it. That's what's going on. These employers
are taking that wooden bat like those gents in the
in the convenience store in Stockton, and they are starting
to whack away at this system that's been pillaging them
(17:25):
for so long.
Speaker 1 (17:26):
Okay, and there's there was one more nuance I wanted
to get to it flitted out of my mind. Dang
it about the whole Oh, it doesn't matter. So so
because of that transparency that Donald J. Trump, God rests
him or God bless him, He's not dead because of
that transparency. Now that's given a tool. Oh you know
(17:49):
what I was going to say was, so you've got
all that profit being made, maximizing the profit in the
insurance companies, the hospitals whatever. I'm pro profit, and I
know you are too. We're pro the free market. But
this is the last thing. This is the free market.
It's accommodation of monopolies. And then the government so heavily involved.
(18:10):
The companies have to beg and lobby the government, and
they're all in on it together.
Speaker 2 (18:16):
It's a government healthcare complex because and I'll tell you
what made this made Obamacare so bad, Joe. Prior to Obamacare,
Democrats generally wouldn't take money from the pharmaceutical industry and
from big insurers. That was kind of a thing Democrats
wouldn't do. Well. Obama changed all that because Obama realized
that to get this legislation passed, he was going to
(18:36):
have to take that money from those players and so
once those floodgates opened, once you had okay, now Republicans
and Democrats can dip their hands into the largest industry
in America and just take as much as they want
from lobbyists, then you had the complete proliferation of all
of this, I would say, corruption influencing any regulation or
(18:58):
laws we might have had.
Speaker 1 (19:00):
Ok So, let's get back to the transparency that Trump
introduced and Biden continued, Now, you know the hospital self
reported costs and stuff.
Speaker 3 (19:08):
So how has that been helpful? How's that been a tool?
Speaker 2 (19:13):
Well, so what has happened is, and here's the free market.
There are entities called reference based repricers that have popped up,
and what they're doing is they're aggregating that data and
they're saying, Okay, we know at Hospital X, a rotator
cuff surgery is actually costs We'll say fifteen thousand dollars
(19:34):
and Medicare would pay twenty thousand dollars for it, but
their typical insurance company is giving them sixty thousand for it. Right,
So they're saying, Okay, don't pay an insurance company, pay us.
What we'll do is we will reprice that claim. We
will pay the claim for you, and we'll negotiate with
the provider if you get pushedback. And so we're reference
based repricing these claims. We're just cutting out insurers all
(19:56):
together because we're saying, no, the employer's going to self
insure this plan and we're going to pay at one
hundred and forty percent of Medicare instead of three hundred
and ten percent of Medicare.
Speaker 1 (20:05):
So the hospital is not they're not making that same
crazy profit, but they're making profit. You say, it's working
to what extent our hospital's saying, okay, we'll do that
for that price.
Speaker 2 (20:19):
Yeah, So depending on what part of the country you're in,
you get, we would say is one percent to ten
percent pushback. And when I say pushback, I mean the
hospital says, hey, no, one hundred and forty percent of
Medicare is not enough. We need more, we want more.
Then we get involved in negotiation. Once we get involved
in negotiation, it's ninety nine percent acceptance. And the worst
(20:40):
case scenario for the employer is they capitulate and they
pay what the giant insurance company would have paid.
Speaker 3 (20:46):
Anyway, you see, if it almost never happens.
Speaker 2 (20:50):
Well very rarely. Yeah, that you're talking about a handful
of claims per year for hundreds of employees. Yeah, because ultimately,
what you're doing is you're saying, hey, hawk, I'm going
to pay you forty percent more than your largest customer.
And if the hospital really wanted to dig in their
heels and say sue the member, sue the plan or
the employee for not paying more, ultimately you're going to
(21:12):
end up in a court of law and the CFO
at the hospital is going to have to testify that
somebody offering to pay forty percent more than their largest
customer is an unreasonable price and they need to do it.
