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					   WASTE IN HEALTHCARE SPENDING:
The Impetus for Reform, and the Socio-Economic Results
                      of Change




   Submitted In Partial Fulfillment of MNGT 482.003 Business Ethics and Society




                                    Fall 2009




                                                                         By: Team 2
                                                                        William Bass
                                                                       Eric Greenberg
                                                                       Ashley Loomis
                                                                     Michelle Temple
                                                                       Kevin Roberts

                                                                                   1
INTRODUCTION


       Due to the unprecedented increase in spending on healthcare in recent years, the health

insurance system has been a topic of great debate. The high levels of spending have increased

the overall price of healthcare, and access to even basic services has become cost prohibitive to

many. A primary driver of those costs is waste. In fact, approximately 50% of spending on

healthcare is unnecessary (Kavilanz, 2009). To find a resolution to that waste we have analyzed

how the system has come to be what it is, identified two primary sources of waste, and provided

effective solutions to reduce that waste.


HISTORY


       Health coverage began during the Civil War. The earliest plans only offered coverage

against accidents from travel by rail or steamboat. These travel insurance plans paved the way

for the next trend in insurance.


       Prior to the early part of the 20th century, healthcare was still fairly arcane. There were

no true treatments for illnesses, just those that would mask symptoms. Additionally, hospitals

were not what we know them as today. They were essentially poor houses for the sick. Then in

the early 1900’s, a medical revolution began to take place, and standards for doctors and

healthcare, like training and education, lead to an improved quality of care. Hospitals were also

transformed and began to market themselves as places to go to have important medical

procedures done. The costs involved with the improvements in care, along with an increase in

demand for care, led to a significant increase in the price (Blumberg & Davidson, 2009).




                                                                                                     2
        In the early 20’s the price of healthcare had become so prohibitive that an official at

Baylor University Hospital in Texas began to find that their beds were going unfilled. He also

noticed that people were willing to spend $1 a month on cosmetics, but not on healthcare. He

tried to devise a way that people could pay for healthcare similarly to the way they pay for

cosmetics. The hospital started by offering a group of teachers a plan that would cost them 50

cents a month and would allow them up to 21 hospital visits per year. The idea behind it being

that not every person would use all of their visits (Blumberg & Davidson, 2009).


       The program was successful and several other hospitals in the area began to offer similar

plans. Then, when the great depression hit, and hospitals around the country lost the majority of

their patient load, the idea began to spread. More and more hospitals began to offer the service,

and in 1929 the first insurance company, Blue Cross, was formed. Blue Cross marketed their

product to groups of workers. In a time where corporate social responsibility was becoming

increasingly popular, the idea caught on with employers, essentially laying the foundation for the

employer based healthcare system, and foreshadowing the widespread offering of policies

providing reimbursement for hospital and surgical care (Blumberg & Davidson, 2009).


       During World War II rationing was taking place and a restriction on was placed on wages

paid to employees. Additionally, as more and more men joined the military, workers became

scarce. Because of wage limitations, companies began offering other benefits, like healthcare

and pensions, to attract better workers. They soon found that, through a loop hole in the tax

system, they did not have to pay taxes on health benefits paid to employees. The tax loop hole

made the use of health insurance as a form of compensation even more attractive (Blumberg &

Davidson, 2009).



                                                                                                    3
       After World War II health insurance made more changes to provide modern health

coverage. The first major change came from the Supreme Court, which held that fringe benefits

were a legitimate part of the bargaining process within which employees negotiated its contracts

with management. And, in 1954, the Updated Internal Revenue Code firmly and plainly

established the tax break, and formally set it into law. This fortified employer based health

insurance and helped to propel the number of insured from 9% in 1940 to 70% in 1960

(Blumberg & Davidson, 2009).


       Today, we have more insurance options than ever before. However, with these new

choices comes vast amounts of waste. The proportion of U.S. Gross Domestic Product (GDP)

devoted to healthcare spending is 50% greater than in any other country and growing at an

exponential rate without any evidence that the healthcare in this country is superior to others.


       With approximately 50% of spending on healthcare being wasted and 1/3 of all

procedures being unnecessary, the question is how can we improve efficiency (Spiegel, 2009).

Initiatives to improve efficiency and reducing waste can in turn improve patient care, lower

costs, and improve accessibility.


