More Evidence Against Health Insurance

doctor-mom-and-sonDavid Lazarus of the Los Angeles Times, whose columns on health policy tilt heavily towards single-payer advocacy, has done a great service to the cause of consumer-driven health care, describing how much more sense it makes to pay cash prices for health services than pay what your health insurer “negotiates.”

Five blood tests were performed in March at Torrance Memorial Medical Center. The hospital charged the patient’s insurer, Blue Shield of California, $408. The patient was responsible for paying $269.42.

Tests that were billed to Blue Shield at a rate of about $80 each carried a cash price of closer to $15 apiece.

This is one of the dirty little secrets of healthcare,” said Gerald Kominski, director of the UCLA Center for Health Policy Research. “If your insurance has a high deductible, you should always ask the cash price.”

Not all medical facilities will be open to sharing their cash prices with an insured person, Kominski said, but many will.

These vignettes shows how harmful health insurance is to our financial well-being. I have written about a lot of cases like this over the years. I, myself, went deeper at a hospital a few years ago, when I was scheduled for an operation. I called and asked for the cash price and received a quote by fax. When I subsequently received a bill after my health insurer had processed the claim, the amount the insurer paid the hospital was more than the cash price quoted to me; yet the hospital wanted still more! I sent that bill back, unpaid, along with the fax, explaining that the hospital had already received more from the insurer than it would have from me if I had paid cash. That was the last I heard of it.

I am trying to figure out why this situation persists. If a new insurer entered the market with a plan that processed no claims below the deductible, but just let its beneficiaries pay cash, their annual out-of-pocket spending would be a fraction of out-of-pocket spending by beneficiaries who have traditional so-called “consumer-driven” plans wherein insurers process claims and patients get billed prices that appear to be negotiated but are actually inflated.

I have two notions. One is that insurers “negotiate” (inflate) prices with hospitals so patients pay higher prices below their deductibles and the surplus flows to hospitals’ bottom lines. It allows hospitals to lower prices for claims above the deductible, which is more important to insurers’ margins. The second notion is this pricing approach discriminates against chronically ill people who will spend above the deductible every year. Insurers want healthy people to enroll and sick people not to enroll. It is hard for an insured patient to get cash payments credited against his deductible. So, a chronically ill patient is easily influenced to allow providers to process claims through his health insurer, rather than pay cash directly. A healthy patient, with few claims during the year, will be less concerned about having his spending accounted for by the insurer and more likely to pay cash without even showing his insurance card.

Comments (44)

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  1. Don Levit says:

    It is a win-win for those receiving cash discounts
    Less out of pocket for the insured
    Less credited toward the deductible for the insurer

  2. Sharen S says:

    Yes to this. Please shout this to the rooftops! The collusion between hospitals and insurers is unethical and deeply hidden. For years I was a cash pay customer and am now absolutely amazed at how much the providers “charge” the insured. MRI cash price = $125 vs $850 charged by the very same place for the very same test. A med that was $54 cash is $315 charged to insurer. What a racket! My issue right now is whether it is ethical (by my standards) to “game” the system to mess with the insurance company. Example: is it morally wrong to drop the policy the last two month of the year, thus saving myself a couple thousand dollars, knowing that I can just send in my premium if I need coverage? I’m thinking about this and haven’t made up my mind.

  3. Don Levit says:

    We can do more than shout
    Simply take action with 2 steps
    1. Present your insurance card to get the network price toward the deductible
    2. Swipe your Health Matching Account VISA debit card to pay the lower cash price
    It is none of the insurer’s business how much of the deductible
    How other than cash can you pay charges under the deductible anyway?

    • I think you have missed the point. Once you present your insurance card to an in-network provider, his office might charge you a co-pay but the final bill will be generated after the provider has submitted the claim to the insurer.

      Once you have presented your card, there is no turning back. You have to present your self as uninsured (a “white lie” perhaps) to get the lower cash price.

      • Ron Greiner says:

        John, hospitals will charge uninsured people 10 times more than an insured person so what are you talking about?

        This is SOP. It’s like the Mafia:

        • That is for patients who do not pay cash price upfront. In the article: “Often times, patients don’t even know the true cost of their medical care until they receive the bill weeks later in the mail.”

          This is common in the Emergency Department. They send the uninsured patient a bill with charges straight off the charge-master. And they will usually not get paid at all, as discussed often at this blog.

