Insurers and their agents  have led us to believe that they get us the best deals. That’s one way they promote their products to individuals and to employers who sign us up for their plans. But the prices they negotiate with hospitals and physicians groups are subject to so much behind the scenes horse trading and so many side deals that what is best for the insured patient  is often overlooked. Insurers promise that they are getting us great discounts off the exorbitant sticker prices charged by doctors and hospitals but they give no data to show us what either those sticker prices or the alleged discounts actually are.  Patients have no idea how these secret deals between insurers and medical providers affect what they pay. Keeping everything behind closed doors allows all the players in the industry, insurers , brokers, and medical  providers , to dodge any questions about their profits or why they are all making us pay so much in the first place. This madness helps explain why often you pay more running medical costs through your insurer than you would paying out of pocket.

Of course  not  everyone with insurance is going to be interested in paying cash.  However it might be an attractive option for persons with a high deductible policy to  ask their  medical providers for the direct payment cash  price they would accept without involving  insurance. The federal government estimates that almost half of Americans with employer based insurance plans are in high deductible plans. Paying cash directly  without resort  to your insurance policy may also be a good option for medical supplies or if your health benefits plan requires a copayment for drugs. Indeed the cash price for drugs may be less than your insurance copay amount that you fork over to the pharmacy. Asking your provider for their direct cash payment price without any middleman involvement is  also essential if you are totally uninsured  or covered by a health sharing plan that requires you to pay a portion of the costs up front. Bear in mind that any  cash payments  you make directly to your medical provider  without reporting it to your insurer will not count against the deductible threshold you need to meet under your policy, but the tradeoff may be worth it if you have a hopelessly high deductible threshold that you do not expect to meet anyway  absent a major catastrophe. Often the cash price you can ask for and negotiate on your own without insurance is better than the so called “discount “ rate offered by insurance carriers. So even if you have insurance ,always compare the amount your insurer company says is your share of the total bill ( copay amount an/or the amount of the bill which is under your deductible threshold)against the direct cash payment price that your medical provider is willing to accept, and only pay the lower of the two. In several instances the cash price you can get on your own from a medical provider  is less even than the co pay you would have to pay under a standard  insurance plan.

Never assume that your insurer is protecting you from excessive charges from medical providers.  A glaring example of this fact is the plight of one patient in New York City  who underwent a partial hip replacement surgery at NYU Langone Medical Center. His insurer Aetna paid that hospital over $70,000 for the procedure . The patient ‘s copayment share for which he was billed was over $7k . Aetna assured the patient that he was getting the special in network discount price that the insurer had negotiated with the hospital, but when the patient looked up the publicly available Medicare price for the  procedure he discovered that it was only $20,000, which was  less than one third of the  total $70k price that  Aetna had agreed to with  the hospital for the same  procedure. In this case the nonprofit FAIR Health, which publishes online  pricing benchmarks for various procedures in  the  private sector/non Medicare  healthcare market, estimates the total fee including all surgeon’s fees for this particular procedure  should be only somewhat higher than the Medicare price, at about $29,000, a price that includes surgeon’s fees.   The $29,000   Fair Plan price is still much less than Aetna’s $70,000 pricing arrangement with the hospital. The FAIR Health recommended price is a little higher than Medicare probably because  of that inclusion of surgeon’s fees.

Medicare prices for various procedures, which are publicly available on the Medicare website, set the baseline   for fair and reasonable pricing and they are regularly updated to reflect all prevailing market factors such as labor costs in each region of the country. Medicare payments are accepted in  virtually all hospitals and medical facilities across the nation . Private insurance carriers should ideally  not deviate too high above  Medicare prices when they negotiate rates with hospitals and other providers in their networks,  although we must recognize that  private sector insurers   necessarily factor in an extra  expense layer to cover the extended middlemen structure of brokers and agents through which they handle patients. This  supplemental cost for intermediaries does not burden  Medicare, which as  a single direct payer  for  medical providers has no   middlemen.

However Medicare’s leaner overhead cost structure does not entirely account for the often wide divergence between what Medicare pays to hospitals and doctors  and the much higher amounts that private sector insurers typically pay  the same industry vendors.    The fact remains  that whereas  Medicare has a transparent and publicly published pricing structure that is applied evenly to all medical industry vendors  ,private insurers pay hospitals and doctors in their respective  networks wildly different rates for the same procedures . Studies have shown that these rate variations  have little to do with the actual quality of the services performed, but much more  to do with the relative clout that insurers and hospitals bring to the table when they negotiate the price that will be imposed on  the insured population.  

