Sunday, October 23, 2011

Healthcare Costs

This post is not about the high cost of healthcare.  Instead it is about the way we lie about the costs. 

I have health care.   In fact, my employer does a pretty good job when it comes to benefits.  It offers multiple plans and lets us choose.  I have in fact chosen the more expensive, pick your own doctors plan.  

When I get healthcare bills, I pay them.  Usually I just look at the "You Owe" column.   The rest of it is pretty complicated and hard to understand.

Today, I am going to look at the rest of the columns  The most interesting thing, is the differences between the "amount billed", "Paid by XXX", and the "You Owe" column.   In most businesses, you would expect amount billed to be equal the paid by + the owe column.  Not in healthcare.  None of my health care bills for the past 12 months add up like that. 

In health care bills, there are two more  columns: "Discount" and "Amount not Covered"

You see, insurance companies make two kinds of deals with healthcare providers.  The first is a straight "discount", of say 29%.    There, they pay the healthcare provider 29% of what they bill.  The other is a set fee, where they pay a certain amount of money for certain types of procedures, regardless of what the provider normally charges.  Hint, it is usually a LOT less - as in much less than 50%.    

That 29% is spot on accurate (to the penny) example, used by my insurance company for all payments to that particular provided.  The negotiated amounts have dramatically different billing percentages.  But a typical set fees vary a lot.  One was covered $110.27 out of $295, or about 37% of the bill.    Another was $39.27 out of $177.96, or about 22% of the bill.

Add to that a small copay, usually under $50, which I personally pay.

Wow, those providers must be going bankrupt!  They are getting ripped off!  But wait, they have been doing this for a long time.  More than long enough to go bankrupt.  At the very least, why don't they all go to the discount method.   Another thing, clearly, those inflated prices are wrong.  They are overcharging.   What is going on?

First, the amount of inflation in medical prices varies depending on location.  That is, while that provider may charge$295 in Manhattan, the same procedure may only cost  $155 in Detroit.   For a national provider, the set discount may make a lot sense in one location, but make no sense in another.Clearly the negotiated 29% discount is a good deal for the Manhattan doctor, giving him about $200, but a horrible deal for the Detroit guy who would get his full $155.
 Second,  not everyone has insurance.  And sometimes, even with insurance, you can't go to a provider 'in plan'.  I try to save money by going to in plan, but if I get a brain tumor, I may have to go out of plan.

So those providers keep their high "inflated prices" for use with relatively rare non-participating people, while at the same time accepting the massively lower prices for most of their clientele.  Note, I am not special, most people try hard to go with providers 'in plan', most of us get the lower prices.

It is VERY rare that someone with money goes to a provider "out of plan", for anything significant.  The main case is emergency room visits.   More often, you get poor people that have no insurance getting hit with large bills, that they more often than not, can not pay.

Third, the providers can get tax benefits for having those high prices discounted away. They are business losses - "I charged X, but only got paid X/2"   This is particularly used by 'non-profit' entities that make a lot of money, but to avoid paying taxes, have to find ways to claim they are not-profitable even when they really are.

Fourth, it lets the insurance companies pretend they are getting a good deal.  They can claim they saved you money, as opposed to simply costing you more than the doctors, just spread out over time.

The truth is quite simple.  No reasonable person ever pays the "billed price" for helathcare, given sufficient time to prepare for the charge.  If we have insurance, we go to in plan providers.  If we don't, we get insurance first, hunt down charity, or simply don't pay it.

So why do we allow the deceitful business practices created and maintained by the providers and  insurance companies for their benefit.

Medical care is hard to price.  Particularly emergency medical care.  The providers have you over the barrel - pay or die.  Usually it is agree to pay NOW or die.  Worse, they don't tell you the price before service.

Lets talk about a world where these practices are not going on.  No 'discounts', no massively lower secret "negotiated prices".

Three rules to make this happen.  Why treat healthcare special?  Because I am not.  Most of these rules are designed to do to hospitals and other providers what existing laws and capitalism have required other businesses to do for years.

  1. No Price Gauging.  Emergency room visits to a hospital, by law would have to use the lowest negotiated/discount prices a place has, regardless of with whom they negotiated services.  If they have no negotiated prices, they can't provide those services anywhere else.   We don't let people raise the price on water or gasoline to 3x normal because of a emergency (hurricane, etc.), don't let them do it because of a car accident/heart attack.
  2. No Hidden Prices.  Any service provider must post all regular prices and negotiated prices online, for every single insurance company.   If this is too hard to do, then perhaps the provider should consider simplifying their pricing.  No other business gets away without listing prices beforehand.  If they negotiate discounts, they must list the un-discounted price and the set discount.   Every other business in the world has to list their prices before you pay, so should the hospital.  The negotiated prices must be listed so that people can tell before hand what they will actually pay, and which insurance companies they should consider joining.
  3. No Secret Profits.  Anyone non-profit provider can not charge more money to the uninsured than their lowest negotiated price.  That should be what non-profit is all about. Any for-profit provider can screw the uninsured all they want to.
P.S.   I am talking about providers, not just doctors here.  More importantly, the doctors are not the ones in charge.  Corporations are.  Medical providers are not just doctors and hospitals, but also businesses doing medical tests, selling drugs, braces, etc. In general, it is the big corporations that are in control, creating this system, not individual doctors.   Individual doctors have to go along with the system.

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