Why not Insurance?

TLG Fireside chat of the month

Synopsis

I have had several people ask me lately "why don't you accept vision insurance?" Or, instead of asking, they just sort of stand surprised with a wide-eyed look on their faces secretly thinking "Yeah, no...I'm going somewhere else for glasses." Some have told me point blank that we won't make it in business without it. So why have we as a company decided against it? Please, allow me to enlighten you on the matter...

As a company, The Looking Glass(es) takes great pride in the choice to brand ourselves as an independent optical. The optical market today is primarily dominated by a small handful of international corporations, including manufacturers, distributors, retailers, and more recently insurance companies. In recent years these companies have only grown in size, and now overshadow up to 80% of the market. It is plausible that an unwitting customer could see a doctor and purchase glasses from a store owned or partially owned by an insurance company. What do all of these corporate marriages mean for you? Over the past four decades, consumers have witnessed both a dramatic increase in the price of eyeglasses and the rise of low-cost/low-quality eye-wear. We choose not to subscribe to this corporate idealism. We choose to not to be restricted in service, price and product offerings. We believe insurance is part of this corporate idealism.

History

In order to fully explain how we got here, we need to travel back to the beginning of insurance in the US -- specifically health insurance. Insurance is an old idea and can be dated back as early as the 15th century when merchants desired protection from the ever-present threat of maritime losses. In the US, insurance companies emerged in 1735 when Benjamin Franklin aided in the formation of The Philadelphia Contributionship, a mutual insurance company. Health insurance, however, did not get its start until centuries later. Many attribute the development of health insurance and fringe benefits in the US to Justin Ford Kimball, an official of Baylor University in Dallas Texas. Healthcare costs were too high for many Americans and hospitals/doctors were struggling. In 1929 Kimball offered public school teachers 21 days of hospital care per year for an affordable 50 cents per month. The plan spread like wildfire during the great depression when financial crisis pushed even more patients away from care. Copycat plans sprouted across the country and even hospitals began to offer similar plans. Kimball's experiment would soon grow into the company "Blue Cross Blue Shield" that we know today. When WWII struck, workers became scarce and employers were in fierce competition over a small workforce. Employers began to offer health insurance and other fringe benefits as a perk to woo workers into their employment. Over the years employer-provided health care had morphed in to the system we have today (not what we are discussing for the moment).

Vision insurance got its start in the 1950s when a group of optometrists in California began offering prepaid vision plans to their patients. As this company began to grow and merge, it became known as VSP and is now one of the largest providers of vision insurance.

What is Insurance? (simply)

Insurance originated simply as an agreement between an individual and a company to transfer risk. And, for the most part, it still is. For example, say you are concerned that someday a catastrophic health event (like stroke) will cost you $80,000 or more in medical expenses. You consequently bet on the idea that you will indeed have a stroke, so you purchase health insurance for $120.00 per month. Now, knowing that if something truly tragic were to happen, you would not be out 80-grand: just your deductible. Thus the risk of a major medical bill is transferred to the insurance company (for a minimal fee, of course). When the insurance company sells you your health plan, they are betting against the odds of a stroke. In this case, the premiums are taken as profit, held, or used to pay for another's claim. The general idea can be summarized simply as "The premiums of the many pay the expected losses of the few".

Insurance cannot pay more in benefits than it receives in premiums. This is why many insurance companies either have a strict contract with providers or own the providers themselves. In the case of your stroke, again, the average health insurance company would receive a bill for $80,000 but only pay $50,000. Either the contract with the provider requires the hospital to write off the rest, or, since the insurance company owns a share in the providing medical center, the payment is still "covered".

Many of the additional insurance options included in fringe benefit packages are not true insurance, but "discount programs". This is true for both vision and dental insurance. One signs up fully expecting to use the benefits associated, and not to transfer risk. When most everyone carries vision insurance, if each person were to submit a claim for eyeglasses and exams, the payout would exceed the premiums, resulting in a financial loss for the company. Therefore, just as above, the charge is either force-discounted or the insurance company offering benefits is also part of the company providing care. For a small family owned provider of vision or dental care, this can be detrimental to income.

You may be left asking; how then do I receive benefits? Why does it seem like I receive more benefits than I pay for?

Case Studies: Major Vision Plan One and Major Vision Plan Two

For this portion we must rename some major vision insurance companies: Let us call the two largest companies Major Vision Plan One and Major Vision Plan Two.

*Note: all the costs, benefits, and payments to doctors below are as close to accurate as possible but vary greatly depending on the specific plan. This is a hypothetical average.

Major Vision Plan One

Sally is 26. She has just signed up for vision insurance through her employer for the first time on her own. She has agreed to pay an extra $12.00 per month for Major Vision Plan One. Over the course of one year, this adds up to $144.00. Per her plan, she is allowed one eye exam per year, one set of lenses per year and new frames every-other year. Her copays are $25.00 for an exam, $20.00 for basic single-vision lenses and $55.00 for an anti-reflective coating. When she is eligible for frames she is allowed a $120.00 frame allowance with 20% off anything above the allowance. Instead, if she purchases a frame from the one frame company owned by Major Vision Plan One, then she is allowed $170.00.

Side-note: some insurance companies own frame companies and can give deeper discounts on frames that they manufacture. This does not mean that they reimburse the doctor more!

When Sally goes in for her yearly exam, she pays a total of $25.00 for her exam and $20.00 for lenses. She chooses a frame that costs $150.00 so she owes $24.00 after the allowance and discount. In total, Sally paid $129.00 for her exam and eyeglasses. When her premiums are added she paid a total of $273.00

If she did not have vision insurance this is what she would have paid

Exam	$150.00
Single-vision lenses	$ 80.00
Anti-reflective coating	$ 95.00
Frame	$150.00
Total	$424.00

Sally saved a total of $156.00.

