John:               00:12 What's up guys? Welcome to the Headsup Adviser podcast. My name's John Sbrocco.

John:               00:17 On this episode, we're going to be bringing you a live episode at the Ranch with Ed Jacobson and Hobson Carroll. We did have a little hiccup. We forgot to hit the record button for five minutes. My fault. But I didn't want to lose the episode for you guys cause I thought it was that good. We're going to bring you right in. Let's cut right into five minutes into this episode. See you guys.

Ed:                 00:38 We asked the employee the question, the employees, there were about 20-25 employees in the room. And I said, "How many of you use your automobile insurance today?" And nobody raised their hand. I said, "How many of you used your homeowner’s insurance today?" Nobody raised their hand. And I said, "Well, how many of you would like to use your life insurance today?" And all of a sudden, I saw in two or three of the 25 a glimmer of hope. And then I said, "How many of you have used your health insurance today?" And one person actually said, "Well, actually I went to the doctor this morning." What's the lesson there? Health insurance is not looked at as insurance. We pay a premium for our automobile hoping that we never have a claim. We pay home owner's insurance hoping that our house will not burn down today, but when it comes to health insurance, it isn't worth a damn unless I paid a dollar in and collected more than a dollar from the system.

Ed:                 01:40 They don't realize. People do not realize that it's the cost of claims that results in the premium. We have a mutual friend who comes up with a very simple formula. How do you calculate premium? Premium equals crap. See, claims are reserves. Why reserves? Because claims don't come in the day you incur them, so you have to, if you have a claim today, you set aside reserves for the payment of that claim in the future. A is administration. The cost of somebody processing the claim, the cheapest of all the costs and then P is pooling. Pooling is necessary Only for groups that are not large enough to have extreme credibility because if your premium is $1 million a year and the claim pops up and it's a $4 million premature baby, that plan is in a deficit position for a very long time trying to make up for that significant claim. So the only insurance in an insurance plan, the only true insurance is the pooling. The rest of it's cost plus.

John:               03:01 And pooling is built in too. You see it in a fully insure of renewals. Is it built in self-funded?

Ed:                 03:05 It's not a self-funded plan. Pooling is basically referred to as stop loss freemium. Typically specific stuff is built in the premium ready. It's a premium charged that is built into the funding of the plan. We don't use the term premium in a self funded plan. You pay a premium for any insurance product you purchase, which is stop laws, but when you're self funding your employee's benefit plan, you are simply funding the cost of your claims, the reserves, the administration, and you pay a premium for the pooling. The only premium involved in a self funded plan is the pooling premium.

John:               03:46 Going to go to Hobson. Hobson. What do you think of that? D explained that right? Cause we're going to run the actuary and on that one,

Hobson:             03:52 I wanted to go back to your original question, which I don't think even got addressed, but that's beside the point, which was what in 1964, you know, did we even have healthcare, which has an interesting, I'm going to run for politics. You don't answer questions answered, you know, but I will suggest the following an insurance theory. You know, we, we, we have an old saying that goes like this. I says, if you want to collect on a life insurance policy, you have to die aside fringes where people fake their deaths and all that. We're talking about legitimate situation. Okay. You want to collect on a life insurance policy, you gotta die. You want to collect on a disability policy, you gotta be disabled. Do you want to collect on a health insurance policy? You just have to have a policy. That's what ed was alluding to with the idea it how it has to do with perception of people as to what insurance really is.

Hobson:             04:38 All those people in the room, you had used their home owners insurance and had used their auto insurance. That's right. They hadn't gotten benefits from it, but they were protected. Insurance is an intangible item. People don't relate well to intangible items. They can't, if they can't drive it, if they can't eat it, if they can't drink it, if they can't wear it, if they can't have sex with it, they don't understand it. Okay. It's an intangible protection is something that an insurance and health care health protection applies during sex ed. Well, yeah. Okay. More and more today, healthcare insurance for healthcare insurance has gotten to the point where it's confused with what Ed talked about. The benefits. The whole idea is if you go to the doctor for a routine office, is it for something you've got to call, you feel run down. Your kids got, you know, you think they have strep throat or something like that.

Hobson:             05:32 They want that covered as insurance, but in reality, that's just part of everyday life that you have to deal with. Okay. But that's a benefit. Our system in the United States has gotten to the point where it is expected of the insurance plan, the health insurance plan to cover more than true insurance, which is the high cost rare event things. Okay. That might occur. You come down with cancer next year, you have a heart attack next year you become pregnant next year. Okay. And that creates a large expense, you know, sitting out there that you're going to have. That's what insurance is for is not really for the small stuff, but are we have to just accept the fact that our system has come

John:               06:17 [Inaudible] but at what? At what points as I was trying to make a point is, is like at what point did consumers start to think, well shit, this is part of what I pay in premium and it's played great for the insurance companies.

