One of the most important benefits of having private health insurance, whether employer-paid or individual, is one that insurers and providers both want to hide from you as much as possible.
That pretty much sums up what is wrong with how health care is priced and paid for in America today.
Take a look at the Explanation of Benefits (EOB) form you received from your insurer the last time you visited a provider in your health plan’s network. You will likely see a series of columns beginning with one labeled “your provider billed” (or words to that effect), followed by another column labeled something like “your plan allowed.” A laboratory test panel, for example, might have been billed at $300, but the plan allowed some seemingly random but much smaller number, such as $79.38.
More columns will follow, including one that shows how much remains to be covered in your deductible, followed by how much the insurer paid the provider, and finally one that says something along the lines of “maximum you should pay.” The maximum in this case would be $79.38. If your provider tries to collect more than that from you – most likely because you have not met your deductible for the year – you can protest that this violates the terms of their agreement with your insurer’s network. It might take a few phone calls or emails, but you will likely get the bill fixed.
This quickly raises the question: Who actually pays the $300 the provider billed in the first place? Maybe it’s the patient whose network does not include the provider and so has not negotiated a discount in the first place. Maybe it’s the poor schlub who has no insurance at all, perhaps a foreigner who got sick while visiting the United States, already shellshocked by how much a doctor’s office charged, who was then referred to the lab by a medical staff that did not know how much the lab would charge, or how much other labs would charge for the same test – and probably did not care very much, either.
In most places, when you bring your car in for repairs, you get a written estimate in advance. The shop will not bill more for the work without your specific authorization. You are free to take your car to a different shop if you want to compare prices. But when you bring your body in for repairs, nobody tells you what it will cost until the job is done and the bill arrives in the mail. The only authorization you give the provider is perform the task; you make a legally enforceable promise to pay whatever is charged later.
The system is as offensive as it is absurd. Yet almost everyone involved is doing everything in their power to keep it intact. They say they are doing this for the benefit of patients. I can’t speak for you, but my malarkey alarm is sounding off at a deafening decibel level. And if I get my hearing checked, I won’t know the price until after the fact.
The Trump administration first proposed a rule this summer that would require hospitals to disclose their rates for procedures, medications and supplies. While hospitals must already state the list price for their services, the new rule would require them to disclose negotiated rates too. Hospital trade groups immediately objected, claiming that such a change would raise prices and limit patient choice. As I observed at the time, anyone who seemingly begs you not to let them make more money deserves close scrutiny.
Last week, the administration finalized this rule. As of January 2021, hospitals must publicly share the rates they negotiated with insurers as well as what they charge uninsured patients. They must update this information, in a “machine readable” format, annually. In addition to all this raw data, the final rule requires hospitals to post online the charges for 300 specific services for which patients are likely to shop around, such as a knee replacement or childbirth services. Such services must be described in “plain language” that a patient can easily navigate.
Hospitals have not warmed to this rule in the months since it was first proposed. Four major hospital organizations have already said they will challenge it in court. The groups have argued that the rule exceeds the administration’s authority, and that it will hurt patients by confusing them and potentially raising their overall costs. Tom Nickels, executive vice president of the American Hospital Association, told The Wall Street Journal, “It’s actually worse than we expected.” The industry’s collective annual costs to comply with the rule are estimated to fall between $38.7 million and $39.4 million.
Congress may have to legislate in this area to save or expand the new rule, if trade groups win their lawsuit claiming the administration lacks authority under current law to promulgate it. Lawmakers could and should do so.
Taking a second swing at more transparent health care pricing, the Trump administration has also proposed a rule that would require insurers and employer-based group health plans to disclose more information about the pricing deals they negotiate with providers. This would be in addition to, not instead of, the new rule for hospitals. The proposed rule for insurers is currently open to public comment.
Providers’ interest in keeping the current system in place is at least understandable. What about insurers? They, too, treat their negotiated rates as trade secrets. This makes them allies with the party across the table against whom they are negotiating. At first blush, it seems to make no sense.
But consider it this way: If you are in reasonably good health, in most years your medical costs are the sum of what you pay in premiums plus what you pay to meet your deductible and out-of-pocket expenses. If you can anticipate, say, an annual blood panel to monitor your cholesterol and an electrocardiogram to check in on the old ticker, you might be able to comparison shop for your insurance on the basis of your true, expected total cost. The insurer with the lowest stated premiums might not look so good if its network comes at higher costs to you. And regulators might force providers to give the same discounts to smaller carriers that the big companies with the greatest market power can negotiate, thus offsetting the big carriers’ economies of scale.
Taken to a logical end point, true price transparency might mean we could turn to the biggest consumer data-crunchers out there – Google and Amazon – and ask for, say, the cheapest licensed MRI provider within 50 miles of home. That’s the dream embodied, in a baby-step way, in the Trump administration’s new rules. And it is the nightmare keeping a lot of the industry up at night.
I have little sympathy, because I am having trouble sleeping too. That malarkey alarm is just too loud.
