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May 08, 2007

It's Expensive Being Uninsured

One aspect of the uninsured crisis that often gets referenced, but rarely receives much focus, is the difference between what the insured and the uninsured pay for the same treatments. Insurance companies bargain down prices, and Medicare bargains down prices (though not on drugs), and so one way the providers eke out a bit of profit is charging higher prices to the uninsured -- prices that are then picked up by taxpayers, or converted into debt and bankruptcy. A new study found that the uninsured paid, on average, 2.5 times what the insured pay, and three times what Medicare pays. So a procedure that hospitals charge Medicare $100 for would cost the uninsured $307. And they, of course, are exactly the group that can't afford the mark-up.

Also interesting was the difference in price-gouging between non-profit and for-profit hospitals. At the non-profits, the mark-up was 249 percent what Medicare paid. At the for-profits, it was over 400 percent. That, of course, is a supremely market-efficient outcome that just goes to show the higher level of service that results when profit is included and blah blah blah.

It's hard enough being uninsured. This is unconscionable. The ultimate fix, of course, is to no longer have such a thing as an uninsured population. But in the meantime, I'll join with the libertarians to say it's time hospitals started offering some price transparency so everyone in the waiting room doesn't receive an utterly random bill.

May 8, 2007 in Health Care | Permalink



Of course, I wouldn't mind going one step further. Require that any provider taking MediCare/MedicAid can't charge the uninsured more than (e.g.) 125% of the MediCare reimbursement for a procedure.

Posted by: SamChevre | May 8, 2007 11:30:51 AM

One thing that makes this especially galling is that a whole bunch of costs come from processing insurance paperwork. So insurance is generating costs, which then get dumped on the people who are least responsible for those costs.

Posted by: Neil the Ethical Werewolf | May 8, 2007 11:54:06 AM

My friend was trying to get a law passed saying exactly that. I was uninsured when I broke my arm and the emergency room bill was $6,000 for six hours of care. Fortunately, the hospital had a charity policy for people making less than four times the poverty level saying they would only charge 125% of the MediCare cost. I qualified and my bill dropped to $1,400. 'Course, the hospital never told me about that policy, and I only found out about it because my health activist friend told me.

Posted by: Megan | May 8, 2007 11:54:33 AM

$6000 for a broken arm?

Lunacy or attempted robbery?

Posted by: Bruce Wilder | May 8, 2007 12:00:14 PM

People might even go bankrupt. :(

Posted by: jerry | May 8, 2007 12:14:35 PM

$6,000 for a broken arm? That really is outrageous and exploitive.

Due to the pain, I don't think people can really offer a "free market" consent to such charges. I think we need to let people have until 14 days later when the pain has subsided to agree to these charges. Or perhaps we should not let people in pain consent to such contracts.

There oughta be a law.

Posted by: jerry | May 8, 2007 12:18:10 PM

But in the meantime, I'll join with the libertarians to say it's time hospitals started offering some price transparency so everyone in the waiting room doesn't receive an utterly random bill.

But, it's not like the patient can vote with their feet/wallet. "Oh, wow ... it's really expensive to get treated here. I'll go down the street to the next hospital and see if I can get a better deal".

Posted by: Nicholas Beaudrot | May 8, 2007 12:19:30 PM

Nicholas: Some people can, some people can't. Not everyone who's in the ER is in critically bad condition.

I worked for about six years in a job where my company was a vendor to hospitals. I suspect that a substantial part of the problem with almost any hospital practice that you can name is that hospitals are, in general, just badly administered. They aren't high-prestige, high-profit places, and they don't tend to draw really sharp people into their executive ranks (nor most other non-medical roles). We found that for a lot of hospital administrators, concepts like a costs-benefits analysis (as opposed to a pure costs analysis) were pretty difficult.

