Like many people, I’m trying to get my health insurance company to pay for something they don’t want to shell out money for. I do not completely blame Cigna; the bill sent by the supplier is outrageous. Then again, as a third-party payer in a bungled healthcare system, the company is part of the problem of skewed incentives and rising costs. Sometimes lost in the debate between proponents of a market-based healthcare system that we don’t have and true proponents of a completely government-controlled system is that separating patients from the responsibility of paying for what they get is a big deal if bills come to the end. fines paid by insurance companies or government agencies.
In my case, Cigna doesn’t want to pay $4,000 for a week on a prescription Holter (external electrocardiogram) monitor because, after I turned 50, my warranty expired. That’s life. The reason given by the insurance company for not paying does not matter. I know from my wife’s experience as a pediatrician and from talking to other doctors that insurers, whether private, Medicaid or Medicaid, issue denials under the assumption that some will never be appealed and therefore result in cost savings. Pushing back usually brings results and I am confident that I will prevail in the end.
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Health coverage that drives up costs
I don’t blame Cigna entirely because four grand is a lot of money. Outright purchasing a Holter monitor ranges from a few hundred to a few thousand dollars; the bill sent to my insurer was for a week’s rent. This doesn’t cover the cost of the cardiologist’s skill and time reading the downloaded data, of course. That in general runs a few hundred dollars. But prices for monitoring and interpreting data are everywhere as with most healthcare products and services. There is little in the way of a real health care marketplace to set prices and inform consumer decisions.
“Contrary to ‘conventional wisdom,’ private or other health insurance does not make health care more affordable,” Jeffrey Singer, surgeon and senior fellow at the Cato Institute, he wrote in 2013. “The third-party payment system is the main force behind health care price inflation. This should come as no surprise.”
Singer pointed to American-style health “insurance” as an example of Nobel Prize-winning economist Milton Friedman’s last category four ways to spend money: in this case, spending someone else’s money on someone else. “Here you have the least incentive to save or buy something that meets the recipient’s needs or values,” notes Singer.
“When the government buys goods or services for other people with other people’s money, special interest pleading, political concerns, and cronyism drive the game,” he adds. “But even private insurance companies are spending other people’s money, premiums paid into a risk pool, on other people’s medical services. When they negotiate compensation programs with providers and facilities, they don’t have to haggle enough to hit the best possible price. They just need to come up with a good enough price that allows them to charge premiums that compete well with rival insurance companies.”
Wayne Winegarden and Celine Bookin of the Pacific Research Institute’s Center for Medical Economics and Innovation agree. They indicate that, in 1960, patients paid 52% of their own health care costs, private insurance collected 22.8%, and government and other third-party payers covered the rest. In 2019, patients paid out-of-pocket for just 11.3%, private insurance covered 33.3%, and Medicare and Medicaid covered 39.3%.
“This shift in financial accountability creates an increasingly large conflict of interest between payer bureaucracy and patient needs, and this misalignment drives the undesirable outcomes plaguing the current U.S. healthcare system,” Winegarden and Bookin write.
If you want to know the price, good luck
In an effort to alleviate those problems, the Trump administration implemented a new rule several years ago that requires hospitals to publish prices for services. If you can find them buried on websites, good luck. My local hospital offers an Excel spreadsheet showing over two dozen different prices for the same procedures and services, from gross charge to different self-pay categories, Medicare, Medicaid, and the results of negotiations with different insurance companies.
“A colonoscopy could cost you or your insurer a few hundred dollars or several thousand, depending on which hospital or insurer you use,” NPR reported after the entry into force of the law. “Hospitals say the push for transparency alone won’t help consumers much, because every patient’s situation is different and can vary, and individual deductibles and insurance plans complicate matters.”
Well … yes. As long as someone else, Medicaid, or Medicare, is footing the bill, the price really only matters to the relatively few self-paying patients who receive both health care and are responsible for the bill. For them to compare offers between providers AND important because, NPR adds, “in some cases, the cash-only price is lower than what the insurers pay.”
Note that experts do not distinguish between government taxpayers and insurance companies when assessing third-party taxpayer issues. While consumers pay in the form of premiums (private insurance and government programs) and taxes (government programs), these payments are separate from pricing and bill liability decisions. This creates what is called an “economic wedge”.
Private or public, third-party payers are a problem
“An economic wedge occurs whenever government policies separate effort from reward or consumers from producers,” Winegarden wrote in 2009 with co-authors Arthur Laffer and Donna Arduin in The prognosis for national health insurance. “When the government, lawyers or third-party insurance are responsible for paying bills, consumers have no incentive to control costs.”
Supporters of single payment systemsOR Healthcare for all, would turn the government into the last paying third party standing, without even the discipline that comes with competition between paying third parties. It would double the problems inherent in divorcing people from the cost of the health care they use, without addressing those problems at all.
“Politicians need to understand that the key to ‘affordable healthcare’ is not to increase the role of health insurance in people’s lives, but to decrease it,” Singer wrote in 2013. He called for patients to be brought back into control of your health care costs. Winegarden and Bookin also please shift power and liability from third-party payers to individuals.
If I had answered my cardiologist’s prescription by shopping in a free market healthcare system, I would have had better price management, the real price, not a bunch of categories. I would have looked for an affordable option. I may have opted for one of commercial home monitors that offer alternatives to Holter monitors. And I wouldn’t argue with Cigna about a price that we agree on is crazy.
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