Hobson:             06:32 Well, I don't know. I don't know that the people, okay, we've got to go back to that 64 point okay. And say, okay, what, what was medical care and health care in 1964 okay. We had two drugs, penicillin and aspirin. All right. We had basic doctor visits where you, you and you didn't go to the doctor unless you know you were bleeding or whatever. You know. I mean, I remember hitting my head and going to the doctor for stitches all the time. You know, that was the only time that we went and then my mother would have to go, you know, do some deal with, Hey, can I bring you a casserole or whatever in order to help pay for it. Okay. And doctors were used to dealing with people directly to take care of what it costs. You know, the rare occasions where you went to the hospital.

Hobson:             07:14 Okay. We had insurance. You gotta remember that in war too. Okay. We allowed for the tax protection of benefits for health insurance. That's when it all basically started. They said, you can't have to the workers who were still here who weren't in the army and the Navy and the Marines. Okay. You can't have a salary increase, but we won't tax benefits if they give you benefits that got, you know, kind of like set in concrete in like the 54 tax act I forget, or something like that where they said that was the case. All those countries we were fighting to help save over in Europe. Okay. They were all destroyed. They got to start from scratch after the end of World War Two so they decided they would have national healthcare systems. That's where they all came from. They didn't really, well, they sort of existed in Germany, but then they don't count because they were on the other side anyway. They all started from scratch and said, we're going to create their art. We're creating our whole system now. We're going to just build that into what we're building. They can start from scratch. They didn't have an existing system that they had to work with. They didn't have anything. Okay. We, on the other hand had started this process of okay, letting the employers provide benefits and that's how our society of compensation in lieu of compensation, our society basically said, okay, that's how we're going to provide healthcare insurance benefits. Okay,

John:               08:35 And let me stop you for a second. So it's when it happened, it was, was it an employer tactic to recruit talent and say, Hey, we'll pay for it. Come work for us. Well eventually, eventually, no. At that time it was just why the hell would employers say, Hey, I'm going to pay for your health insurance. Well, because they couldn't get raises and there was a shortage of, you know, people, was it cheaper? You said you couldn't get

Hobson:             08:56 Cheaper in 1943 and 1944 it didn't cost, you know, it didn't cost them. So we didn't have tech, medical technology, we didn't have, you know, the drugs we didn't have, you know, it's like it was pretty basic stuff. And then you had your high cost stuff. When you had to go to the hospital, there was a clear division between what were the basic benefits that you should just take care of. And then the stuff that was true insurance. So in the 50s though, right? There was a lot of competition. We were booming, the vets came back, they went to school, they got degrees, there was competition for lies the fifties boom, we did great in the fifties so by the 60s in there, okay this was sort of the accepted way that we were going to provide health insurance benefits. You know there were no government program, whether we're the veterans benefits I assume were existing about that time.

Hobson:             09:44 But I mean there was nothing else. And then somebody came along and said, look, in the early sixties I said we got two main sources of poverty in this country. We've got old people and we got kids, kids from poor families and so, and one of the main problems they have is they can't get any healthcare. They can't afford healthcare. I mean basic doctor visits and immunizations, which we're starting to be a thing. Okay. There were some immunization drugs. Okay, fine. They started to roll about that time. Right, and so what happens? They pass Medicare and Medicaid. Okay. To deal with those two populations. The elderly and mostly kid, but those from poor families. Okay. That's what they were trying to address. The kids mostly. Okay. Well all of a sudden doctors started seeing patients who actually had somebody going to pay for their visit. Okay. That hadn't happened before.

Hobson:             10:37 They might've helped those poor kids. They might've helped that elderly person, but you know, it was like, you know, okay, here you want to give me a chicken for that? Okay, fine, I'll, I'll take it. Okay. That happened a lot. Right? I mean it people, the doctors took lots of stuff in exchange for no payment for services. Suddenly there was a cash mill going on. Okay. Not only that, the insurance benefits the insurance industry, we're competing with each other now because healthcare insurance was just starting to be a bigger dollar volume business. Who would have players then at that time? Whoa. All the blue cross organizations and they were all separate then. So maybe 60 or 70 of them. Cause some States had more than one blue cross and blue shield were often separate so that maybe there were 150 I don't know. And Prudential and New York life and all the big insurance, all insurance companies has health insurance plan because their agents had to have a plan to sell. Okay. And they were all, you know, copying each other. And so you had the schedule benefits like ed described and you had made your medical, that was jumped on top of it. But it was like, you know, $10,000 annual maximum benefits. There were some individual policies that were, had very interesting characteristics,

Hobson:             11:53 Like two year accumulation periods, three year benefit periods, really strange looking thing per caused deductibles as opposed to the annual deductible,

Hobson:             12:04 Etcetera. But the key here was that doctors and providers started seeing money coming in for populations that they previously couldn't count on for much money. Also about that time there was starting to be a transformation from the old one. It was called the, you know, the military industrial complex to what I've called the medical industrial complex. Okay. Slowly but surely because businesses and researchers and the stuff that was going on in academia, they started addressing medical care. Why? Because that was the one frontier that we hadn't been able to deal with. Okay. How do we get people to live longer? We got to figure out how to take care of these diseases and these and these sicknesses and we got to come up with ways we, this is what year now, you know, and then that just add you already. So we started to have more drugs.