It strikes me as likely that the high prices for the uninsured are a reaction to low remittance rates from that population. People just ignore the bills (probably because they can't pay them), or declare bankruptcy and get debt relief. So the reaction is "charge them more, so that the people who do pay up counterbalance the ones who don't, or so that our profit is high enough that if we have to hire a collection agency or get x cents on the dollar from bankruptcy, it's still worth it to us). If they do pay, it takes a long time for the money to arrive (which is effectively a loss).

That may well not be the best answer from anyone's point of view. It might be that if the hospital charged 80% of Medicare prices, they'd actually get more money in, and take less of a loss. (It also might not be). But the easy solution is "charge more." It's nice and defensible, and if that means that fewer people actually pay, you can go to your board of directors and say, "Well, people are getting cheaper and cheaper, but I'm taking more money in regardless."

I very much doubt that hospitals are running a profit on the uninsured as a demographic class, though in particular cases they may make a large profit.

Posted by: Michael B Sullivan | May 8, 2007 12:36:04 PM

I'm all for a Dollar Menu at hospitals.

Posted by: Glenn | May 8, 2007 1:30:57 PM

The Washington Post gets this right, although Ezra doesn't:

"U.S. hospitals charged patients without health insurance and *those who paid for care out of their own pockets* an average of 2.5 times more for services than fees paid by health insurers,"

Plenty of people are insured and still pay the higher rates. The determining factor is the agreement between the insurer and the hospital, not uninsured vs. insured.

Why not just make bulk volume rates in hospitals illegal? Given that people have next to no ability to choose between policies--or even choose a policy at all--it seems wrong to allow insurers to cut special rates for their chosen lucky ones.

Posted by: Cal Lanier | May 8, 2007 1:44:30 PM

A new study found that the uninsured paid, on average, 2.5 times what the insured pay, and three times what Medicare pays.

Actually, the study found that the uninsured were charged, not paid, a higher rate. This is a small but relatively important point. Providers do NOT make a profit from the uninsured, contrary to what you stated, precisely because the uninsured often do not pay.

Posted by: Joshua Claybourn | May 8, 2007 1:50:41 PM

Well, the only way we're ever going to eliminate "the uninsured" is for the government to provide insurance for everyone. None of these "mandatory insurance" things that I've seen floated about actually address the basic problems with "employer provided insurance."

And I can't honestly say I like the idea of a bill limiting how much the uninsured can be overcharged. Biig whoop-de-doo, your bill can still be ****ed but at least it gets some lubricant?

Let's not forget that the actual problem is that insurance companies don't actually pay what they are billed. On average they only pay about $0.40 on the dollar. So it's not that the uninsured are being charged more, it's just that the insurance companies are so big that they can walk on over half the bill and get away with it. In most states it is not legal for doctors to offer a "cash discount" for the fact that they don't have to actually worry about an insurance company. Hospitals are a different story because they know that if they don't cut a deal, they may get nothing -- and they are still required by federal law (EMTALA) to treat anybody who shows up.

Individual providers (that's what we used to call Doctors) are caught between one group of insurance companies that won't pay what they owe and another group of insurance companies (malpractice carriers) that keep raising the rates by double digit percentages every year.

Insurance is part of the problem, not part of the answer.

Posted by: ShortWoman | May 8, 2007 1:50:55 PM

"Medicare bargains down prices..."


Medicare doesn't "bargain" prices, it dictates them through an annual process.

Posted by: Wisewon | May 8, 2007 2:32:52 PM


You are mixing up two distinct problems.

1) Insurance companies pay less than they are billed because they have negotiated reimbursement rates.

2) Insurance companies pay less than they owe because they can get away with it, and because it's to their advantage to delay payment.

It's problem #1 that this post deals with; it accounts for most of the problem.

Problem #2 accounts for most of the news coverage, much of the structural issue, but not much of the 40% figure. If it were entirely fixed, the 40% might be 42%.

Posted by: SamChevre | May 8, 2007 2:49:50 PM

If a hospital sends me a bill for your hypothetical $307, and I pay $100, can I argue in court that the remaining $207 should be discharged because I've paid an amount they can reasonably expect to receive for the care they provided? The challenge in that is finding out what rates insured people would be paying.
Isn't there some service that does this for uninsured people, they call the hospital to negotiate the bill down to $100, I pay $125 and the negotiator keeps $25 for their trouble?