SOURCES OF WASTE


       It is abundantly clear that there is a great deal of waste in healthcare spending. Because

the healthcare system is so complex, there are a multitude of factors creating that waste. We

have chosen to focus on two of those factors so that we may clearly demonstrate their

inefficiencies, and accurately describe and demonstrate our prospective solutions. Our topics for

consideration are; the influence of the tax break to employers on healthcare expenditures, and the

over use of emergency room and hospital services.


                                                                                                    4
Employer Tax Break


       The employer health benefit tax break is the largest tax break in America. The estimated

cost in 2010 is $155 billion and is expected to increase to $924 billion by 2014 (Wolf, p. 1).

And, as we have demonstrated, the employer based healthcare system seems to have come into

existence almost by accident. Because of past decisions, employers now receive a Federal

income tax break of 27% on money spent on employee healthcare. This is essentially a method

that the government uses to subsidize healthcare expenditures. These subsidies could be justified

by externalities resulting from increased vaccinations and preventative care. Unfortunately, the

way in which the subsidy is delivered is inherently flawed. It leads to money being spent on

healthcare that would otherwise be spent on wages, and creates a moral hazard by imposing a

disconnect between healthcare as a good, and employees as its end user.


       Let’s look at a basic example of the health insurance selection process. In Graph A, we

see DHC, which represents employer demand for healthcare. Line A represents 50 employees.

The point where the two intersect indicates that an employer with 50 employees will pay

approximately $7,500/yr. per employee for health insurance (P*). Now, if we provide employers

with a tax subsidy of 27%, demand shifts up to DHC W/Tax Break, and the employer is now willing to

spend around $10,000 (P’) on healthcare because his after tax cost is still $7,500.


       The employer must now make a decision about what type of coverage to offer his

employees. He identifies two policies with different levels of coverage. The first plan will cost

him $10,144/yr. per person. It has a low deductable of $1,000, and a $10 co-pay with no co-

insurance rate; features he feels will be attractive to current and perspective employees. There is

another plan available that has a much lower premium of 4,722/yr per person, a $2,500


                                                                                                    5
deductable and a 20% co-insurance rate. The plan is less expensive to him, which means more

money could be spent on wages to attract or keep talented workers. Both plans are PPO’s, so

other than out of pocket expenditures, the plans have the same basic features. He then evaluates

his employees’ perceptions of risk and expected healthcare expenditures, and identifies an

average as seen in Graph B. When the out of pocket expenditures of each plan are compared to

the average preference of employees, the more comprehensive, and more expensive plan is

selected (Point A; Graph B). To meet his budgeting goal, the employer decides to cover 90% of

the premium for each employee.


       Given that this plan will only be 10% of its actual value, only the most risk-seeking

employees who expect to have almost zero healthcare expenditures will opt out of the program.

Now, if we look at three employees with varying preferences we see that, under the employer

provided health insurance system, they would all choose the premium package (Points B, C, &

D; Graph B). This means that for these three people, the total amount spent on health insurance

premiums would be $30,432/yr. Of that, the government pays for $8,217, the employer pays

$19,934, and the employees pay $2,222, or $741 each.


       Over $10,000 worth of health insurance for $741 sounds like a good deal. The problem

is that, depending on individual preferences, the money might otherwise be spent on wages, and

other government programs. If those same three people were allowed to make their own

decisions about health insurance without government or employer interference individual A

would buy the less comprehensive package (B’; Graph C), Individual B (being indifferent)

would choose the package with the lower premium (C’, Graph C), and individual C would

choose the more comprehensive package (D’; Graph C). This would result in total health



                                                                                                   6
insurance premium expenditures of $19,688/yr. That implies that for these three people,

$10,744/yr. is being wasted on health insurance premiums.


       Waste on premiums is not the only source of excess in the current healthcare system.

There is also a moral hazard effect on the employee and healthcare providers who act as agents

for their patients. Because the employer chooses and pays for the health insurance of the

employee, the only costs of healthcare that are apparent to the end user are the out of pocket

costs they may pay; for instance, their portion of the premium or any co-pays and deductibles.