John:               12:53 You already 30 at this time in 16.

Ed:                 12:55 Oh no, I was 20 it was 20 in my early twenties when I was 21 I started in the industry, but we didn't have premature baby. The large claims. In fact, when I first started with mass mutual, we made a major, major improvement in our major medical plan. We went from a $10,000 lifetime maximum benefit to $50,000 and why? Because cost of care went up across the care one up. Nobody had a $10,000 well, it also though, but when 50,000 wasn't viewed as being going to cost that much more because nobody had claims like that. So why was it created then? Was it broken? I'm trying to stop. No, they demanded the original in the marketplace. I said, give me something, give me better covers. Suck and sell some. But was it from the premise of, Hey, we can charge more money because we can charge the insurance companies and was it the provider system hospitals to say we could charge more and get paid to insurance?

Ed:                 13:55 Is that when it started to differentiate themselves is strictly strictly carrier. At that time there wasn't much claims. Blue cross or the, when we say carrier, we're talking everybody who was providing a level of quote, insurance unquote for health care episodes, Blue's all the major insurance companies, regional crib. And when I moved to Kansas city in 1966 businessmen's assurance was a local Kansas city based insurance company. Very, very aggressive carrier. In my part of the country in central Kansas, Missouri, there was a lot of competition. Competition breeds innovation. Competition breeds improvements. Competition breeds excellence and well, not necessarily [inaudible] bad ideas. Yeah, no, I mean even, you know, we had to differentiate herself at mass mutual by saying, you're ready for this. We were the only major medical carrier that covered ginger victimize and they protect the MES. Don't even know what that is. Gum diseases under our major medical, not under it.

Ed:                 15:07 There was no dental benefits back then. Very few employers, except the very large ones add dental benefits. So we improved our product by saying, well, you know, you could spend $1,000 if you had ginger Vidas so we're going to cover it and it's medically related because if you don't take care of it, you're going to get sick in other ways. Right, right. Sort of like an impacted tooth. Well, if I'm hearing correctly, we lead to a heart attack. I should tell you about my wisdom. I got my wisdom teeth out in the hospital because my freshman year of college, when I came home for Christmas break, first day I'm in the hospital to get my wisdom teeth taken out. Why? Because that was the only way the insurance was going to pay for it wouldn't pay for it if you did it in the dentist office, but it paid for it if I was in the hospital, so they'd got a thing that says, yep, my mouth is small.

Ed:                 15:55 It's difficult. Got to do it in the hospital. That's how I got my doubt. So as the insurance companies improved the depth and width of their country, of their products, the marketplace adapted to it. The provider's adapted to it. My first health plan, we had an $18 a day room and board benefit, so paid up to $18 up to $18 a day. The surgery schedule had a maximum benefit of $300 California relative value, and it was right in your booklet. You could look up hernias, you could look up deliveries of children, you could look up, not abortions. No, they didn't know that abortions back then. But the point was, and then you had ready for this, if a doctor visited you while you were in the hospital, mass mutual paid $5 a day for each hospital visit. That's your primary, your primary doc? Yeah, the weren't they come and check on you, you know, they'd come and check on you to say how you're doing, read your chart and five bucks.

Ed:                 16:55 So they were running around reading church all day or at least all morning while they were in the hospital. So yes, coverage dictated because people were seeking ways to get benefits and get coverage without pouring out upon here, and correct me if I'm wrong, is is insurance companies contributed to the problem. They wanted to be more competitive in the market to get people to buy their products. So they added more and more incentives and as they added more better so-called coverage and incentive benefits, the hospitals, the doctors found ways around to build that into what I call the field of dreams syndrome. Yeah. Build it. They will build it. They will come and nowhere have, we seen it more [inaudible] evidence. Then when the ACA was passed and they made us take off any dollar limits on annual or unlimited maximums, that's why we've seen in the last five or six years, the huge increase in $3 million claims, $6 million claims, $20 million, $20 million.

Hobson:             17:54 Okay. Because there is no end in sight anymore. Okay. Now that's human nature I suppose to some extent, but before that I, I can remember in the, in the nineties late nineties or early part of the century of this century, we've got to be careful and where, you know, we had claims at at T pack, we had claims that would come in and we had some big premies. Yup. And they just would accumulate and accumulate and accumulate and then suddenly when the maximum benefit was reached, guess what? The doctors throw up their hands and say, you know, we've done everything we possible. It's sad, but it was true. We've done everything we possibly can and the kid would die. They would pull the plug and the kid would die because they knew they weren't going to get, were going to get paid anymore. Not all of them, but you know, you could see it.

