As the SCOTUS ruling on the ACA reverberates down through the ranks and implications become better understood, many problems will remain. Controversy will continue around the dominance of insurance companies and the cost to the public. The ACA may limit the profits by requiring insurance companies to spend 85% of your premium on healthcare, but they still retain a firm hand and today’s Wall Street reaction (Health insurers up) means they see it the same way.
Many people talk about reducing healthcare costs through a competitive market. The problem is the healthcare market would be better described as a manipulated marketplace. ACA provisions will make an incremental step in the right direction, but it will not fix the problem The entire market is opaque and dominated by cost shifting. If some people don’t pay their fair share, others must make up for it. In the simplest form, this might mean you pay a little extra at the local Walmart to make up for losses from shoplifting. In healthcare, it rises to epic proportions and the effects.
Here is an example of how this works in my field of emergency medicine. Let’s look at a sample of typical real-world bills, covered costs and payments. If you have had any recent medical care, this may look a bit familiar. You have surely seen those hospital bills for thousands somehow reduce to a few hundred dollars by insurance discounts.
Payments for the same type visit by different payers (insurance companies, Medicare, Medicaid or individuals) will vary immensely. Medicare patients represent about 30% of patients in a typical ER. The feds will pay about $170 under Medicare (varies by region) for high level physician services (for the sickest patients). That sum will come in a little below the actual cost or what a retail store might call a reasonable retail price. That cost includes physician reimbursement, plus the cost of malpractice, health and business insurance and typical business expenses, another 10 plus percent to cover the cost of billing, and the burden of cost shifting. Since Medicare pays less than that, some cost shifting will have to applied to the remaining 70% of patients.
For a typical practice, another 20% of patients will be Medicaid. State Medicaid rates for emergency physicians vary tremendously from merely below Medicare to outright abusive exploitation. Some states will pay less than $50, others over a $100. For many years in NJ, I received $12 per patient visit regardless of the service provided.
They get away with this because emergency physicians cannot opt out of Medicaid. The law requires they provide care to all comers in the ER. Obviously, the difference between the cost of care and payments will be even larger for Medicaid patients resulting in even larger cost shifting that is added to the cost shifting from the Medicare patients. This leaves a large burden on the shoulders of those remaining patients.
Patients covered by Insurance will comprise another 30 percent of visits. Insurance companies work hard to avoid paying for cost shifting. In hospitals and regions where they dominate the market and have the necessary leverage, they may pay Medicare rates or even less. Mostly, they pay about 150% Medicare if they have contracts. Most insured patients will be treated in places where their insurance is “accepted”. This means discounted contractual rates will prevail for those patients, although the actual payment may be have to be paid as a deductible by the patient.
This leaves a small group of patients, who are uninsured, or who seek care in a hospital where the physicians are not contracted. These visits will bear the full burden of all the other cost shifting. Insurance companies deal with these high costs shifts by passing the cost through to the those who buy the insurance. This is a major cause of the high cost of insurance, the need to pay for not just your care but those not paying a fair share. Realize that the insurance company executives are just fine with this as it justifies increasing premiums. The “bill” generated for the above visit may be anything from perhaps $350 to as much as a $1000. Yet in a fair and transparent system devoid the system costs, the cost might be under $100. (that is why socialized medicine is so much cheaper).
That bill is only the beginning as it only covers the physician charges. Hospital billing practices are exponentially worse. Their billings profiles are nothing less than insane. The hospital will bill charges for the ER usage(room, nurse & supplies), x-rays, labs, drugs, etc. The total emergency “charges” can easily top $10,000 although the cost of providing such care might only be $500 (again devoid system costs). The problem is unlike Walmart that increased its price to account for shoplifting to all of its paying customers, hospitals must collect all their cost shift from only about 10% of payers. Therefore, they may send bills totaling $10,000 knowing the amount of the bill is irrelevant to contracted payers and will only apply to non-contracted patients. Mostly they only collect from patients with non-contracted insurance companies. However, caught in this mess will be uninsured patients who become responsible for the whole bill. In many or most cases this places insurmountable debt on those who can’t afford insurance making medical debt the number one cause for bankruptcy fillings. Also lost in this conversation is the coercion to buy insurance at whatever price to avoid such a fate.
Imagine if BJ’s or Sam’s Club could arrange for prices in your local grocery to rise 10 times. Everyone would flock for memberships. That is what we have in the Healthcare marketplace. No, healthcare it is worse. To improve this analogy, the big box stores would also have to sell their memberships at a huge discount to wealthy members of country clubs, while doubling prices to average local residents. This is what insurance companies have traditionally done. Discounts to big employers. Higher rates to small businesses, and nothing short of grotesque exploitation of individuals. Individuals in most markets have no options to cover pre-existing conditions. They are generally offered limited coverage, with large deductibles, low lifetime limits, and loads of exclusions, at astronomical prices. It has also created a huge scam opportunity to sell “insurance” that pays for essentially nothing. Offers for cheap insurance abound. Most provide little or no protection. The myth of cheap insurance from buying across state lines has mostly to do with offers to buy worthless coverage in states without regulations to prevent such unethical business practices.
Yes, the ACA is a huge step in the right direction. It is also likely to shine a light onto other inherent problems in the system. America has now recognized healthcare as a right and can now begin the larger process of fixing the problem. My prediction is that it won’t be too long until it is recognized that we can only reach our goals with a single payer system.