And, because the cost of the good is not fully apparent to the consumer, they have the propensity

to consume more. Additionally, Due to the complex nature of healthcare, consumers rely on

their doctors and other healthcare providers to act as agents by making decisions and

recommendations that are in their best interest. However, because the cost of those

recommendations is not fully placed on the patient, the agent may be more likely to suggest more

treatments, or more expensive options (Spiegel, 2009). They get paid more and protect

themselves from malpractice liability, and the patient gets more tests, medications, and

procedures. The problem is that several studies have shown, with healthcare, more is not

necessarily better (Spiegel, 2009).


Unnecessary Emergency Room Visits and Primary Care Physician Shortage


       As the insurance system transformed over the past century, so has patient care. Today,

the place you go to treat a gunshot wound or re-attach a severed finger, might be the same place

you go when you have a bad cold. It is estimated that 15% of all emergency room visits

nationwide are unnecessary. And, in some regions, that number can exceed 50% (Nelson, 2009).

This has led to over $14 Billion being spent on those visits (Kavilanz, 2009). The people that go


                                                                                                   7
to emergency rooms go for a variety of reasons, but one of the primary driving factors is the lack

of a suitable alternative. Emergency rooms are always open, and they cannot turn you away.

That is not true of most primary care physicians. It can take up to 100 days in some areas to get

an appointment to see a primary care doctor, and most people do not want to, or cannot, wait that

long (Kowalczyk, 2008). Additionally, in many areas the only urgent treatment option may be a

hospital.


       One of the effects of these unnecessary emergency room visits is that there is essentially

a shortage of emergency care. The average national emergency room wait time is 222 minutes,

nearly four hours (Costello, 2006). This means that the current demand for emergency room

services is exceeding supply. The only way to generate a shortage is to impose some sort of

price ceiling. The price ceiling for emergency room services can be the result of several factors

and is to complex to be a point of discussion for this analysis, but an example might be the power

of Medicare and Medicaid to dictate prices. Graph D displays the effects of the price ceiling on

the market for emergency rooms. It demonstrates a shortage, and shows that there is a dead

weight loss (DWL). The DWL exists because emergency services that would otherwise be

consumed cannot be because of the price ceiling.


       Another problem of unnecessary emergency room visits is the excessive cost of treatment

for emergency room care. The average cost of an emergency room visit is $560. In comparison,

the average cost of a visit to a primary care physician or urgent care center is around $100

(Weinick, 2009). There were 401 emergency room visits per every 1000 population in 2007

(Kaiser Family Foundation, 2007). If the 15% of those visits that were unnecessary were

handled at urgent care centers, there would be an average savings of $27,609 per 1000



                                                                                                    8
population. With a US population of nearly 300 Million people, that is nearly $8.3 Billion in

potential savings.


Urgent Care Center Recommendation


An increase in the presence of Urgent Care Centers would serve to decrease overall waste in

current healthcare spending. However, the benefits of expanding the use of Urgent Care Clinics

need to be realized in order to reach the overall goal of lowering this waste. Implementation of

this recommendation would require an explanation of the opportunities Urgent Care Centers

would provide to entrepreneurs, doctors, and insurance companies.


       Urgent Care Centers present a potentially profitable opportunity for entrepreneurs

looking to invest in a growing business. “Studies show a declining number of American medical

graduates opting for family medicine, and project a shortage of 40,000 primary care doctors in

the United States by 2020” (Voice of America, 2009). “Take Massachusetts for example. In

2006, the state mandated that individuals buy health insurance--and over 400,000 did. But there

aren't enough doctors to see them” (Howard, 2009). Businesses succeed by identifying a need

that is unfulfilled, and filling it. Providing a low cost alternative could prove very profitable for

an entrepreneur. There are other factors that cause unnecessary spending in healthcare that could

also create the incentive for developing an alternative method like Urgent Care Centers. Long

wait times not only lead to waste but also are something consumers loath when seeking out

healthcare. Developing an Urgent Care Center with shorter wait times would be advantageous to

an entrepreneur. Consumers would much rather go to an Urgent Care Center and be in and out

within the time it would take just to see a doctor at the emergency room. The support of




                                                                                                        9
entrepreneurs would expand the overall presence of Urgent Care Clinics, which in turn would

help lower the amount of waste in healthcare spending.


       Doctors in addition to entrepreneurs can greatly benefit by supporting the development of

Urgent Care Clinics. One in five Americans does not have a family doctor (Bowman, 2009).