Hobson:             18:44 You knew it was happening. And that's again, that's human nature. So all of this stuff is starting to whirl underneath. Okay? It's like one of those things where you don't see it's underneath the surface and then it's, but stuff's going on and you feel a little rumble and then all of a sudden it booms through and once it's through, you can't put it back at the risk of appearing to be an over in a very bad person. Our technology also has not only increased the cost of providing care, but heed. I believe it has resulted in a less adaptable, the human species, if you believe in survival of the fittest. Okay? When you take an infant, that when I started in the industry, they would have put in the nursery and put it on oxygen and if it lived, it lived. Now we can take a one pound, one and a half pound or less premature child, bring them with many, many dollars spent to childhood adulthood.

Ed:                 19:56 And the question becomes are we improving our lot or are we then having those children reproduce and create? Yeah, your additional issues. That's a terrible thing to salmon over to meaning should we continue their life or they shouldn't be living? Is that what you're getting at? I don't know that I want to be that much of an odor. Listen, this is, this is the podcast when I was little, I mean I'm one of those kids cause when I was little I had horribly bad eyes. Okay. They're not the greatest now because I had cataract surgery. When I got cataract surgery I could suddenly see, okay cause the, the lens they put in my eye maybe see, but when all my youth I had glasses will, you know with the Coke bottle bottoms they were that thick in the old days, you know the bear would've caught me cause I wouldn't have seen the bear coming. It would have eaten me. I'd be dead. Okay.

Hobson:             20:48 Now that's a simple example. But you expand that idea to the technology of how, you know, how we've changed the human species. Now, is that a great thing? Is this a good thing? So socially it's a wonderful thing. It's a wonderful thing. But that actually gets to the a good question about today, which is how much can we spend on healthcare? Let's assume we had the waste out of the system. We would still be having a lot of money to spend on healthcare. Is there a number that our society would accept and say, you know what, we're not spending more than that. The Portland did that a few years ago with a, their Medicaid expansion. If you're going to cost us more than that, you don't get coverage. Okay. The nice, that's the, you know, the the abbreviation for it over in England, that the committee that basically determines what things are going to be covered over there.

Hobson:             21:42 They do a calculation based on how much it's gonna cost versus the life year expectancy and the amount that that's worth. And if you don't make the cut, they don't provide that. So this was a brought up with Obamacare, with the death panels? Well, yeah, but they saw that, but they said it was going to come from it. But yes, people are, I mean, and especially in if you consider ours social cultural trajectory to move to something like is in France or Germany or the Netherlands or England or Canada even. Okay. It becomes very, very difficult because of all of the emotional and political and religious influences on our system. Have a bearing on how much we spend on healthcare in this country. Define right. Well, I'm just making an an observation. Okay. of, of the situation. Well, it depends on your society. If you're the one that's sick, then yes, we should do it.

Hobson:             22:39 Yeah. Right. Yeah. And if I'm not, I, I'm afraid to say that because I'll be considered to be an ogre, but the point is we can't, we can't spend an endless amount just against you. I'm just asking you. Yes, you are. I know you, I saw you whispering over there. Bob and Robin in the back here. Chime in. This is off the record. We get them on. Mike, is it the right thing to do though? Okay. What specifically you have to have a government house system is, is the right like how do we do it? Is it is a solution?

Ed:                 23:12 It's a definite, definite good way to address it's, it's a much better way to [inaudible] without directly Ray. See, when you say you say that child or that adult, you know who's 78 years old, all right? Is going to require $4 million worth of health care to live possibly another two weeks to two years. What's right? I don't know the answer to that and I'm broaching that age.

John:               23:43 And who makes a determination? Good buddy. Tom Emerick would say is a farmer of mine, buddy would say, it's like you look at a drug like Harvoni, it's $100,000. You gotta you got somebody that's 70 something years old, no sign in sight of symptoms or the however they count the Harvoni. I forget. But the way these insurance companies write up their, their plan docs and stuff and PBM contracts, they say, absolutely. If you have any trace whatsoever, $100,000 drug, now we know why they want to fill it. But it lays dormant in XM. A number of people, a high percentage of people. And if they do have a symptom, we can cure it. But the drug companies say we should give everybody the a hundred thousand dollar men. And I think if we cure it, everybody would Harvoni, you'd be $3 trillion, if I'm not mistaken, numbers, I could be wrong. So where does that determine a factor? Go when you have, but when you have the, your insurance companies setting those guidelines around rebates and things, how they get paid, that's where the problem.

