Caveat emptor*

April 25, 2012
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There is a Catch-22 (well, one of several) for health care consumers trying to manage medical expenses. This is especially galling if you happen to be in a so-called “consumer-directed health plan,” also known as a high-deductible plan.

What’s the catch? The idea of the consumer-directed plan is to make you aware of how many medical dollars you are spending and to select your treatment based upon lower-cost options.

Well, first you have to find out what that number is.

And there’s the rub.

The New York Times recently featured an article illustrating the confusion of hospital pricing.  The take-away was that one had no idea and virtually no control over how much a “routine” procedure would cost, especially in an emergency situation. (Your appendix is infected and about to burst and you begin making calls to various hospitals asking for their average cost for an appendectomy? I think not.)

The reality is that we health care consumers comprise what economists call an “inelastic” market. Marketers call us a “captive” market. Defining these terms is best done by example: for a diabetic requiring insulin, the entity supplying insulin can charge as much or little as it pleases because the diabetic must have insulin to survive.

This is also known as a “sellers” market.

There are a few tools available to the cognoscenti (that would be you) to use which will give you an idea of the price range. Assuming you avail yourself of these tools, the next hurdle is figuring out what you’ll have to pay out-of-pocket. Many large health insurance companies indulge in a practice called “balance billing.”  This euphemism refers to the practice of reimbursing the lowest amount possible (usually what Medicare or Medicaid would pay for the procedure), and throwing the remaining expense to the consumer to pay, even if it is in excess of your co-pay. This practice was supposedly outlawed, but of course there was a loophole in the legislation and a great sucking sound was heard as health plans availed themselves of it. And then there are systemic mistakes, such as software glitches which can cause your drug co-pay to spiral from a “mere” $200 to $18,000.

Yet another example of our dysfunctional health care system.

The takeaway from this post is that because of those varying prices, you can negotiate the amount you owe to the medical provider. Persuading the hospital to accept a smaller amount helps you in multiple ways: you exercise at least some control over your medical spending as you sort out the different prices charged for the same procedure, so you save money. What’s more, you gain a sense of empowerment that will stand you in good stead in the future.

*Latin: Let the buyer beware.

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5 Responses to Caveat emptor*

  1. Jeoffry Gordon, MD, MPH on April 26, 2012 at 2:39 pm

    While many unexpected copays are huge, many of my patients are thrown into family budget turmoil when one of their prescription drugs is unilaterally moved by their health insurance from tier 2 to tier 3 with a change in copay from $10 to $40. There are many ways commercial health insurance companies can unilaterally make these changes without any mechanism for oversight.

    • Claudia on May 1, 2012 at 6:46 am

      Dr. Gordon, thank you for your observation. This topic has generated quite a discussion in the Health Care Reform LinkedIn group. If you are curious, it is located at http://lnkd.in/FUW4Cg

  2. Patrick Pine on May 1, 2012 at 12:16 am

    This is also the big weakness of consumer directed plans – even if I have little cost for several years – assume one incident where I fall and break a wrist, for instance. The total cost of that will likely approach $20,000 and I may not have enough in my HSA account to cover the out of pocket. Every time that happens to one employee, word of mouth will basically scare all coworkers.
    And the health care industry, unlike other industries, has no established protocols for setting prices for anything. So two hospitals across the street from each other can have vastly different pricing strategies – one choosing to keep room rates low but pricing everything else high and the other setting a higher room rate but lower for incidentals.
    Frankly, our policymakers and even many benefit professionals have little to no understanding of these realities.

    • Claudia on May 1, 2012 at 6:48 am

      Patrick, the other piece of a HSA which I don’t like is that it is privatized. I don’t want my nest egg resting in such a rickety basket.

    • Todd on May 1, 2012 at 3:19 pm

      Patrick,
      While your argument seems logical, it is factually wrong. According to IRS guidelines no HSA qualified plan can have an out of pocket for self-only coverage greater than $6,050 in 2012. Therefore, you would not have an exposure of $20,000 with a QDP.

      Someone needing major surgery (e.g. orthopedic or cardiac) would be covered for the vast majority of the total episode of care just as he or she would be with a traditional low deductible plan.

      Todd

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