One of the primary contributing factors to the shortage of primary care doctors is that those who

choose a specialty make more money. Urgent Care Centers can be a potentially profitable

business model for doctors, attracting more graduates to the field of primary care. A doctor can

open an Urgent Care center that filters patients that do not have a primary care doctor to them,

and will also service the basic needs of their existing patients. The Urgent Care Center and its

staff can handle the ordinary illnesses and problems at a lower average cost, while the primary

doctor can focus strictly on the more serious concerns and the overall long term health of his/her

patients. This provides primary doctors with a new flow of patients and also more time to treat

the cases that are more demanding. Filling the void left by the shortage of primary care

physicians is an important factor in the success of Urgent Care Centers.


       Insurance companies are another entity that could serve to benefit from the development

of Urgent Care Centers. The current cost to insurance companies when someone visits an

emergency room is much greater than if they were to visit an Urgent Care Center. Additionally,

these insurance companies would be able to charge lower co-pays or almost even no co-pays at

all by utilizing these centers. Because these insurance companies benefit from the cheaper

treatments they can in turn charge lower co-pays and even lower premiums. Lower co-pays and

premiums mean that people, who may not have been able to afford health insurance before, are

now able to purchase at least basic coverage. It would also increase existing customer

satisfaction, which would improve the overall image of health insurance companies. Insurance

                                                                                                   10
companies can help to advance the development of Urgent Care Centers by emphasizing and

incentivizing their use. Acceptance and promotion by insurance companies would help to shift

consumption to these centers away from hospitals and emergency rooms, which in turn will help

to drive down the current waste in healthcare spending.


       Urgent Care Centers can be successful in driving down the current total waste in

healthcare spending. They would serve to decrease spending on unnecessary emergency room

visits, increase savings to insurance companies, and decrease doctor’s wasted time spent on

minor treatments. Graphs E & F demonstrate the effects of an increase in the supply of Urgent

Care Centers. When the increase in supply for urgent care centers increases the price goes down

and the quantity demanded goes up. Because they are substitutable goods, the increase in supply

for one, decreases the demand for the other. If the demand for emergency rooms goes down, the

negative effects of the shortage of care demonstrated in Graph D are essentially eliminated.

However, the support from America’s entrepreneurs, doctors, and insurance companies is

imperative to the development and expansion of these centers.


Tax Break from Employer to Employee Recommendation

       The problem with the tax break to employers is the employers select the health insurance

plan with little or no choice to the employee. This leads to employees being put on premium

packages with low deductibles, no co-insurance, and low co-pay, which means they are less

aware of costs and consume more. Employees might receive more coverage than what he/she

requires. Some have suggested eliminating the tax break entirely and allowing the market to

compete at an un-subsidized level of equilibrium. The problem is that by doing so you eliminate

the beneficial externalities that come from having a healthier population; benefits that the

government and the people value.

                                                                                                11
       To solve the waste in healthcare spending, the tax break should be shifted from

employers to the employees. This would eliminate the tax break for employers and cut down the

billions of dollars being spent. To do this we should allow tax payers to deduct healthcare

expenditures from income when filing taxes. We should still allow companies to act as groups or

collectives so they can maintain buying power.

       When we remove the tax break from the employer they have less incentive to offer health

insurance to their employees. They will instead pay the money they were willing to pay for

insurance in wages. The employee with higher wages and no insurance will now seek out their

own health insurance coverage. The company, knowing that a healthy worker will be more

productive, and that insurance can be offered through the company at a group rate, maintains a

relationship with insurance providers. They offer several plans for the employee to decide from

and the price of the plan can be deducted from their wages. At the end of the year the employee

deducts the amount of money spent on healthcare, including insurance, from their taxable

income. It seems that this would be a very similar situation to what currently exists, but the

important part here is that the employee is now aware of the full cost of their health insurance,

and will make decisions according to their individual preferences.

       The tax break being shifted from employers to employees would have many different

results in healthcare. The selection of health insurance policy becomes the responsibility of the

employee not the employer. In Graph G we see Individuals A, B, and C from before. Now that

they are able to make their own decisions about healthcare A & B will chose the less

comprehensive plan and C will choose the premium plan (Points A, B, C). Each person is

insured, but overall, less is being spent on health insurance. If we apply the tax break that they

now receive from writing off healthcare expenditures, they will still make the same decisions



                                                                                                     12
(Points D, E, and F) about coverage. As it was before, the tax break for employers changed the

level of coverage for all employees. Wages overall will now be higher because less is being

spent on healthcare and more money will now be available to be spent on other goods and

services.

