What neither party wants you to know about healthcare

[im4wsu]

The negotiated price in your example is a single event that does not affect future retail prices. The next time that same doctor bills that or any other insurance company, it will again be at the full retail price, which may or may not be negotiated down again. The doctors have been set the retail price, and the insurance companies are very clearly incentivized to negotiate down the price to reduce their expenses and maximumize profit. Therefore the notion that they want prices to increase is absurd.

The insurance companies primary reason for reducing the payment it makes is so they can charge lower premiums and sell more policies and spread the risk over a larger base, which what insurance is, by definition. More policies on the books hopefully leads to more profit because they collect more premium, but that depends on how the book of business performs.

[im4wsu]

I believe insurance companies do set medical costs. That's the source of all the networks that are involved with the various insurers. Insurance providers work out what they will pay for the services the medical industry provides. If a facility/doctor agrees to those prices, then that facility/doctor is included in that insurers network.

Hospitals and doctors set their fees. That's the amount you always see on medical bills as the charge for the service. There's always another amount which is what they've agreed to charge through the insurance carrier. Then there is the amount the insurance company paid, which leads to what you still owe.

If a hospital is going to charge $3 for an aspirin, but your insurer is only going to pay $2 for that aspirin, then the $3 charge is meaningless. That's not the actual charge for the aspirin. The actual charge is the $2 negotiated amount. Of that $2, the insurer gets to keep $.40 and the $2 cost is calculated into your premiums.

If that same aspirin is charged at $2.50, then the insurance provider can keep $.50 and the $2.50 cost of the aspirin will be calculated into your insurance premium. Your premiums go up so the insurance provider can increase their profits, even though the actual manufactured cost of the aspirin and the cost of the aspirin to the hospital didn't change.

The price the medical industry sets is a little like going to Penney's and seeing a dress shirt that's normally $42 on sale for $36. It makes you think you're getting a good deal. In reality, no one ever paid $42 for that shirt. It wasn't selling at $32, so they raised the price to $42 and put it "on sale" for $36. And you pat yourself on the back for waiting until the shirt went "on sale".

The "cost" of the services may be higher or lower than what the insurance company has negotiated to pay. Where is the cost lower than what the insurance company will pay -- it occurs in some services provided in rural hospitals that are subsidized just to remain open. Clearly a case where the insurance company does not set the "cost" and, in this case, the payment either.

If one insurance carrier pays $3.00 for the aspirin and another pays $$2.50 for an identical aspirin from the identical provider, both billed at $4.00, what is the cost of the aspirin? The cost of the aspirin, the ingredient cost and the overhead and profit, R&D costs, teaching costs and whatever else goes in there, is the same regardless of what the insurer pays.
In the same situation with different providers providing the aspirin, the cost associated with that aspirin is most likely different, but still independent of what the insurer pays.

[Kung Wu]

The insurance companies primary reason for reducing the payment it makes is so they can charge lower premiums and sell more policies and spread the risk over a larger base, which what insurance is, by definition. More policies on the books hopefully leads to more profit because they collect more premium, but that depends on how the book of business performs.

Yup, the OPs premise doesnt take into account that pool size is a much larger factor than premium price.

[Aargh]

As I understand medical billings, the insurance companies present health providers with a schedule of payments for services. Then it's "We have X number of clients in your area. Do you want to do business with us?"

USD 259 has a situation right now that illustrates this. Via Christi did not agree to the rate structure proposed by the district's insurer. Wesley agreed to the rate sturcture. All hospitalization for USD 259 employees has to go through Wesley. The ripple down effect was that USD 259 employees who had been getting routine medical care through Via Christi Clinic have to find different doctors, since Via Christi routes their clinic patients exclusively to Via Christi hospital.

My theory that admin/profit caps incentivize raising costs is based on an assumption of collusion among insurers.

[atlwsu]

The best way to reduce healthcare cost it to mandate poison 75th birthday cakes. A coffin would make a nice gift.

Its comming.

[WstateU]

A coffin would make a nice gift.

The end is near...