Real Data: I went for a CT scan at the end of April and looking at the costs on the Medicare website I see the following
“Amount Charged” = $264
“Medicare Approved” = $91.42
“You May Be Billed” = $18.28
My understnding of these figures is that the doctor involved charged $264 and the government told him, “Nonsense, that procedure is only worth $91.42 and that’s what you’re gonna get”. Is this correct or is there some other dynamic?
What about if he was charging Private Insurance? Would the same thing happen? Or is this one of the principal reasons that doctors prefer not to take on Medicare patients because they feel they will be stiffed by the Feds or that they will earn more from private insurers?
That first “amount charged” is a fictitious massively inflated number that is typically 2X - 10X the fair price. If the provider has stated that they accept Medicare, or if the provider is in-network with your private insurer, it is meaningless. The actual charges are the Medicare rates or the rates that your insurer has pre-negotiated with the provider for the specified service.
That fictitious wildly inflated price comes into play only if you have no insurance, of you inadvertently (or because of emergency) go to an out-of-network provider. Then it’s the rip-off price that the provider will claim you must pay them. What you are actually liable to pay under these circumstances (when you have been treated without any pre-agreed price) is a complex question, but at the very least you are faced with a long and extremely stressful process trying to negotiate the bill down to something sensible, being threatened with collections, even bankruptcy.
Using your example, there’s another way to look at this that benefits the hospital. The hospital collects $109.70 on a $264.00 bill presenting them with a $154.30 “loss”, at least on paper. Come tax time, this “loss” can be calculated against gross income thus offsetting their tax liability. Their accountants will likely massage these numbers in such a way to make them more palatable to the IRS.
I agree with prior posters that the $264 is a massively inflated price that exists as an opening negotiating point for those without insurance.
However, the Medicare pay rate is likewise massively underinflated. But doctors will accept Medicare payments because it is a large and steady source of income. They make their money from private insurance and can supplement that from these lower forms of payment like Medicare.
I know this is GQ, but I think it is well settled that if we went to “Medicare for all” at these same low rates, doctors could not pay employees with that low reimbursement rate.
I ask for a cite specifically because doctors and the medical provider industry manage quite well in systems that have less than half of US reimbursement rates. Cite.
It may be true that “doctors could not pay employees with that low reimbursement rate”, but most of those employees are there only to deal with insurance companies.
Do you have a cite for this? It seems highly implausible that it’s possible to generate a tax loss this way. If it were, few businesses in the U.S. would ever pay any tax.
This applies directly to the OP though not specifically to the list price he showed.
This may be behind a paywall, but just in case it isn’t:
The summary of the report is that RAND collected 4 million private insurance hospital claims from employers and analyzed them to see what was actually paid. The typical payments were 2-4 times that which Medicare paid for the same service. There are cases where private insurance paid 10 times the Medicare cost and a few times where private insurance paid slightly less than Medicare. As you can imagine the prices varied wildly even within a state or region. It was pointed out that typical process of a company being self-insured means that the insurance company that actually negotiates with the hospital for a given rate is literally spending someone else’s money. It doesn’t cost the insurance company anything to agree to a higher rate. Indeed since their fees are often set by how much is spent higher costs mean larger fees. Of course the hospitals say that they will go out of business if they are forced to live on what Medicare pays. Which I am sure is true. At least they will have to stop expanding. Small hospitals are struggling.
The NY Times article quoted above goes into this. In a lot of areas there has been a massive consolidation of health care. If an insurer tried to hold out for this, its customers could get blocked from a substantial number of practices in their area, including the ones the insurer’s customers already go to. So the health care facilities have a lot of power.
The article also noted that hospitals are hardly efficient, giving an example of a hospital system with 60% of beds filled buying up more capacity.
The Harvard Business Review article was great. However, if you’d read the whole thing, you’d know that it says the loss of money is due to hospitals’ inefficiency, poor planning, and wasteful practices:
Medicare forces hospitals and doctors to function in the efficient way they should be doing anyway, and it penalizes them for sloppiness in patient treatment. That’s better for all patients, whether they’re covered by Medicare or private insurance.
Also important to know that without MediGap, there is no ‘out of pocket maximum’ typical in employer plans. Get a $100,000 dollar bill, pay $20,000.
Although, Medicare Advantage plans can lessen the impact of this, you usually have co-pays and usually end up in a narrow network of providers, need pre-approval for specialists & procedures etc.
I once worked for what was then a major employer. Like most major employers, they were self-insured and used a health insurance company to provide administrative services. At an “Ask the CEO” meeting the topic of health costs came up. The CEO said that they could pressure most of their suppliers to lower costs, but the health care industry held firm. He even tried to form an alliance with other CEOs, but the health care people called their bluff.
My speculation: They knew that union contracts required them to provide health insurance to the hourly employees and they wouldn’t really drop coverage for their management/professional staff.
Antitrust for one. But the article also notes that especially with self-insured companies the insurer collects a percentage of the premiums. While the insurers will try to lower costs - and convince their customers they want to lower costs - their hearts might not really be in it.