       Now that Individual A and B have less comprehensive insurance policies they will be

more aware of the money spent for each doctor visit. And the doctors, acting as agents, will now

consider the price of their procedures, medication, and etc. By eliminating the artificial demand

created by separating the end user from the true cost of healthcare, we will reduce the waste

associated with it. By reducing the wasted spending on healthcare we will reduce the price of

health insurance, making it available to those who are currently priced out of the market.

Social and Non-Economical Gains


       As described above there are numerous economical gains that are associated with the

proposed changes of healthcare reform. Along with these gains there are also social and non-

economic gains; for instance, improved accessibility, shorter wait time in emergency rooms, and

less occurrences of job lock. These are all positive externalities of our recommendations.


       One of the most important gains from our recommendations is increased accessibility to

healthcare coverage. The cost of healthcare currently is so high that many Americans go without

it. “One out of three Americans under 65 was without health insurance at some point during

2007 and 2008” (Pifer-Bixler). 86.7 million Americans were uninsured over the past two years

(Pifer-Bixler). Most people who go without healthcare do so because it is cost prohibitive.

Through our recommendations the costs of health insurance and healthcare services get lowered,

making them available to those who previously went without.



                                                                                                13
       The implementation of urgent care centers will decrease the wait time that occurs in

emergency rooms. “The inappropriate use of emergency room service by patients with non-

urgent health problems is a worldwide problem. Inappropriate ER use makes it difficult to

guarantee access for real emergency cases...” (Carret, Fassa, & Kawachi, 2007). It is critical that

the use of emergency rooms is efficient in order to provide proper care. By shifting people to the

urgent care centers, people who truly need emergency care will have better access to it, and those

who do not will have better and faster access the care they need. The urgent care centers will cut

down the average 222-minute wait for the emergency room drastically (Costello, 2006).


       Job Lock is another social problem resulting from our current health insurance structure.

It occurs when an employee that might leave his job with health insurance benefits, to move to a

job at which he might be happier and more productive but has no health insurance, does not

because the cost of purchasing health insurance in the open market would be to high. Some of

this problem was eliminated by the Healthcare Quality Improvement Act (HCQIA) of 1986,

which prevented employer provided insurance policies from screening patients and refusing

coverage due to pre-existing conditions. It is still a problem however and if unchecked the

problem will continue. By shifting the tax break from the employer to the employee, we are

empowering the employee with higher wages and more flexibility. The only power the employer

now holds is that is can offer group discounts. This can in time be negated through other people

with a common bond forming their own purchasing groups, similar to the way credit unions have

become so popular. Job lock will be effectively eliminated because employees will not be afraid

to leave a job with good healthcare options because they can obtain similar, if not the same,

healthcare options in other jobs. Their ultimate decision to switch jobs will now be based on

wages and work preferences. The prevention of job lock will benefit society. Employees will be


                                                                                                 14
able to work in a job best suited for them and not have to worry about the fringe benefits

associated with their previous jobs.


Conclusion


       In recent years the United States health insurance system has undergone many changes

that have brought us to where we are today; a system full of wasted resources, extremely high

costs, and many Americans that are uninsured. Some of these wasted resources can be attributed

to the over indulgence of healthcare used as fringe benefits by employers. Many employees have

greater healthcare coverage then needed but exploit it due to the fact that only a small amount is

coming out of their pocket. Healthcare is offered to employees because the employers receive a

tax break by offering healthcare coverage. If the tax break is eliminated consumers will only get

coverage that is needed, resulting in less wasted resources.


        Also attributing to wasted resources and high costs are unnecessary visits to emergency

rooms. The unnecessary visits tie up the emergency rooms and result in long waits to be

serviced. In order to cut down healthcare costs we recommend the use of urgent care centers.

This provides benefits to entrepreneurs, doctors, insurance companies, and consumers. The costs

of care from the urgent care centers is substantially less than a physician, this savings is passed

on from the insurance companies to the consumers. It also stimulates economic activities for the

entrepreneurs and doctors.


