Before we tackle how to reduce health insurance costs, we must understand why they are so high in the first place. There are five big - but relatively unknown – contributors to higher healthcare costs. Thankfully, there are also actionable solutions to most of these causes. Below are some both the biggest contributors to our current healthcare costs, and some solutions that could be implemented to reduce these costs over time.
Referenced Base Pricing
Many people may not realize that there is a hidden health care tax. There is an 87% discrepancy between what a commercial plan pays for hospital care and what a government plan pays for hospital care.
For instance, Medicare may allow $1,000 for a procedure that private insurance would allow $2,040 for at the same hospital. The hospital is receiving over $1,000 more for the private insurance patient because they are attempting to cover the costs of the reduced Medicare patient.
The solution to this problem is two-fold. First, we require hospitals to disclose the Medicare allowed amount on the hospital bill. Secondly, employers switch to a referenced based pricing system. That would mean that the employer would pay for the medical services of their employees based on the published Medicare rate.
Hospitals Become Responsible for Mistakes
Hospitals can be a dangerous place. While they are necessary to help you get well, it is not uncommon for them to make mistakes. And when they do make mistakes, the patient is the one who has to pay.
Let’s say a patient gets an infection after surgery. If they have Medicare, the cost to treat that infection would be absorbed by the hospital. If they have private insurance, then it wouldn’t be absorbed by the hospital, and the patient would essentially be paying twice (once for the procedure, and once for the infection).
This is serious money. According to the National Institute of Health, the annual cost of hospital infections is $9.8 billion. The solution is simple. Require hospitals to pay when they have made a mistake. The laws here should be the same for private insurance as they are for government programs. Ultimately, not only would this lower premiums, but the financial incentive would most likely reduce the rate of mistakes.
Require Disclosure and Choice
Many hospitals are padding their bills - and you may not even realize the extra cost you are paying. You may be under the impression that you are going in for an appointment with your normal doctor, but when you get the bill you see a “facility charge.” These charges aren’t unusual for hospitals, who use them for overhead costs, but why are you being charged extra just to see your normal doctor?
The reality is that many clinics are getting bought out by hospital systems, and they are adding facility fees when you visit them at a hospital facility. Sometimes, they’re even adding a facility fee when your doctor is not located at the actual hospital building.
The best solution for preventing this hidden cost would be to require disclosure and offer choice. The hospital would have to disclose how much the facility fee would cost, and offer patients the option of seeing their doctor at the normal office as opposed to the hospital.
Health Services Agreements
Usually, when we sign a contract, we look at the fine print. So why aren’t we doing that at the doctor’s office? We regularly sign provider paperwork without realizing it includes an open-ended contract. This contract indicates that you will be on the hook to pay whatever they charge, even though you won’t know that number until after they bill you.
To prevent this, providers should be required to have you sign a disclosure whenever they charge more than the Medicare allowance, and if they do not obtain the disclosure, then they must only charge you or your insurance for the Medicare allowable amount.
If you feel like you see a pattern forming, you would be correct. At the end of the day, many of the health care costs could be lowered if there was more transparency on the part of the provider.
Thankfully, lawmakers are starting to take notice of this trend and are implementing some changes. Effective right now, providers and your insurance company must give you a good faith estimate of their prices (but only if you ask). The law also requires primary care doctors to post prices in their office and on their website.
This includes their billed rate, average payments from commercial plans, and the Medicare allowable price. This is a great start, but right now there is no penalty for doctors who do not comply with the law. Our penalty recommendation would be to require them to limit what they are charging to the Medicare allowable rate if they fail to comply.
The rising cost of healthcare is a serious issue, but hopefully, if we continue on the path of requiring providers to be more transparent about their prices, we will be able to significantly reduce costs to the American people.