An April 19 letter to the editor by Ronald McLemore in The Virginian-Pilot & Daily Press describes his experience of having a kidney stone in the middle of the night. He went to a local ER and received good treatment for three hours, but later received a bill for $10,153. He paid only $120 because he had insurance coverage, but correctly explains that such inflated charges are increasing the cost of health insurance. All of us are paying for this either in taxes to fund Medicare and Medicaid or higher private insurance premiums.
How does this Byzantian system of medical billing work? The hospital generates a bill that can be many pages long, including charges for everything from the room to the Tylenol you take for a headache while there. Your insurance company has negotiated a discount with the hospital that pays them only a fraction of what they billed. Adding to the confusion, each private insurance company has negotiated a different discount with the hospital depending on their market clout.
Medicare and Medicaid negotiate the greatest discounts as the largest insurance programs. You pay only deductibles and co-pays, usually a small amount compared to the total charged. Therefore, you are insulated from the total cost and are less likely to complain about the high charges, unless you are uninsured (more than 30 million or 10% of us) and bear the total burden without the benefit of the insurance discount.
This is a complicated system by design. Good luck trying to find out the cost in advance of any elective procedure. Prices are well concealed, since consumers might decide not to have the procedure when they find out what it will cost. How can the capitalist free market of competition work if the prices charged by different providers are unknown?
Who are the winners in this system? Clearly, large hospital systems and insurance companies benefit financially from this arrangement. Who are the losers? Employers, taxpayers and consumers pay more, giving us less to spend on other important needs.
Administrative costs amount to 20% of the $3.8 trillion that we spend on health care. Other wealthy nations pay no more than 12%. Simplification of our billing system to cut these expenses in half would easily cover medical care for the uninsured.
Medicare pays only 2% of its budget for administrative costs. Medicare and Medicaid also cap charges for services to “cost” plus a small profit, something that every other successful health care system in the world does, as pointed out in a recent PBS NewsHour special entitled “Critical Care: America vs. The World.” The government sets prices even in the highly privatized Swiss health system, which performs better than the U.S. system and has much lower costs.
What are the differences in premiums for Medicare and private insurance? Medicare coverage costs $140 per month whereas a typical private plan costs more than $600 for a healthy 64-year-old. Paradoxically, we subsidize the cost of care for those over 65, many of whom have wealth, and burden younger individuals and employers who have many other expenses with massive health costs. A better system would provide basic care coverage for all with a standardized premium and provide supplements for those with lower incomes, as the Affordable Care Act does.
Requiring cost transparency in advance for non-emergency health services would rein in health care costs by improving competition in our private health system. Capping all prices for services as Medicare does now would dramatically lower costs. Recently, I had a brain MRI and the charge was $6,660. Medicare paid the hospital $284 and I paid $71. No surprise that many are advocating Medicare for All.
Dr. Bob Newman, a University of Virginia Medical School graduate and U.S. Navy veteran, spent more than 15 years in private practice in rural Virginia and 17 years teaching family medicine, most recently at Eastern Virginia Medical School in Norfolk.