Ed:                 24:44 [Inaudible] Companies, in my opinion, are not setting those guidelines. You know, there's, there's two fat drug companies that are saying, we've got to meet, we've got this drug, we've spent time and effort and a lot of federal money researching this drug. So the population has in many cases paid for the research, which, and brought to the forefront very frequently. But anyway, the basic question is, who says it's $100,000 drug? That's the another's whole question as to why we have [inaudible] is getting charged. So it's same drug in India. Oh yeah. Well, what happened? 6,006 eight this $5,000 yeah,

Hobson:             25:24 Because Egypt can't afford it. Well, here's one of the reasons we have. We pay what we pay in this country. We pay for the research for the entire world and pharmaceuticals are most of it and a lot of other areas, right? We ended up paying $100,000 because that's the price that they want over here. They come up with it because they look at what the market can bear. They look at what alternative costs are. They look at a number of things like that. My perspective on it is, well, if each of can afford 100,000 if $100,000 is the true costs, if it's the true cost, then that's what Egypt should have to pay as well, and then we say, well, Egypt can't afford that. Well then let's give Egypt the money separately through some other things so that we can account for where the money is going when we let them pay $5,000 for it. There's a whole bunch of money that's gone that we've essentially given to them, but we haven't accounted for it. Okay. Cause it's in that $100,000 that we're paying, I am four proper pricing and then accountability so that we know, I'm not saying don't give them the money to cover the car. It's the true cost of the 100,000 then maybe we should donate that the world should donate money to Egypt to pay for those patients. Don't let pay $5,000

Hobson:             26:44 For that. The storage, the price. Yeah. We don't know what the price should be and that may be.

John:               26:48 I think they're giving to them as charity to what they could pay for it and obviously upcharging us because they can get away with it. But the guidelines are going to stay in these PBM contracts that it's based on the drug manufacturer rebates and incentive programs that say, listen, eliminate the competition on your contract. Okay. And fill this med. Make it easier to fill this med and make them jump through hoops to fill the other med that sheep are. And if you do that, we'll pay you more money. If you eliminate, I mean one of the drugs is if you just eliminate the competition, okay and it has better ethicacy but make them take the other one that's, you know, not as good as ethicacy, harder to take.

John:               27:35 But as you feel more of it and eliminate the competition, we'll pay your bigger rebates. And that's what happens with a lot of these drugs.

Ed:                 27:41 And well remember the rebate is an American phenomenon. Well rebate whatever you want to call early because at $5,000 I doubt in Egypt that there's a rebate on Harvoni. So that's just them contributes. So the excessive cost of drugs, I mean the fact there shouldn't be rebates, there should be realistic pricing for everybody should have access to that price. That would take care of a lot of the problems in our system I E but guys and all, we can argue back and forth on it cause you know it's going to be a long time before change. Even Trump, right now he's, he's pulled back on the pusher drugs and transparent. You don't have too much money involved. There's just so much.

John:               28:27 I look at it like this, right? I'm an a brokerage side. I fight it myself of being the greed of do I go on the other side, I'm on the right side, I'm doing what's right for the clients and at the end of the day employees inclined. Sometimes they don't even give a shit. They don't appreciate what you do. So why don't I just go on the other side because I'm going to give them what they want. Now you guys aren't necessarily client facing. You were probably at some point Hobson you're not on a clear side of facing so you don't see the, I guess I would say the entitlement factor. The I want this and I don't give a damn cause I pay insurance premiums side doors. They don't want to play ball with you on what the right thing to do is to fix the own problem for them. Cause I tell enrollment meetings is listen, we're all in this together guys. If somebody in here goes against what our plan is, then everybody gets her and at the end of the day, everybody's about their self-served interest and they don't give a shit at the end of the day because, Oh well, right. This is the way it is. That's a challenge from our side. It's seeing it and hearing it and being in self-funding and watching things not go as smooth as we want is, is [inaudible] consumer.

Ed:                 29:31 We are the only society that allows an employer to provide benefits in lieu of compensation and we incentivize that employer by reducing it, by not having that, those dollars spent be subject to text massive extent that we do.

Hobson:             29:52 I mean there might be some of that you got to remember, is that all these uthese so-called single payer countries? Okay. You look Francis not, I mean, yes, they have a government program, but almost every employer has to offer a supplemental coverage to pay the excess amount that doctors actually charged above what the government will pay. Okay. The Netherlands, same way. Germany, same way. England has a private healthcare system. They have a private health insurance system. Like 11% of the population has consistently purchased private health care insurance, which allows them to jump cues. Okay. Actually the only true single payer country, okay. That is anywhere close in the, in the first world is our neighbors to the North. They have a true single Bayer system. They don't allow private health insurance for the things that the provincial plans cover. Okay. But over over in Europe, they all have, and they're all suffering from trend problems, erosion problems of their systems. They're trying to figure out how to solve the healthcare problem just like we are. But well, not just like we are, but in a way like we are, we're, we're dealing with their problem. They're dealing with the problem, not, not to the same extent, because they came from a different path. Okay. They're in a parallel course and

John:               31:19 So candidate is, the candidate is struggling the same way. We are not to the,

Ed:                 31:24 Well, depends on who you talk to. I mean, the wonderful thing about for Canadians is they simply crossed the border. If they've got any money and they pay for it.