And even then, we negotiate up to three hundred percent anyway,
so they would have to argue that three times what
Medicare pays is unreasonable and they can't. There's been one
case that went to the Merrit's Supreme Court of Colorado
(21:34):
and the hospital lost. So now you've got floggates. We've got,
like I said, instead of four or five national carriers,
we've got ten different repricers that have popped up. And
this is the wild West shoe. It is absolutely crazy
what I see going on, but in a good way,
in a wonderful way. Now this is the free market.
You've got these repriss that have popped up. You've got
(21:56):
employers who are early adopters grabbing that stick and willing
to whack up the person that's been pilfering them. And
we're cutting employer claim costs in half, and then once
you bake in all the other costs we have to
have for reinsurance and repricers, employers who do this are
saving twenty five to thirty five percent year one every time,
and they're not losing access to any providers. The message
(22:17):
to employees is, hey, if you guys insist upon going
to the top five or ten percent of providers in
your zip code, you're going to probably have to pay more.
But for ninety percent of you, you're going to see
no change to your plan at all other than we're
going to charge you a heck of a lot less
for it.
Speaker 1 (22:31):
Well, and that's about the average work in man and woman.
I mean, that's where you bring it home, because you know,
and people will understand basic economics.
Speaker 3 (22:42):
Get this.
Speaker 1 (22:43):
If my employer has to pay through the nose for
my health insurance, it's great that they're doing it, but
that comes out of my potential salary. It all comes
out of my pocket. The part I pay comes out
of my pocket, and the part my employer plays comes
out of my pocket. Because there's a certain amount you
are worth to your employer, and instead of it going
to you, it's going to some insurance company.
Speaker 3 (23:02):
Would you agree totally?
Speaker 2 (23:04):
It's just total compensation, your compensation, Zach. And the problem
is right now, fifty something percent of that's going to healthcare,
when just twenty years ago it was thirty percent of it.
Speaker 1 (23:14):
So as a small business person, I'm just I want
to make sure this is clear to me. This is
this reference based pricing or whatever you want to call it.
It's mostly helpful to companies that are big enough to
like self ensure pay their own claims.
Speaker 2 (23:25):
Yeah, so so people ask me for a head Can
I say, general, two hundred and fifty plus employees. We
can probably do this depending on where you are. And
now some companies are smaller than that, they're already self insured.
You can do it right now, but you roughly need
two to three hundred employees to get enough to get
enough volume to be predictable, to get stop loss, et cetera.
So it's this is not a solution for you know,
(23:46):
a sub one hundred company.
Speaker 1 (23:47):
Yeah, okay, fair enough, since I'm not in this business
and certainly don't make any money talking about this, is
there any way you could see using these same forces
to help out, you know, employees of small companies, self
employed folks down the road.
Speaker 2 (24:05):
Yeah, because what's happening is and again, we're so on
the front end of this. Just a year ago, less
than two percent of companies we're doing this. Now it's
three percent of companies, and people like me are out
there hitting it hard and I'm busier than I can stand, Joe,
because it's growing so fast. But what's happening is we're
negotiating real prices, we're putting transparency on it, and ultimately
(24:27):
we're going to be developing new provider network that will
work for one hundred and forty percent of Medicare, so
that that small company can just do a direct contract
with the two hospitals in their neighborhood at one hundred
and forty percent of Medicare instead of three hundred and
ten percent of Medicare. So this will trickle down eventually
because we're shining a spotlight on the problem we've had
for fifty years in healthcare, and that's that we never
(24:49):
knew what the prices were.
Speaker 1 (24:51):
I've known Craig for many, many years, and you get
so excited when you get a chance to stop the
government screwing people well, and certain private companies that are
in bed with the government. It's kind of fun to watch.
That's one of the reasons we're old friends. Craig, thank
you so much for the time. We appreciate the thoughts
and then the expertise.
Speaker 2 (25:12):
Appreciate it. Joel can't wait to see you again.
Speaker 1 (25:14):
All right, thanks buddy. All right, Yeah, we'll talk soon.
So if you want to ask questions or whatever. Craig's
contact information is at Armstrong and Getty dot com.
Speaker 2 (25:25):
Armstrong and Getty
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