Despite what many people think, insurance carriers play a major role in raising healthcare costs by agreeing to pay high prices and passing these prices on to patients — all while making healthy profits.
NPR published an article on May 25, 2018 entitled “Why Your Health Insurer Doesn’t Care About Your Big Bills” that took a closer look at the role insurance carriers play in raising healthcare costs. The article was written by Marshall Allen, a journalist for ProPublica, a nonprofit newsroom whose mission is “to expose abuses of power and betrayals of the public trust by government, business and other institutions, using the moral force of investigative journalism to spur reform through the sustained spotlighting of wrongdoing.” ProPublica is serious!
The article tells the story of a New York man who had a hip replacement at New York University (NYU) Langone Hospital. He just happened to work in the insurance industry as an actuary and knew how insurance worked – he was even president of the Actuary Society of Greater New York.
His insurance company, Aetna, had negotiated an in-network rate for the procedure. The allowed amount for the hip replacement after the Aetna discount is $70,882 (the total billed charges was $117,000), which was more than three times the Medicare rate for the surgery and more than double the estimate of what other insurance companies would pay for this procedure. The patient’s coinsurance required him to pay 10 percent of the total charges, which was more than $7,000.
The patient was livid that he had $7,000 in out-of-pocket expenses. He requested an itemized bill from NYU, which showed he was charged for physical therapy and medications that he never received. He was also charged $26,068 for the actual hip implant. Yet, when he contacted the hip implant manufacturer, he was told NYU paid approximately $1,500 to buy the implant. That was a 17x markup for the implant!
The actuary asked Aetna to review the bill twice for excessive charges. Both times, Aetna said the bill was correct. Why? Because the hospital and insurance company had agreed on a price, and now he was required to pay the 10 percent coinsurance.
The patient was so mad he decided not to pay the bill. NYU eventually sent him to collections and later sued him for the amount.
Eventually, the patient settled in court for about $4,000 because he had not filed a complaint in writing with NYU within 30 days of the procedure.
Implications for Employee Benefits Professionals
- Orthopedic implants receive high mark-ups when compared to what they cost hospitals.
- Even after discounts, insurance carriers pay hundreds of percentage points more than Medicare.
- Insurance carriers are incentivized to make healthcare costs higher for the following reason (according to the article):
“The Affordable Care Act kept profit margins in check by requiring companies to use at least 80 percent of the premiums for medical care. That’s good in theory, but it actually contributes to rising healthcare costs. If the insurance company has accurately built high costs into the premium, it can make more money. Here’s how: Let’s say administrative expenses eat up about 17 percent of each premium dollar and around 3 percent is profit. Making a 3 percent profit is better if the company spends more.”
Egregious Markups. Dubious Discounts. Perverse Incentives.
Here is what employee benefits professionals can do:
- For Egregious Markups: Expose prices to employees, plan members and company executives. Use primary care first.
- For Dubious Discounts: Steer to more cost-effective hospitals within your network and direct contract with surgery centers for orthopedic services, when possible.
- For Perverse Incentives: Self-Fund.
To learn more how Compass can help plan members navigate healthcare and health insurance to make these changes a reality, visit https://www.compassphs.com/blog/healthcare-trends/the-elephant-in-the-room-7-percent-americans-trust-health-insurance-companies/