From 3M Health Information Systems
It’s time for employers to start getting mad about health care prices
Shortly after moving back to Minnesota three years ago, I went to get my annual physical as I always do. As a relatively healthy 30-year-old, I didn’t have any real reason to go, other than the fact that my insurance makes the visit free and because public health experts say prevention is key.
Since it was my first time to this primary care doctor, she took time to get to know me and my health history. In the midst of this conversation, she asked if I have any occasional health concerns and I mentioned that I sometimes get stomach aches in reaction to some food. She ordered a gluten allergy test and recommended a gastroenterologist if the problem got worse. I knew I’d pay for the test but was fine with that since the visit would be covered and went on my way.
Weeks later, I received a bill saying the visit was no longer considered a primary care visit and was charged $300 for the visit and another $150 for the test. I was floored that a visit that I only went to because it was covered with no cost-sharing had turned into nearly a $500 bill (plus the monthly premium I already paid to get the supposedly free visit). Since I was healthy, I hadn’t met my deductible and had to pay everything out of pocket. Now the insurance company had negotiated a rate that was supposedly giving me a good deal, so I begrudgingly paid the bill reminding myself how much more it would have been if I didn’t have insurance.
But according to new data, the deal I was supposedly getting may not actually be a better deal after all.
The New York Times recently released a report showing significant variation in negotiated rates for hospital services, despite the involvement of major insurers in negotiating those prices. In one example, the New York Times found that at the University of Mississippi Medical Center, a colonoscopy costs $1,463 with a Cigna plan, $2,144 with an Aetna plan, and $782 with no insurance at all. It’s not just more expensive services that have significant variation. At the hospital of the University of Pennsylvania, a pregnancy test costs $18 with a Blue Cross of Pennsylvania plan, $58 for a Blue Cross New Jersey HMO plan, $93 for a Blue Cross New Jersey PPO plan, and $10 for uninsured patients. This difference exists across state lines even though the hospital is less than 10 miles away from Camden, New Jersey.
These revelations raise serious questions about how effective health plans are at securing discounts for their members and whether patients are getting the best deal through their current insurance plan. As a member, I have to question if I would have been better off paying cash to a doctor directly for my visit and test rather than going through the insurer. The billing would be easier, the price may be cheaper, and I avoid being caught in the middle of doctor and insurer games about coding and prevention services.
It’s not just patients that should be upset. Self-insured employers, who fund most of the health spending in this country, should be livid after years of price increases and promises from their third-party administers and plans that they are getting a good deal. This wild variation in prices is not good for employee morale, employee pay raises or the company budget.
Some hospitals and insurers may respond that the negotiated rate isn’t the same as what a patient pays. That is instead determined by their monthly premiums and cost-sharing. This argument is smoke and mirrors for three reasons. First, for cheaper services (less than the annual deductible), patients will likely bear 100 percent of the costs of the negotiated rate, so higher negotiated rates for a pregnancy test under one plan means higher out-of-pocket costs for that plan’s members. Second, after the deductible, patients usually have to pay co-insurance, a percentage of the total negotiated rate. Therefore, 20 percent of a higher negotiated rate is more than 20 percent of a lower negotiated rate. Finally, deductibles and premiums are both calculated in a manner to ensure costs being paid for sicker individuals don’t exceed money coming in from premiums. Therefore, these numbers can be raised or lowered depending on what you are paying out for your negotiated rates. Lower negotiated rates would mean lower costs for sicker individuals and lower premiums for other plan members.
The reasons negotiated rates aren’t lower are multi-faceted. But the most important reason is because stakeholders are making good money under the status quo and self-insured employers that hold the market power haven’t worked together to demand more value. Regardless of whether or not you think health care should be shoppable for patients, the new data raises serious questions about whether or not patients and employers are getting good deals. It’s time for the employer community to stand up and demand more. Here’s hoping that greater transparency and insight from recently finalized regulations will finally give these employers the motivation they need to start yelling.
Matt Gallivan is the Director of State and Federal Regulatory Affairs for 3M Health Information Systems.