Posted by Larry M. Elkin, CPA, CFP®
photo by Marco Verch via Flickr, licensed under Creative Commons
One of the most important benefits of having private health insurance, whether employer-paid or individual, is one that insurers and providers both want to hide from you as much as possible.
That pretty much sums up what is wrong with how health care is priced and paid for in America today.
Take a look at the Explanation of Benefits (EOB) form you received from your insurer the last time you visited a provider in your health plan’s network. You will likely see a series of columns beginning with one labeled “your provider billed” (or words to that effect), followed by another column labeled something like “your plan allowed.” A laboratory test panel, for example, might have been billed at $300, but the plan allowed some seemingly random but much smaller number, such as $79.38.
More columns will follow, including one that shows how much remains to be covered in your deductible, followed by how much the insurer paid the provider, and finally one that says something along the lines of “maximum you should pay.” The maximum in this case would be $79.38. If your provider tries to collect more than that from you – most likely because you have not met your deductible for the year – you can protest that this violates the terms of their agreement with your insurer’s network. It might take a few phone calls or emails, but you will likely get the bill fixed.
This quickly raises the question: Who actually pays the $300 the provider billed in the first place? Maybe it’s the patient whose network does not include the provider and so has not negotiated a discount in the first place. Maybe it’s the poor schlub who has no insurance at all, perhaps a foreigner who got sick while visiting the United States, already shellshocked by how much a doctor’s office charged, who was then referred to the lab by a medical staff that did not know how much the lab would charge, or how much other labs would charge for the same test – and probably did not care very much, either.
In most places, when you bring your car in for repairs, you get a written estimate in advance. The shop will not bill more for the work without your specific authorization. You are free to take your car to a different shop if you want to compare prices. But when you bring your body in for repairs, nobody tells you what it will cost until the job is done and the bill arrives in the mail. The only authorization you give the provider is perform the task; you make a legally enforceable promise to pay whatever is charged later.
The system is as offensive as it is absurd. Yet almost everyone involved is doing everything in their power to keep it intact. They say they are doing this for the benefit of patients. I can’t speak for you, but my malarkey alarm is sounding off at a deafening decibel level. And if I get my hearing checked, I won’t know the price until after the fact.
The Trump administration first proposed a rule this summer that would require hospitals to disclose their rates for procedures, medications and supplies. While hospitals must already state the list price for their services, the new rule would require them to disclose negotiated rates too. Hospital trade groups immediately objected, claiming that such a change would raise prices and limit patient choice. As I observed at the time, anyone who seemingly begs you not to let them make more money deserves close scrutiny.
Last week, the administration finalized this rule. As of January 2021, hospitals must publicly share the rates they negotiated with insurers as well as what they charge uninsured patients. They must update this information, in a “machine readable” format, annually. In addition to all this raw data, the final rule requires hospitals to post online the charges for 300 specific services for which patients are likely to shop around, such as a knee replacement or childbirth services. Such services must be described in “plain language” that a patient can easily navigate.
Hospitals have not warmed to this rule in the months since it was first proposed. Four major hospital organizations have already said they will challenge it in court. The groups have argued that the rule exceeds the administration’s authority, and that it will hurt patients by confusing them and potentially raising their overall costs. Tom Nickels, executive vice president of the American Hospital Association, told The Wall Street Journal, “It’s actually worse than we expected.” The industry’s collective annual costs to comply with the rule are estimated to fall between $38.7 million and $39.4 million.
Congress may have to legislate in this area to save or expand the new rule, if trade groups win their lawsuit claiming the administration lacks authority under current law to promulgate it. Lawmakers could and should do so.
Taking a second swing at more transparent health care pricing, the Trump administration has also proposed a rule that would require insurers and employer-based group health plans to disclose more information about the pricing deals they negotiate with providers. This would be in addition to, not instead of, the new rule for hospitals. The proposed rule for insurers is currently open to public comment.
Providers’ interest in keeping the current system in place is at least understandable. What about insurers? They, too, treat their negotiated rates as trade secrets. This makes them allies with the party across the table against whom they are negotiating. At first blush, it seems to make no sense.
But consider it this way: If you are in reasonably good health, in most years your medical costs are the sum of what you pay in premiums plus what you pay to meet your deductible and out-of-pocket expenses. If you can anticipate, say, an annual blood panel to monitor your cholesterol and an electrocardiogram to check in on the old ticker, you might be able to comparison shop for your insurance on the basis of your true, expected total cost. The insurer with the lowest stated premiums might not look so good if its network comes at higher costs to you. And regulators might force providers to give the same discounts to smaller carriers that the big companies with the greatest market power can negotiate, thus offsetting the big carriers’ economies of scale.
Taken to a logical end point, true price transparency might mean we could turn to the biggest consumer data-crunchers out there – Google and Amazon – and ask for, say, the cheapest licensed MRI provider within 50 miles of home. That’s the dream embodied, in a baby-step way, in the Trump administration’s new rules. And it is the nightmare keeping a lot of the industry up at night.
I have little sympathy, because I am having trouble sleeping too. That malarkey alarm is just too loud.
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