       These recommendations have other gains besides economical ones. They include

improved accessibility as a result of the lower healthcare costs, less wait time in emergency

rooms as a result of the use of urgent care centers, and fewer occurrences of job lock due to

decreased fear of needing to hold a position with good healthcare coverage. The problems that


                                                                                                      15
we are facing are very serious and must be taken care of. We feel that our recommendations will

help decrease waste in healthcare, and make healthcare coverage more readily available.




                                                                                             16
Works Cited
Let's Take Your Medical History. (2009). On Someone Else's Money [Radio]. Chicago, IL, USA: This
American Life.

Carret, M., Fassa, A., & Kawachi, I. (2007, August 8). Demand for emergency health service: factors
associated with inappropriate use. Bio Medical Central .

Costello, T. (2006, November 20). Hospitals work to improve ER wait times. Retrieved November 24,
2009, from msnbc.com:
http://www.msnbc.msn.com/id/15817906/ns/nightly_news_with_brian_williams/

Employer-provided health insurance and the incidence of job lock: a literature review and empirical test.
(2008). Expert Review of Pharmacoeconomics and Outcomes Research , 8 (6), 583-591.

Kaiser Family Foundation. (2007, July). Hospital Emergency Room Visits per 1,000 Population, 2007.
Retrieved November 19, 2009, from StateHealthFacts.org:
http://www.statehealthfacts.org/comparemaptable.jsp?cat=8&ind=388

Kavilanz, P. (2009, August 10). Healthcare's big money wasters. Retrieved November 24, 2009, from CNN
money.com:
http://money.cnn.com/2009/08/10/news/economy/healthcare_money_wasters/index.htm

Kowalczyk, L. (2008, September 22). Boston.com. Retrieved May 3, 2009, from Across Mass., wait to see
doctors grows:
http://www.boston.com/news/health/articles/2008/09/22/across_mass_wait_to_see_doctors_grows/?
page=2

Nelson, K. (2009, March 24). BlueCross grant aims to stop unneeded emergency room visits. Retrieved
November 19th, 2009, from Knoxnews.com: http://www.knoxnews.com/news/2009/mar/24/bluecross-
grant-aims-stop-unneeded-emergency-room-/

Pifer-Bixler, J. (n.d.). Study: 86.7 million Americans uninsured over last two years. Retrieved November
29, 2009, from cnn.com: http://www.cnn.com/2009/HEALTH/03/04/uninsured.epidemic.obama/

Spiegel, A. (2009, October 8). The Telltale Wombs Of Lewiston, Maine. Retrieved November 24, 2009,
from www.npr.org: http://www.npr.org/templates/story/story.php?storyId=113571111

Weinick, R. B. (2009). Urgent care centers in the U.S.: Findings from a national survey. BMC Health
Services Research , 1-8.




                                                                                                           17
APPENDIX


Graph A
                                                                    Spending On Healthcare (Business W/50 Employees)
                                           15,000

                                           14,000

                                           13,000

                                           12,000
   Annual Price to Employer per Employee




                                           11,000

                                           10,000
                                                                                                                                                                                                                                                                                                                           MC HC W/Tax Break
                                           9,000

                                           8,000
                                                                                                                                                                                                                                                                                                                           MC HC
                                           7,000

                                           6,000
                                                                                                                                                                                                                                                                                                                            DHC W/Tax Break
                                           5,000

                                           4,000
                                                                                                                                                                                                                                                                                                                           DHC
                                           3,000

                                           2,000

                                            1,000

                                                     0
                                                                    0       5          10              15             20              25                30                35                40                45                50             55               60                65               70               75                80

                                                                                                                                                                            Employees




Graph B



                                                                                                        Out of Pocket Cost / Healthcare Expenditures
                                                                     18,000
                                                                                                                                                                                            Company Average
                                                                     16,000
                                                                                                                                      Individual A                                    Individual B                                           Individual C
                                                                     14,000


                                                                     12,000
                                               Out of Pocket cost




                                                                     10,000
                                                                                                                                                                                                                                      A
                                                                                                                                                                                                                                                                                  $4,772 Premium, $2,500
                                                                        8,000
                                                                                                                                                                                                                                                                                  Deductable,20% Co-insurance
                                                                                                                                                                                                                                                                                  $10,144 Premium,$1,000 Deductable, No
                                                                        6,000                                                                                                                                                                                                     Co-Insurance
                                                                                                                                                                                                                                                                                  Employer Pays 90% of Premium Health
                                                                        4,000
                                                                                                                                      B                                            C                                                  D                                           Care Plan