John:               31:33 And [inaudible] my father would tell me, Hey, listen, in Canada you better wait in line because if you're 30 years old and you are, if you're 60 years old and you need a knee surgery, well the 30 year olds more important you and you better get in line for 18 months.

Ed:                 31:44 And why is 30 year old more important as your productivity, future productivity available for the society?

Ed:                 31:54 All right.

Ed:                 31:55 And again, it's sort of like, you know, when there's a, when there's a serious accident or an injury and you go before a judge or a jury and they award, they assess the economic value that this person has lost as a result of that injury. Right? And that assessment is related to the economy in general. You know, if that person would have lived and they would have gone to college, they would have made $23 million in their lifetime. We've had a brain injury as a result of this accident. So we're going to award, you know, all medical bills and $50 million of punitive damages

Ed:                 32:40 Plus the lawyer fee. Will the lawyers get it, get their share of the, but the point is, it still ties back to an economic value of a human being. We're in a capitalistic environment. Even socialistic countries after generate tax revenue. How did they generate tax revenue by taxing workers? Right? So if a worker is no longer productive, then you've got a reduction in net tax revenue and that impacts everything including the largest expenditure most company countries have, which is the cost of providing healthcare coverage or health care services to their population. I mean, we've gotten ourself into an interesting situation. If we didn't have anybody earning income, where would the government get the money to pay for anything? So our livelihood, our future is directly dependent on the productivity of the population. And there is no answer. I mean I've been, I've been for 50 now, 60 55 years now.

Ed:                 33:48 I've been trying to figure out a way to come up with a better mousetrap and I had been unable to do it. And I'm not the smartest guy in the world, but other smarter people have tried and there is no solution. There are only attempts to control costs. And that's where I think we've as an insurance industry, we failed by making patients not feel responsibility for anything they spend. And I always say, is that it? Did we not give them what they wanted? Is this not what the consumer wanted? Well let's talk about the consumer because a lot of benefits were directly attributable to unionization. And the only way that a union good really impress their members is to provide them with greater and greater benefits. I mean, you know, it's the old story just like the brokers are faced with, no thank you very much for saving me a few bucks last year, but what are you going to do for me today? And everybody's looking for a solution that's better tomorrow than the solution we use today. And you know, a lot of our benefits structure way back when I started all right, was directly a result of unionization union activity in the major Midwestern and Northeastern unions. And it sort of set the tone for the type of benefit designs that came down the pike. Now it's reached its own inertia. I mean we've, it's sorta like the snowball going downhill. It's getting larger and larger and larger. Originally the snowball was thrown by the unions.

John:               35:39 So the insurance companies create these products to be competitive, to sell more, to get the buyers to want the better benefits that most won't need or use, and now you've got the unions coming in and saying, Hey, we're going to offer you these better plans, and back then maybe they weren't as expensive like you said, the buy up. They weren't that much more money because nobody used it.

Ed:                 36:02 Little historical lesson. The first group I sold out of training school, I moved to Milwaukee, Wisconsin, 1964 September 1st effective date, I'm sorry, October 1st effective date, 1974 the single employee rate for a very comprehensive plan for 1964 was under $7 an employee a month. The additional cross for dependence was under $12 because the year was about 18 $19 a family per month, a family. I wrote the account, I never forget the accounts company called Jacob's scoop bridge corporation. They made barrels. It's a Cooper's company. They made wooden barrels at about 90 employees. A year later, we delivered a 10% rate increase, which means that the rates went up less than a dollar an employee. All right. And less than $2 a family. They left my company and went to ma to New York life for a different, for a lower rate.

John:               37:08 But at the time is it relative, right? Is 70 cents increase?

Ed:                 37:13 Well, it's relative only to the extent that back then the cost of health insurance, it was nowhere near the cost it is to the American family budget today.

John:               37:27 Okay. Relative to the gross income and percentage,

Ed:                 37:29 Hey, I was making $100 a week. Okay.

John:               37:32 Yeah. So it's kind of three jobs. One, seven bucks and you can't compete. So it's not even less than 2% yeah, it's not relative. So at what point, so we give them what they want. The unions get this. At what point? Hobson to the system in those years, she's talking 1960s he's a little bit older than you. At what point does it just start to really spiral where you see it go?

Hobson:             37:55 Well medically, the general inflation rate, you remember in the Carter years and stuff like that, which is when he knows that don't know the car well. Okay. 70 starting in the mid seventies okay. General inflation was going up and the medical medical inflation because of all these things that we talked about, the increasing technologies, the drug started to appear and they, you know, it was, it was starting to be leveraged. Okay. There were lots of factors going on too. There wasn't a lot of regulation, underwriting rules and methodologies were being experimented with. You could, you know, there was just all kinds of stuff going on. That was all in the insurance industry.

