The government announced this week that health care spending rose only modestly in 2012, the fourth year in a row of low growth. The numbers released by the Centers for Medicare & Medicaid Services offer a broad overview of the $2.8 trillion spent on everything from hospitals and clinics to drugs and dentists. They don’t, however, fully address a lingering enigma for American consumers: How much does our care really cost?
This might be the year that the multiple layers of this complex onion are gradually peeled away. With up to 30 million expected to obtain private insurance policies over the next few years, a new wave of health care consumers will be demanding more information on what they're being charged.
By and large, those buying policies through state and federal exchanges will be carrying deductibles. They will be responsible for paying the out-of-pocket portions of their bills, up to $6,350 for individuals and $12,700 for families. Although coverage varies from "catastrophic" (least) to "platinum" plans (most), the out-of-pocket costs will require some homework on the part of policyholders.
What will hospitals and other providers do to illuminate their costs for those "shopping around" for services? Will prices come down due to competition? Will they become as transparent as window stickers on cars, where every charge is detailed and open to negotiation?
If providers choose the path of greater transparency – under law they are not forced to do so – then it might herald a new wave of consumer-friendly actions that could make comparing hospitals as easy as shopping for appliances. But don't hold your breath.
In addition to being a black box, health care pricing is as complicated as a parts list for a jet airplane. There are lots of moving parts that are constantly being repriced or discounted. Hospital "chargemaster" pricing lists, for example, may contain up to 20,000 separate items and are updated annually. As respected health care economist Uwe Reinhardt noted in 2006: "Only a handful of Americans truly understand the complex payment systems for U.S. hospitals, mostly those whose job it is to set, negotiate and study hospital prices. Self-paying, uninsured patients certainly don't understand these practices.”
The issue has gotten much more attention in recent years, perhaps most notably in Steven Brill’s extensive Time magazine cover story last March. It hasn’t, however, been fixed. The complexity of health care pricing is compounded by the fact that insurers and large, self-insured employers negotiate the price they pay. Those paying out of pocket get charged a different price, which is usually much higher. And there are also disparities between what providers are charging.
Emergency Rooms a Good Place to Start
For more than 120 million patients, the emergency room is often their first, brief encounter with the opacity of American health care. Some 80 percent of those entering this cloistered world have insurance, so they never really see the cost of care.
For others, particularly those with high-deductible policies, the price of an emergency room visit can be daunting. There are no prices posted for basic services and you have no idea how much a visit is ultimately going to cost.
My family had this experience when we brought our 12-year-old daughter in for what we thought could be a third-degree burn. The wound looked awful, so we rushed her into the local emergency room – Northwestern Lake Forest Hospital in Grayslake, Illinois.
Although treatment consisted of a few minutes of a doctor's time – it wasn't a critically serious burn – we received a bill for $938 after our insurer discounted it from $1,400. Since the amount fell under our annual deductible, we attempted to negotiate a lower price. We felt that was outrageous for such a basic service.
After months of requesting reviews of the bill and appealing it to the hospital's chief operations officer, we were told that the level of care "was appropriate" and basically represented the cost of just walking in the door. We were denied any discount and our bill was sent to a debt collection agency.
While we could afford to pay, the idea of not being able to discover what the actual cost was – and denied any discount for such a basic service – thwarted the laws of consumer economics. Had we been able to see a price list in advance from this hospital and its many competitors, we would've made a different choice. Had we been able to negotiate the way we could with an appliance dealer or home contractor, we would've had even more leverage.
This was an emergency, though, so costs weren’t our first concern. Should we have asked how much the treatment would cost before letting the doctors look at our daughter? Of course, I realize that emergency rooms – and most health care facilities – have large fixed costs such as employing doctors and nurses and paying for some expensive equipment. But that doesn't preclude providers from joining the rest of the world in making their prices transparent and negotiable.
Revealing prices leads to competition, which is generally a good thing for providers and consumers alike. It will also lower the costs for the millions of Americans who will spend billions for out-of-pocket care.
Brill, who has written extensively for Time on the health care industry's pricing mysteries, reported last month that "since Obamacare was signed into law, there have been more than 3.5 million personal bankruptcies filed in the U.S. Some 60 percent, or 2 million, are estimated to have involved medical debt as a key factor."
The Affordable Care Act will likely lower the chances of going broke over medical care since it offers coverage for the uninsured and expands Medicaid. But it won't eliminate the widespread gouging of the poor and under-insured by providers, most of whom have no defense against opaque pricing practices.
Without the clout of an insurance company or employer, what leverage do you have to bargain with a big hospital or clinic, which knows that they can charge "full retail" for their services, whatever that means?
There are clear solutions to this problem. If you can go online and use a search engine for finding prices on everything from books to round-the-world tours, why can't this happen in health care? It's the next step in reforming our system. You can't lower the overall cost of a service – or make its delivery more efficient – if you have no idea what it really costs and there's no competition on price.
Here’s an update on my personal odyssey in signing up for Obamacare: I just got a call from the Healthcare.gov people, who wanted to go over some minor issues on my over-the-phone application, which I submitted back in October. For now, I’ve kept my existing high-deductible plan, but I’ll be updating my insurance shopping story in this space soon.
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