                                                                        2,000


                                                                           0
                                                                                                                      8,000




                                                                                                                                                                                                                                                                              33,500
                                                                                              3,500




                                                                                                                                                                                                                                                                                                         38,000




                                                                                                                                                                                                                                                                                                                                                                         48,500
                                                                                                                                                        14,000




                                                                                                                                                                                                                                                                                                                            41,000




                                                                                                                                                                                                                                                                                                                                                                47,000
                                                                                                                                               12,500




                                                                                                                                                                                                                                 26,000
                                                                                                                                                                 15,500




                                                                                                                                                                                                     21,500




                                                                                                                                                                                                                                                   29,000




                                                                                                                                                                                                                                                                                                                                                                                  50,000
                                                                                                                                                                                            20,000
                                                                                500




                                                                                                                                                                                                                                          27,500
                                                                                                      5,000




                                                                                                                                      11,000




                                                                                                                                                                                                                                                                                                36,500


                                                                                                                                                                                                                                                                                                                  39,500



                                                                                                                                                                                                                                                                                                                                              44,000
                                                                                                              6,500


                                                                                                                              9,500




                                                                                                                                                                                                              23,000




                                                                                                                                                                                                                                                                     32,000
                                                                                      2,000




                                                                                                                                                                                   18,500




                                                                                                                                                                                                                                                            30,500



                                                                                                                                                                                                                                                                                       35,000
                                                                                                                                                                          17,000




                                                                                                                                                                                                                       24,500




                                                                                                                                                                                                                                                                                                                                     42,500


                                                                                                                                                                                                                                                                                                                                                       45,500




                                                                                                                                                                                             Healthcare Expenditures

                                                     Policies were quoted from eHealthInsurance.com. Quotes are for PPO policies through BlueCross-BlueShield. Based on 48 employee business with
                                                     employees of varying age, gender, and family size. Premiums are avearge/employee.



                                                                                                                                                                                                                                                                                                                                                                                           18
              Graph C

                                                                                                              Emergency Rooms
                                                                      900
                                                                                                                                                                                                QER
                                                                                                                                               DER
                                                                      800                                                                                                                                                    DWL


                                                                       700
                              Cost/Visit (National Average)




                                                                      600
                                                                                                                                                                                                                                       Price Ceiling

                                                                       500


                                                                      400                                                                                                                                Shortage

                                                                                                                                   SER
                                                                       300


                                                                       200


                                                                        100


                                                                              0
                                                                                  0           50          100          150               200 250                     300 350 400 450 500 550 600

                                                                                                                                             Visits / 1000 People

                                                                                                                                                                                                                                                                                     Graph D




                                                                              Out of Pocket Cost / Healthcare Expenditures
                     18,000

                                                                                                              Individual A                                           Individual B                                          Individual C
                     16,000


                     14,000
                                                                                                                                                                C’
                     12,000


                     10,000
Out of Pocket cost




                                                                                                                                                                                                                  D’
                     8,000
                                                                                                                                               B’                                                                                                              $4,772 Premium, $2,500 Deductable,20%
                                                                                                                                                                                                                                                               Co-insurance
                     6,000
                                                                                                                                                                                                                                                               $10,144 Premium,$1,000 Deductable, No
                                                                                                                                                                                                                                                               Co-Insurance
                     4,000


                     2,000


                         0
                                 500




                                                                                                                                                                                                                                                                                                                     44,000
                                                                              5,000
                                                              2,000



                                                                                      6,500


                                                                                                      9,500
                                                                                                              11,000




                                                                                                                                                                                                24,500




                                                                                                                                                                                                                                                                                                            42,500


                                                                                                                                                                                                                                                                                                                              45,500
                                                                                                                                                            18,500




                                                                                                                                                                                                                                    30,500



                                                                                                                                                                                                                                                               35,000
                                                                                                                                                                                                                                                                        36,500
                                                                                                                                                                                       23,000
                                                                                                                                                   17,000




                                                                                                                                                                                                                                             32,000




                                                                                                                                                                                                                                                                                          39,500
                                                                                                                                                                                                                                                                                 38,000
                                                                      3,500




