High deductible plans stretching the budget
Part of this new trend in offering discounts to patients with health insurance is the migration of individual and group insurance to higher deductible plans. Just because the plan member has a higher deductible doesn’t mean they have the cash reserves to pay for the higher deductible. The issue of hospitals offering the discounted services also raises question about how those bills and discounts are accounted for at the insurance company level. Is someone (hospital, patient, or insurance company) get an unfair advantage?
Caution: boring insurance background
Health insurance policies are usually compromised of a deductible that must be met before the insurance company either starts sharing the cost with the plan member or covers all the plan benefits. The insurance companies have negotiated prices for various procedures with the doctor, lab or hospital. Insurance policies are a transfer of risk from the individual to the insurer. The deductible reduces the insurance companies risk and liability.
How is the hospital bill handled?
Let’s assume the patient has a $1,000 deductible. They go to a hospital and receive care that is billed by the hospital for $1,000. This bill is transferred to the insurance company and recorded. From the insurer’s standpoint, the patient has met the deductible. If the hospital accepts $500 from the patient to satisfy the bill, has the plan member they really met their deductible? Certainly, this violates the spirit of the $1,000 deductible, but I don’t know if it violates the terms of the plan agreement.
More treatment, more bills
If further treatment is needed at the hospital, with the deductible on paper being met, the insurer is now either sharing the cost of additional treatment or covering all of the treatment without the patient really having assumed the full deductible amount. From what I have read, insurers are not necessarily happy about discount hospital bills because they have to cover costs sooner than would be otherwise expected. Essentially, the patient is “gaming” the system and realizing a lower deductible amount than stated in the plan agreement. Of course, the hospital is complicit in the game since they offered the discount in the first place.
Cash discounts for the health insurance company?
How do we know the insurance companies aren’t getting the same cash discount? What if the patient pays the full hospital bill, but when cost sharing or complete coverage for hospital bills is triggered, the insurance company only pays 50% of the billed amount? This would seem quite unfair to the patient. Where you could get information on that, along with any rebates from hospitals to insurers, would be hard to uncover. If hospitals extend a similar or the same cash discount to the health insurance company, why do they bother to negotiate inflated service prices?
Hospitals facing more competition
Hospitals, for many outpatient procedures, have competition with private outpatient clinics. From looking at the cost of some procedures through a hospital as compared to a surgery center, the cost difference is staggering. Outpatient clinics can charge 1/4 of the amount for the same service at a hospital. Consequently, hospitals need to compete or lose business from doctors who may perform those procedures else where. How would you like to get a bill for $2,000 from a hospital only to find the same procedure could have been done for $500 at a surgery center?
Cash is King
When a hospital turns a delinquent invoice over to collections they won’t receive the full face amount. At the very least, the collection agency will take a cut for collecting and often a discounted amount is offered to the patient to settle the debt. Offering a 50% cash discount first to the patient may be putting hospitals ahead of the curve on the cash flow challenge.
A broken system?
All of this is a sign of a broken system. Insurance companies negotiate prices with hospitals, who then offer discounts to the insurance company customers. Are there any real prices for hospital services that are not hyper-inflated? At the very least, the actions of both the insurance companies and hospitals only erode the confidence of the plan members and patients that they are being treated fairly.