          What I am talking about here is paying cash upfront and never receiving a bill in the mail.

          • Ron Greiner says:

            A doctor told me a procedure was $50 before it was done and then she billed $750. These doctors have no idea how much a procedure will cost.

            John you should tell everybody to get everything in writing and have the docs sign it.

            • Why did you not pay her $50 when she quoted it, and get a receipt, rather than waiting for a bill?

              • PJohnson says:

                Agreed. Plus doctors never know what the pricing is – at least none I know and I routinely ask* You have to get that price from billing staff.

                * Plus you’d think by the look on their face when I do ask, that I has just farted.

                • True, but in which other profession is that the case?

                  If you call a lawyer to handle some business, and you ask him how much he charges, does he say he has to ask his billing clerk? If you need your car fixed, can the mechanic give you an estimate, or does he have to call a billing clerk?

                  This is just more evidence of how overly complicated health insurance is.

                  • Ron Greiner says:

                    The MD lying and not knowing the price of a procedure is not health insurance.

                    Really John, doctors don’t have a clue on cost but you want them to start bartering for their services. The consumer knows less than the doctor.

                    You are a hoot John.

                    • PJohnson says:

                      You missed John’s point. The Doctor should know. I was a salesman for 20 years. It would have been unthinkable that I didn’t know the cost of my services or products. Near as I can tell you sell insurance. The same applies.

                    • Ron Greiner says:

                      PJohnson, just because a doctor could get more out of one consumer than another I don’t think that is smart. Or – maybe you and John think that there should be just one price for a service or supply.

                      My doctor only ordered the test to limit her legal liability. Should the test cost less because it was really for the defensive position of the MD? Maybe it should be free to the consumer because it only benefited the medical staff.

                      You being a salesperson and knowing your prices is not much of a comparison.

                    • Allan says:

                      I believe most physician offices know the price of individual items for which they charge. It is generally on their computers so the secretary can look it up if she has the procedure and the exact code number. They generally don’t know the prices others charge nor can they be sure of how much something will cost if there may be many components.

        • UTubekookdetector says:

          I’m not sure Ron is getting what you people are saying–but another item that must be mentioned is Medicare & especially Medicaid’s low reimbursements.

          They essentially tell doctors what CMMS thinks their services are worth. This has resulted in 1) higher prices for those with insurance 2) doctors refusing to deal with Medicare/Aid at all.

          Imagine if auto insurance paid for new brake lights, mufflers, oil changes–it would be a convoluted mess, much like health care.

          In addition, as the decades roll by, our health care spending has gravitated towards 3rd party payments & govt payments–not direct payment from the consumer (as it is when I get a new sway bar installed on my Ford Escape).

      • jimbino says:

        No white-lie involved. Just say, “No, this will be paid in cash, no insurance involved.”

        • Barry Carol says:

          I recently filled two prescriptions at Costco because their cash price was significantly lower than my insurer’s Tier 3 copay which was $100 or the full cost of the drug if less than $100. I specifically told them I wanted to pay cash and not run the claim through the insurer. The pharmacist said don’t worry, we run it through your insurer and you still don’t pay any more than our cash price even though the insurer’s copay is higher if I were to order it by mail. It turned out that Costco was correct and the amount paid counts toward my total out-of-pocket drug spending. Why can Costco handle it that way and other providers can’t?

  4. Don Levit says:

    It is none of the insurer’s business how much of the deductible you paid
    It was not their liability anyway
    You cannot fight an unjust system justly

    • Barry Carol says:

      Don and John – Suppose I have a policy with a $6,000 deductible. I wind up using quite a few services and spend $6,000 even at lower cash prices. Then I still need more care including some expensive hospital based care. Shouldn’t there be a mechanism that would enable me to prove to my insurer that I already met the deductible when I spent the initial $6K so I don’t have to spend another $6K before insurance kicks in? In theory, I should be able to just save my receipts and send them to the insurer once I spent enough to satisfy my deductible. No? The insurer would still save administrative costs by not having to process those claims.

      Sure a healthy person wouldn’t care about whether the insurer knows what he spent if he just needs a few routine office visits and maybe a couple of simple blood tests but healthcare needs are unpredictable.

      My own experience with dental care and routine vision care which I’ve never been insured for except for a few years of dental insurance decades ago is that I’ve always been expected to pay their regular full list price whereas insurers always paid less than that. When I asked for a lower cash price, I got absolutely nowhere. When I asked what insurers paid, I was told it varied all over the place and they weren’t going to tell me in any case.

