By Christopher Wolfington
Insurers and hospitals aren’t incentivized to care about how much patients pay
While the United States health system is famously inefficient in healthcare spending, it can be attractive to blame the inefficiency on an outdated system or out-of-control administrative bloat. However, the truth is more problematic and damning towards both insurers and hospitals.
In a story for NPR titled ‘Why Your Health Insurer Doesn’t Care About Your Big Bills’, Marshall Allen reports about a New York City resident named Michael Frank whose partial hip replacement cost $70,000, leading to a $7,088 bill for Frank to shoulder. His insurer, Aetna, had negotiated the rate with NYU Langone Health. The only problem: per Medicare costs and FAIR Health’s pricing benchmarks, the surgery should have cost $30,000 or less.
So this begs the question, do hospitals care about you? Not today. Not when it comes to payment.
Unfortunately for patients, these types of stories are commonplace. Part of that is the privatization of health care in the United States, as both insurers are hospitals are often for-profit institutions that must be profitable or dissolve as business entities.
But the U.S. is not the only nation with privatized health care entities, and therefore the privatization does not account for the entire issue. Rather, through a combination of loopholes and system infrastructure, both insurers and hospitals operate without incentive to offer a fair price or care how big a percentage the patient pays.
Hospitals, obviously, make money by charging the most for their services, and so they are uninterested in where the money comes from as long as they receive it. But insurance companies are also incentivized to offer large payouts. Much of that is due to the 80/20 ruleput into place by the Affordable Care Act. The rule stipulates that insurance providers use at least 80% of the money they receive from premiums towards health care costs themselves
The other 20%, however, goes to administrative costs and profit. By virtue of the 80/20 rule, insurance providers are incentivized to limit administrative costs, not health care costs. That is because the higher costs for procedures demand higher premiums, which combined with higher rates of coinsurance means that the customer shoulders more of the cost as insurers make money.
Unfortunately for consumers, there are no real silver bullets for this issue; additional legislative action will be needed to solve it. Still, consumers can take steps to actively seeking fair pricing, as companies like the Healthcare Bluebook are doing valiant work in making pricing more transparent.