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?
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.
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.
Yeah. Absolutely. It was one of the best springs in the last twenty years in northern California, so I expect fall will be similar.
My friend, excellent, Okay, enough fish and talk.
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.
You want to fill us in on some of that.
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
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.
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.
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 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.
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.
Wildly out of proportion to other forms of inflation too.
Correct.
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.
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?
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 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 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.
The US, right, Okay, got it?
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 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.
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 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.
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
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 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.
What's America's number one lobby.
Number one lobby, as reported by Axios is healthcare seven hundred million in twenty twenty one, the last reported stat I saw.
One year seven hundred million dollars in bribes.
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 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 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.
Right, So, okay, so the government is under the government is underpaying, so private insurance has to weigh.
Overpay for medical care.
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.
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 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 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 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
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.
Wow.
So on a large scale in our health plans.
Wow.
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.
Probably on.
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 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, most hospitals can get by it.
Bass fishing tip number one. Slow down. He's always telling me, slow down, don't slow down.
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.
I'm a little bit more, all right, beautiful.
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.
Extra Large podcast.
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.
Is that Colorado or Nebraska?
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?
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 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.
They're the cheapest one in the chart.
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 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 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.
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 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
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.
Am I correct?
You've got it better than any media person ever has.
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?
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.
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.
Your health insurance costs have skyrocketed.
Compared to the rate of inflation.
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 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.
But it's not a tax.
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.
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, 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 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 for so long.
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 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. The companies have to beg and lobby the government, and they're all in on it together.
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 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 laws we might have had.
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.
So how has that been helpful? How's that been a tool?
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 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 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.
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.
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 case scenario for the employer is they capitulate and they pay what the giant insurance company would have paid.
Anyway, you see, if it almost never happens.
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 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 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 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 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.
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.
Get this.
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.
Would you agree totally?
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.
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.
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, a sub one hundred company.
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.
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 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 knew what the prices were.
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.
Appreciate it. Joel can't wait to see you again.
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.
Armstrong and Getty