      At the very least, providers should have to disclose their average reimbursement rates based on the 50th, 75th and 90th percentile of their contracts without disclosing what they receive from any particular insurer and I should be able to find out the reimbursement rate from my own insurer upon request before services are rendered.

  5. Don Levit says:

    Absolutely one should be able to save his receipts and send them to the insurer once he meets his deductible
    Would save the insurer money instead of having to accumulate toward a deductible he is unlikely to meet anyway
    If the IRS accepts shoe box receipts why not an insurer?

    • Years ago, when high-deductible health plans were new, a broker told me to do exactly that. His position was, I would not meet my deductible for 9 years out of 10, so I would usually not have to struggle with the insurer. If one is healthy, it is a risk many would take.

  6. Devon Herrick says:

    Not all medical facilities will be open to sharing their cash prices with an insured person, Kominski said, but many will.

    Don’t be afraid to check with other facilities for the service. Just because one place knows you have insurance and doesn’t want to discount its services doesn’t mean that there aren’t other facilities who will be happy to work with cash-paying customers.

    • jimbino says:

      Indeed. And be sure to check with providers in Costa Rica, Mexico, Brazil, Argentina, India, Thailand, Hungary and the Czech Republic. You can often find pricing online.

      Insurance for medical care is an Amerikan religion, not shared by the rest of the world. Only in Amerika is a person rich enough and foolish enough to pay $1.00 in insurance in order to get $0.80 worth of medical care (the Obamacare norm). In most countries, consumers don’t use credit cards to get $0.97 worth of product for $1.00 either.

  7. Don Levit says:

    And why are those procedures which save insures money, not covered services or credited toward the deductible?
    Is it custom or law?

    • jimbino says:

      It is a direct result of the fact that insurance is a religion (that depends on fear, ignorance and superstition), not a science (which depends on mathematical game theory or statistical analysis). Unless we can get rid of such religions superstition, we’ll end up with food insurance and sex insurance instead of just food and sex, for cash.

  8. Lee benham says:

    Sex insurance? What’s the commission on that? Tuff to figure the loss ratio though 😫

    • Ron Greiner says:

      Lee, this post is crazy. Can you imagine telling everybody that they can get better prices than the negotiated rates from the insurance company?

      I deal with real consumers with the oldest and largest HSAs in America and they are waiting for their EOBs and not becoming experts at getting better prices than the insurance company.

      But John says he talked to a broker once who told him not to send his claims to the insurance company before the deductible. That is too goofy!

  9. Bob Hertz says:

    This blog has good descriptions of individual patients trying to fight against price gouging.

    But is this enough? Let me illustrate why I am skeptical.

    A few years ago I had to take monthly blood tests.
    The price went from $50 to $250 when my doctor’s practice was purchased by a hospital.

    I protested, got nowhere. I tried to get the test done commercially for $39 and bring in the results – got nowhere.

    Did I quit my doctor? Not a chance. I treasure the doctor-patient relationship.

    In most areas of American life, firms are terrified of raising prices. It can lead to an incredibly rapid exodus of customers.

    In health care, though, it is often the key to the whole business plan.

    What then is to be done?

    The ideal solution, in my reading, would be the process in Germany and France. The doctors and hospitals form a large association, the insurers also have an association, and the groups meet quietly (but contentiously) and hammer out a fee schedule that is binding on all providers.

    They abandon all pretense that health care is an entrepreneurial business, treating it instead as a regulated utility.

    This surely makes life easier for patients, who are (hello) the whole point of health care.

    I do not see America pulling this off, so another option would be to make it easier for patients to fight against price gouging.

    We could have binding arbitration, and the patient would not need an attorney. The providers would see arbitration as very costly, and pull back their worst prices.

    We could also have a ban on balance billing. What the insurer pays, the provider must accept.

    Incidentally I am now on Medicare. I take the blood test; the clinic submits a charge of $200 to Medicare, then Medicare allows $30 and pays $25.
    Medicare protects me better than any individual insurance I ever had, and it isn’t even close.

  10. Barry Carol says:

    Bob – While I hear you on the price gouging and the difficulty in getting better cash prices, I also note that Medicare works as well as it does because there is still a large commercial insurance sector for providers to shift costs to. It’s an open question how well Medicare would work if it were the only insurer. Hospitals claim that on average, Medicare only pays them 91% of their costs. I don’t know to what extent hospitals could reduce their costs without affecting the quality of their care.