These negotiations between insurers and medical industry vendors might not be as tough minded as you might think on either side.  Hospitals are actually  encouraged to set their sticker prices high so that insurers can boast to their customers that these insureds are getting a big discount off that hospital price. Thus Aetna’s $70,000 in network “discount” price represented a steep “discount” off this particular hospital’s $138,000 sticker price, but that discount price is still exorbitant.  Similarly this patient learned as he investigated his itemized hospital bill that the $26,068 price charged to him for the  hip implant device itself  actually cost only $1500, a huge mark up. However when the patient complained to Aetna about excessive overcharges from this hospital, his  insurer insisted that all charges  were proper.

 This overpriced operation , and the insurer’s willingness to pay it, illustrates the role that insurers play in our rising health care costs.  Why would an insurer agree to pay a hospital such excessive charges? The answer is simple. Because the insurer can pass the costs on to their customers in the form of higher premiums and out of pocket costs, whether they be in the form of  copays or other amounts below a customer’s deductible threshold, there is no incentive for insurers to rein in expensive  hospitals. That is why  these healthcare insurers  collectively  routinely rank among the most profitable companies in America. The year after this hapless  patient ‘ship replacement  operation his premium rates went up by almost 19%.  

Health insurers make more money when health care prices increase. The Affordable Care Act, the 2010 law often referred to as Obamacare, included a provision that tried to keep insurance companies’ profit margins in check.  The ‘medical loss ratio “in Obamacare stipulated that  insurers had to spend at least 80% of what they took in as premiums on medical care. That sounds like a good idea, because Obamacare’s goal was to limit excessive insurer  administrative costs and profit margins. Insurance companies like to say that their profit margins are small, but that only means they are within the Obamacare  medical loss ratio that sets a profit ceiling in percentage terms. As long as they keep growing claims, even by paying excessive charges from hospitals and other medical industry vendors, insurers are free to grow their profits as well  in absolute numbers.  Their first concern is to make money for themselves, not to save you money. So for example if an insurer wants to achieve a 3% profit, the insurer would simply increase its revenue by spending more on claims with no incentive to monitor claims from hospitals and doctors for excessive or even erroneous billing.     

Thus  insurance companies have every motivation to keep their costs , which are claims for service  by providers to their insured,   as high as needed to achieve their desired profit margins.  Under this  business model, insurers   can  simply pass on higher costs from vendors  to their customers as higher premiums. This business model for setting Obamacare premiums has now spread like a cancer throughout the entire health insurance industry, impacting insured patients   in the private sector insurance market as well as Obamacare subscribers and the federal government that pays the subsidies for those Obamacare insureds.   Therefore it is the entire insurance paying public, plus  the taxpayer funded government entities that pay Obamacare subsidies, that is hurt by  this  game. It affects  those who are insured individually and those who are insured  through their employers no less than Obamacare  insureds.  A growing share of the total compensation pool of benefits funding  that employers  set aside for their  employees is  being diverted from direct pay to them  and is instead going to pay rising healthcare premiums as health care costs  constantly rise. This  helps  no one but the insurance industry and this is a drag on our economy and costs lives. In a Harvard Medical School study, researchers estimated that 45,000 Americans needlessly  die each year as a result of being unable to afford health insurance and therefore not seeking any treatment for medical conditions which are  highly treatable with timely intervention.

 Because insurance companies can so cavalierly pass on any and all costs under their business model, they are similarly  indifferent to rooting out any fraudulent claims . Criminal justice prosecutors and government investigators in the states of California and Minnesota have reported that the number of fraud cases referred  to them by private sector health insurers is pathetically small, often only two to five a year, compared to over 300 criminal  charges annually typically  filed by the federal government against Medicare and Medicaid fraudsters. The big private sector insurance companies use automatic mechanized claims processing procedures and rarely scrutinize claims submitted under certain thresholds. Insurance companies that are taking in billions in revenue apparently accept the leakage of a few million as an acceptable cost of doing business, especially when it can be passed on their customers. Pro Publica investigative reporter Marshall Allan reported that the now jailed fraudster David Willliams in Texas  billed and received from United Health Care Group  $3.2 million  , most of it after United caught him in the act but continued to pay him over a number of years. However  the loss was not absorbed by United but instead passed on to its client Southwest Airlines in the form of higher premiums. United was serving as the administrator of the airline’s employee benefits fund whose employees were the target of these improper claims. A payout of  $608,000 was made to the same fraudster by Aetna  out of customers’ premium funds held  by  Aetna, which recovered only a small fraction of these payouts . Aetna declined to refer the fraudster for criminal prosecution. It is much easier for insurance carriers simply  to raise premiums on  their customers  than to monitor the propriety of claims from  vendors  for services allegedly made to the employees covered under group coverage plans administered by these carriers.