                                                                                                                                14,000




                                                                                                                                                                                                                                                                                                   41,000
                                                                                              8,000




                                                                                                                                                                                                                                                                                                                                                         50,000
                                                                                                                                                                     20,000




                                                                                                                                                                                                                                                      33,500




                                                                                                                                                                                                                                                                                                                                                48,500
                                                                                                                                                                                                                                                                                                                                       47,000
                                                                                                                                          15,500
                                                                                                                       12,500




                                                                                                                                                                              21,500



                                                                                                                                                                                                         26,000


                                                                                                                                                                                                                           29,000
                                                                                                                                                                                                                  27,500




                                                                                                                                                                     Healthcare Expenditures
                                                                                                                                                                                                                                                                                                                                                                  19
                                          Graphs E & F




                                                                Urgent Care Centers                                                                                                                                                                                                                                                          Emergency Rooms
                                                                                                                                                                                                                                                                                                                            900
                                200
                                                                                                                                                                                                                                                                                                                                                                             QER
                                                                                                                                                                                                                                                                                                                                                              DER
                                180                                                                                                                                                                                                                                                                                         800
                                                                                                                   QUC Q’UC                                                                                                                                                                                                                               D’ER
                                160                                                                                                                                                                                                                                                                                         700
Cost/Visit (National Average)




                                                                                                                                                                                                                                                                                          Cost/Visit (National Average)
                                140                             DUC                                                                                                                                                                                                                                                         600

                                120                                                                                                                                                                                                                                                                                                                                                       PER
                                                                                                                                                                                                                                                                                                                            500
                                100                                                                                                                                               PUC
                                                                                                                                                                                  P’UC                                                                                                                                      400
                                80
                                                                                                                                                                                                                                                                                                                                                        SER
                                                                  SUC                                                                                                                                                                                                                                                       300
                                60
                                                                         S’UC
                                                                                                                                                                                                                                                                                                                            200
                                40

                                20                                                                                                                                                                                                                                                                                          100


                                 0                                                                                                                                                                                                                                                                                            0
                                      0   50 100 150 200 250 300 350 400 450 500 550 600 650 700 750                                                                                                                                                                                                                              0    50   100   150   200 250     300 350 400 450 500 550 600

                                                                                                                                                                                                                                                                                                                                                          Visits / 1000 People

                                                                    Quantity of Visits / 1000 People




                                          Graph G

                                                                                                   Out of Pocket Cost / Healthcare Expenditures
                                                                18,000

                                                                                                                                                                                                                                                                                                                          Basic Plan
                                                                16,000
                                                                                       Individual A                                                Individual B Individual C
                                                                14,000

                                                                                                                                              B                                                                                                       C                                                                   Basic Plan W/Tax Break
                                                                12,000

                                                                                                                                                                                                                                                                                                                           Basic Plan
                                           Out of Pocket cost




                                                                10,000          A
                                                                8,000                                                                                                                                                                                                                                                     Basic Plan W/Tax Break
                                                                                                                                                                                                                                        F
                                                                6,000
                                                                                                                                                                              E
                                                                4,000                                               D
                                                                2,000


                                                                    0
                                                                         500




                                                                                                                                                                                                                           34,500
                                                                                                                                                                                                                                    36,500
                                                                                       4,500


                                                                                                       8,500



                                                                                                                                 14,500




                                                                                                                                                                                                                                             38,500
                                                                                               6,500




                                                                                                                                          16,500
                                                                                                                                                   18,500




                                                                                                                                                                                                         30,500
                                                                                                               10,500




                                                                                                                                                            20,500


                                                                                                                                                                              24,500




                                                                                                                                                                                                                                                               42,500
                                                                                                                                                                                                28,500
                                                                                                                                                                                       26,500




                                                                                                                                                                                                                                                                        44,500
                                                                                                                                                                                                                                                                                 46,500
                                                                                                                                                                                                                                                                                               48,500
                                                                                                                                                                                                                                                      40,500
                                                                               2,500




                                                                                                                        12,500




                                                                                                                                                                                                                  32,500
                                                                                                                                                                     22,500




                                                                                                                                                   Healthcare Expenditures




                                                                                                                                                                                                                                                                                                                                                                                         20

				
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