Let's think about this scenario for a moment. Sally's vision insurance "covered" $325.00 worth of goods and services. However, as we already discussed, Sally only pays $144.00 in insurance premiums. How then does the insurance company cover the extra $181.00 left over? If insurance cannot pay more than it receives in premiums then who covers this bill of benefits? The provider does! In this case the doctor selling Sally her exam and lenses writes off the remainder of the charges. Major Vision Plan One says, "Hey, we will send customers your way because you are in-network, but we are going to tell you how much you get paid."

For instance, when the doctor bills Sally's insurance for the remainder of her exam not paid for by a co-pay ($125.00), Major Vision Plan One only pays him $57.50. In total the doctor is paid only $82.50 for an exam that should cost $150.00. The same goes for the eyeglasses Sally purchased: $251.00 is billed to insurance and the resulting payment the doctor receives is approximately half. The small optical and optometrists office is forced to schedule more appointments per day to compensate. Instead of seeing a patient every half-hour, now the good doctor only gets 15 minutes with his clients. In turn, the optical must raise prices of lenses and frames: lenses are now $95.00 per pair, coatings are $120.00, and frames average $200.00. You just witnessed the last 30 years of price increase in a nutshell. Many customers are convinced their vision insurance "saves them so much money" and will not go to a store that is not "in-network". And thus the vicious cycle continues ... the doctor, not wanting to lose business, has to become in-network, and then inevitably raises prices. The poor customers paying cash all along are taken for a one-way price ride. That is why many offices are now offering cash discounts.

A local doctor was interviewed and said this regarding the average single-vision patient carrying Major Vision Plan One: "The average patient "saves" $333.00 on an exam, frame and lenses--at my expense of $165.85 ... I am writing off a lot of money by accepting these insurance plans. On the flip side, their websites and provider lists do serve as advertising for me, and a bunch of patients with insurance is better than no patients."

Major Vision Plan Two

Let's take a look at the average cost for Major Vision Plan Two. We will also look at a different doctor with different pricing.

Rupert, age 47, has Major Vision Plan Two. Through his wife's employer, he pays $10.00 per month in premiums, totaling $120.00 per year. Per his plan the same scenario applies. Rupert is allowed one pair of lenses per year and one frame every other year. He pays a copay of $0 for an exam and $10.00 for lenses. He is allowed $145.00 plus 20% off any overages. For the sake of simplicity, lets say Rupert orders single vision lenses. Maybe a pair of readers? For this visit, with no insurance, he would have paid:

Exam	$150.00
Frame	$165.00
Lenses SV no coatings	$ 60.00
Total	$375.00

Now, as we already said, Rupert pays $120.00 in yearly premiums. When combined with his copay, he pays $146.00 in total for his exam and lenses.

What does the doctor get paid in this scenario? Well, for the exam he receives no copay and when he bills $150.00 to insurance, they pay $55.00. After factoring in the materials copay of $26.00, the glasses are billed at $199.00. Major Vision Plan Two pays $82.50! In total, this office says the average Major Vision Plan Two patient "saves $349.00 on their exam, lenses and frame ... at my expense of $211.50."

This is why I do not accept vision insurance as payment at The Looking Glass(es). In accepting insurance, I would need to raise prices, and take a possible income cut, not to mention my quality may suffer due to lab requirements on some vision plans. Can you save money using insurance? Yes, you most definitely can. We have not gone over the more expensive lens options available or progressives lenses, but this lens wearer will on average save the most when using insurance. Can some companies and doctors offices increase revenue by carrying insurance? Yes, probably due mostly to the fact of being listed as "in-network" providers on the insurance company's website. Now, I will disclaim that when a provider chooses to use a major-vision-plan-owned-lab for lenses, their costs are reduced (yes insurance own labs too). In my experience these labs are not known for producing quality work.

An alternative...

I propose a different solution. Why not forgo the insurance game (because that is really all it is at this point) and lower prices on eye-wear? By carrying insurance you become part of the problem, raising prices for everyone. There is no reason an eye exam should not cost $99.00 or less. In fact most offices only charge $150.00 to patients with insurance. Customers paying cash receive a lower price right off the bat. Ask any provider and I can guarantee all would flip for cash-pay customers over insurance any day. Most will offer discounts on frames and lenses for anyone with no insurance. This is not to be "nice", but because they simply do not need to inflate their prices if they actually get paid at face-value. Like I said: a lot of insurance is a game. I can consistently offer progressive lenses at $100-$150.00 dollars cheaper than competitors, because I refuse to play. Also, keep in mind that wherever you choose to shop, your provider is in fact human ... if you cannot afford something and you can pay cash, simply say so. Many optical stores have the ability to discount products, even at the register. Some will offer payment plans or take Care Credit (Care Credit is a fantastic resource for any unexpected cost that insurance does not cover). Have a budget going in? Please tell your optician! The good ones will help you find the best pair of glasses within your target price range.

Now, if you do have vision insurance paid for by your employer or still want to use it to save money (I mean, who wouldn't right?), then this is what I suggest: Get your exam and glasses by paying cash. Simple and straight-forward. Then self-submit your bills to your insurance company for reimbursement. They pay you, you save money--depending on your benefits-- and the office you visit still gets paid. Simple. In fact, many natural practitioners and functional medicine doctors have been adopting this business model for years. Here at The Looking Glass(es), we will even aid you in the self-submission process!

However you decide to navigate vision insurance and the purchase of eyeglasses, I legitimately hope you find the best deal.

Stay Independent: "May the odds of good prices be ever in your favor".

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