Hobson:             38:35 Ed alluded to the [inaudible] about the cost, controlling the cost. We'll see if one of the things would help if we could identify what the cost actually was. Okay. Imagine the administrative expenses that we spend today that are part of the waste in the system. Then this was being developed back then. Okay. That's what I'm talking about it, but today there's a massive administrative costs. Even though it's not enough to be the cause of everything, it's significant. Why? Because we have a hundred different costs for the same physician or the same hospital for the same service depending on who the payer is. This insurance company, a insurance company, B and insurance companies, C Medicaid, Medicare insurance company a, plan B, insurance company B, plan C, it's got all of that stuff. The administrative costs to just track all that stuff at the insurance company level is one thing at the provider is another.

Hobson:             39:32 Now the provider charges a rate, right, which we call claims costs, but guess what's inside that cost administrative costs at that provider. The hospital's got, you know, a huge room full of clerks that are sitting there trying to sort out, okay, this person came in and was this insurance company. It was this plan. We're in that network. This is what we're going to, you know when the EOB comes back and we have to find the right slot, imagine the savings that would exist if a given provider had one rate sheet and said, this is what we charge and expect to get from everybody who comes in the door. I don't care who it is. Okay. How would an insurance company compete in a market where everything is the same? Whoa, Whoa, Whoa, Whoa. Why should an insurance company get, why should we turn over to an insurance company?

Hobson:             40:27 The ability to negotiate a price for me who gave them this power in the first way we gave them, we created this monster by giving them this power and now they created an oligopoly and an oligopoly and oligarchy pick your Ali. Okay. And now it's, we just want money flowing through, right? Because there's no insurance risk anymore. If we get an a big enough volume, we're never going to lose any money on the claim. On the true claims. We're making money off the cashflow that comes through spread. Okay. And I'm a stock company and all I care about is how my stock performs. How do I get revenue? I increased premiums. Would I increase premiums if I actually were able to lower claims cost cause I wouldn't have to charge as much? Well then my revenue would go down and then my, my 5% of the revenue that I get as my net income would go down and my stock price would drop because everyone would say, well, you've got no future. You're not performing. They're not performing, no motivation whatsoever. They're lower, lower this cost. We've

Hobson:             41:34 Given them the ability to go out and cut a deal with the providers, et cetera. But why, why did we need to do that if every provider had their own rate sheet? Okay. The insurers would compete by deciding how much they would allow to be paid as a covered expense. And then they would go around trying to find those providers who were the best outcomes with the best outcomes and be willing to pay their rate or make up the, you know, or make up the difference. Okay. Okay. And then that's how they would compete. They would have to do what the original PPO was preferred provider organization because we were going to have the best providers. Okay. And we're going to cut a deal with them. Well, you don't, you cut the deal by agreeing to what they charge, not making them take what you offer.

Hobson:             42:21 Okay. And in an environment like that, then they will decide, okay, are they worth it? Is this doctor worth paying 10% more than my schedule? Then I can agree to do that. Okay. Because they're worth it if they're not worth it, I'm just paying my schedule and if a person wants to go to that doctor, they'll know ahead of time how much the difference is. And here's the irony of the current system. If you as a patient needed a procedure and it could be documented that there are two doctors in this that are really decent and one is better than the other, but the one that's the better one is not in your network, even though your health care result could be better. Right? Today we have educated the population that you need to go to the network doctor because it will cost you less regardless of the health outcome.

Ed:                 43:29 It's really an absurd system when you think about it, but how would a.

John:               43:35 You're talking about the doctor should do this to patients should do this. I don't see how one, a consumer could ever even get involved with negotiating rates. Now, even at dr [inaudible], they wouldn't be able to negotiate the system, but a doctor, a provider, just like an independent small company, how are they ever going to set their own rates, their own guidelines? I mean.

Hobson:             43:58 Let's do that now. Practicing medicine. They do a deal. They have a bill master. It's just that now the bill master is a meaningless chart, but it doesn't have to be. It could be doctor's officer facility. Both. Both. I'm talking small doctor's offices. They have, they have, they have a, they know what they're charging.

Ed:                 44:15 What did they do before PPS?

John:               44:17 I dunno. You tell me.

Ed:                 44:20 What did you around, what are the OB-GYN, what are the OB-GYN do I deliver? I'm sure he's a businessman. Very successful. And what he said I'm going to deliver

Ed:                 44:32 This year 300 babies. All right. Aside from seeing patients in the office, I'll deliver 300 babies and I'm going to do it for $300 a piece. Now, you know, they'd say, well wait a second, but some of the mothers are higher risk and some of the women are overweight and some of them have a bad history. It didn't make any difference. Doctors did a great job and lit a very, they were always upper middle income and they were doing it at a fixed price. Now in fact, if that's what you do, if you deliver babies and you deliver three, four, 500 a thousand of them a year, you probably are pretty good at it compared to the doctor that delivers one every six months. Right. So should the one that delivers one every six months charge more then the doctor who does a thousand of them a year per delivery?