    In Switzerland, insurers negotiate as a group against providers which also negotiate as a group. To do that in the U.S. would require an anti-trust exemption for starters which is not likely to be forthcoming anytime soon.

    The biggest single problem area regarding pricing relates to care that must be delivered under emergency conditions in hospitals and out of network surprise bills from doctors the patient had no role in choosing including radiologists, anesthesiologists, pathologists and ER doctors. We need special rules to deal with that issue as I’ve noted many times in the past.

    There is no reason why hospitals can’t provide a binding estimate of out of pocket costs to insured patients for care that can be scheduled in advance and a total cash price for uninsured patients. Even for care that requires some diagnostic testing to figure out what the patient needs, hospitals could quote a per diem rate for a regular room or an ICU bed. They could quote hourly rates for operating room time. They could also quote daily or half-day rates for heart monitoring equipment and the like. Imaging equipment pricing could be based on machine time rather than a separate price for each CPT-4 procedure code number. They could quote prices for commonly used antibiotics. In short, hospitals could make themselves much more user friendly if they thought it was important enough to make it a priority. Unfortunately, they don’t.

    • Ron Greiner says:

      Barry, you write, “In Switzerland, insurers negotiate as a group against providers which also negotiate as a group.”

      Groups pay way too much Barry. Employer groups in America pay $20,000 a year, or more, for family health insurance and a 30-year-old couple and a child can get STM PPO for less than $300 a month. These groups paying so much is killing the poor tax-payers paying for city, county and state employee over-priced health insurance.

      Barry, groups are suckers.

      The Swiss are suckers and are terrible with money. Credit Suisse stock was $80 a share in 2007 and today it’s $10.

  11. bob hertz says:

    Well, there are two ways to pay for places like hospitals (and fire stations):

    1. give them a global budget, funded by taxes on every citizen:

    2. make each patient pay a la carte, with or without insurance.

    #2 does keep taxes down. However, it makes insurance premiums very high, and causes financial crises among the uninsured.

    Actually the health systems in Singapore, Switzerland, Australia, among other nations, use a combination of the above methods. The hospitals receive a lot of public funds, but there are user fees also.

    Personally I think we Americans are fools not to try this.

    • Allan says:


      1) If a hospital has exceeded the global budget what do they do when another patient comes in? I can tell you from experience. They prevent it from happening by reducing all care to a minimum standard so there is insufficient numbers of staff, physicians and equipment or they stop doing procedures that have exceeded their global budgets.

  12. Steve Swank says:

    Medicare considers it fraud to have a “cash price” and “insurance price.” There can be no lower charge to any entity below the Medicare charge. Providers should publicly list prices, encourage competition and transparency and bring a little of the free market back to healthcare. We would all be better off, except maybe, the insurance companies.

  13. PJohnson says:

    @JohnRGraham I think the other point the hospital pricing variance over looks is this. When, say in your example, the hospital didn’t collect the difference between the cash price and the higher insured price, the hospital can claim the “loss” against its bottom line. I’m no CPA, but I gotta believe that’s true.

    • Allan says:

      If you are talking about such a claim for tax purposes, they can only claim a deduction for what was actually spent and paid for, not for the actual fee.

  14. Don Levit says:

    I have some doubts about that being considered a loss to the hospital
    Would that be a gain to the taxpayer for forgiveness of a debt?

    • PJohnson says:

      Again I’m not a CPA, but for a profit hospital, it would reduce their taxes. For a non-profit it would help them maintain that status and allow them to spend the difference elsewhere: wages, instrumentation, expansion…

      • What the hospitals do is take the difference between the outrageously high chargemaster price and the amount the patients pay (usually zero) and run to government to pay them that amount as “uncompensated care.”

  15. Richard says:

    John Graham shouldn’t be surprised at these enormous price differentials. The health care services and health insurance industries are effectively cartelized by the federal ans state governments, and cartels are established to transfer wealth to the industries and to transfer political power and huge political contributions to government officials.

    The obvious solution is to completely deregulate both industries, but good luck with that. As Rose Wilder Lane once said, “An Octopus would sooner release its prey.”

  16. Big Truck Joe says:

    I always ask for the “Medicare” cash price that my doctor uses as a bottom level cash price I I wanna pay outta pocket. Somethings cheaper than paying out of network fees.