Ed:                 45:36 My answer would be no. The best doctor knows how to do things most efficient and they know what they like to do. So I don't think it's more cause they don't know what they're doing. Well, maybe or they don't know what the charge, they know what to charge because they don't do it frequently enough. So I mean there's all sorts of problems inherent in the system, but I'm going to bring it back to the patient. If we educated the patient that their benefits were in lieu of compensation with the assumption that if I didn't provide you benefits, I could pay you more. You'd be on your own. You think that's the key? No, I don't think that, I think it's too late for that. Now. You don't think the consumer

John:               46:20 Forget about single-pay the consumer, just like using Amazon, we put the power back to them and say, you know what, you go shopping. You pay for these services.

Ed:                 46:31 This is where I think technology in the future may be very beneficial. AI where a patient can say to the computer screen or their cell phone or whatever, you know, I went to it by primary care doctor and I have an inguinal hernia and I need to find the best doctor in a 500 mile radius to perform this procedure. And I want to know the cost that those doctors would charge now, where the artificial intelligence is going to get that number. I don't know, without a charge master that's realistic without a doctor saying, I will do this for $300

Hobson:             47:10 Well, there's also some benefit to an integrated medical care system. Okay. Where there is a benefit to, you know what I mean? The doctors who are in a system with surgeons and the hospital facility and they all share the records and all that sort of thing, but that's all part of technology too.

Ed:                 47:25 Yeah. There's nothing that says that individual practitioners could not have access to a Medica, a single medical record. There was universal throughout this country. All right, but again, you've got lobbyists that are saying, wait, we're, there's 200 plus vendors in the medical records business and they don't talk to them.

Hobson:             47:43 But this is where the advocacy and the administrative service would be there. That's what the administration costs should be spent on, is helping the patients find the right care, find the, understand the price and the cost and all that sort of thing. Rather than spending a lot of time trying to avoid paying claims and you know the administrative costs that the TPS have, administrative costs, it costs money to appropriately adjudicate a claim. What is their job? Their job is to help manage the money of the employer health plan. Okay. And if they're just paying stuff Willy nilly, they're not doing a very good job of that.

Hobson:             48:19 I mean, there's a contract and less effective. There's a contract that says, this is what we cover, this is how much we pay, this is how we do it, et cetera. There are always going to be people who don't get stuff that fits into that. You know that arrangement and it has to be not, it's not covered. I'm sorry, but that's not covered. You have a car. Okay. That comes with everything except it doesn't have air conditioning and you went out and needed air conditioning. I'm sorry, we don't cover that. Okay. The contract says we don't cover that. Talk to your employer about adding it next year to the benefit plan or something. Okay. But the Buka is to a large extent, just pay it come. What comes in the door. They don't care. They really don't. The independent TPA such as as interest and and it's com Patriots.

Hobson:             49:09 Okay. Do the primary job of adjudication of claims not paying claims as easy a breakdown because claim comes in, you write a check, but were you supposed to pay for that and what does that process look like? The adjudication of a claim, and I'm talking about small claims, large claims, well [inaudible] versus what the boob was doing. [inaudible] And when should I go live stream again because I need to take a break.

Ed:                 49:36 But auto education, the carriers are way up in the, typically in the 70 to 90 percentile broader adjudication, which means they have a network, the network contracts are raid. It comes in, they automatically adjudicate the network price, whether it was medically necessary. The brother-in-law did it, whether the brother-in-law did it, whether, I mean the, it's, it's easy to pay claims. In fact, they should simply charge like a transaction charge. Paying claims is a quick charge. No, you should be able to make money paying writing a check for five 95 or four 95 or six 95 a check. And obviously then the problem is the more checks you write, the more money you make. So where's the control in that system? But the point is to adjudicate claims, you have

Ed:                 50:28 To have, for example, any claim that's over 25,000 Robin can explain this better night because she was in the operate. She's any operation. And the executive side, there's a large claim committee, which includes the general council that includes a doctor, includes the nurses, and it includes somebody who truly understands what the provisions of the plan document are. All right? And you have to look at that claim and sometimes you just question, why are we paying for an assistant surgeon? The surgeon charge $1,200 for the procedure and there's an assistant in there and they build, cause they're out of network $26,000 for being in there with the surgeon.

John:               51:10 Well that's a little, well, I'm sure there are examples, but that's not an average situation. There's some ridiculous, listen, we're going to get into risk management in the next episode, but I think it would a rapid there talking about the problems. We'll talk about the next steps to risk management in a future episode here at the ranch. So with that guys, thanks so much, Ed, Hobson, to be continued episode to come in the near future or back here in Houston.

John:               51:37 Thanks guys.