Posted by: SP | May 8, 2007 3:27:03 PM

If you show up with cash or work out a payment plan, most hospitals will be happy to charge you 125% of the Medicare rate.

Posted by: spike | May 8, 2007 3:42:21 PM

Maybe, but not my experience. And I went to a lot of hospitals as a patient without insurance. If there's data that indicates thats not typical, I'm not denying it. Anecdote, data, plural, not the, etc...

Posted by: R/W | May 8, 2007 4:43:51 PM

All bills for major medical procedures from hospitals are the same (my wife and I have had a few). The bill always comes to something that takes your breath away, say $6,500,000. However, there is always a Discount of almost the whole amount. In this case the Discount would be about $6,495,000 (and then insurance would pay most or all of the remaining $5,000). I guess it's the uninsured who are actually charged the undiscounted amount.

Posted by: ostap | May 8, 2007 5:44:49 PM

I also would like to see more price (and quality) transparency in healthcare. Hospitals, doctors and other providers should have to disclose, either upon request or through publication on a website what they actually accept as full payment from Medicare, Medicaid, and private insurers with whom they do business. Unfortunately, confidentiality agreements generally prohibit this practice. These should be outlawed, by legislation if necessary.

I understand that there is another regulation that requires all providers to bill all patients the same amount (list price) for the same service, test or procedure. This is why explanation of benefits forms (EOB's) generally show both the list price and the negotiated price paid by insurance. In hospital lingo, list prices are called chargemaster rates and are generally an arbitrary (and high) multiple of costs. Medicare generally dictates what it will pay for services while private insurers negotiate up from Medicare (previously down from chargemaster). The uninsured have nobody to negotiate on their behalf. With true price transparency, however, it would be much easier to challenge hospital bills as unreasonable if the hospital routinely accepts one-third or less of the chargemaster price as full payment from insurers.

If everyone, including Medicare and private insurers paid list price or anywhere near list price, hospitals would be so profitable, it would make drug companies look like they are barely covering their costs, and total healthcare costs would be north of 30% of GDP as compared to 16% currently.

Posted by: BC | May 8, 2007 7:22:37 PM

So, is this your last post on Ezra Klein?

Posted by: Nicholas Beaudrot | May 8, 2007 7:42:32 PM

When I was in the US I experienced this first-hand.

I had to have the same minor surgery done twice. The first time I was covered by insurance, and the total bill came to around $400 (according to the invoices I got) after the discount the insurance company got for whatever reason.

The second time, 3 months later, by the same doctor but this time paying out-of-pocket since I was no longer insured, the bill was around $1,200.

There were similar mark-up for other doctor visits I made during my uninsured period. This made me *very* gun-shy to visit a doctor, to the point that even now that I live in a country that actually has a fairly good healthcare system I am reticent to go see a doctor for fear of what it will cost.

Anecdotal and all that, I know.

Posted by: josephdietrich | May 9, 2007 8:56:24 AM


Based on the timing and need of two surgeries as well as the prices mentioned-- I'm guessing cataract surgery.

How'd I do?

Posted by: Wisewon | May 9, 2007 10:19:30 AM

At the non-profits, the mark-up was 249 percent what Medicare paid. At the for-profits, it was over 400 percent.

This is one of those key results that should be utterly obvious to anyone who thinks about the problem for even 5 minutes and yet gets glossed over completely in these debates. A for-profit health care provider will always be more expensive than a not-for-profit health care provider because the for-profit provider has a level of "waste" that the non-profit cannot even begin to match: a decent return on investment for that provider's investors. Any amount of "waste" that occurs in a non-profit pales in comparison to the need to give a good return to the folks who have invested money into your for-profit hospital. And that waste doesn't go away ever -- you need to keep the ROI up year after year.

And, yes, that is waste as far as a health care system is concerned. It's not money getting reinvested into providing better care, it's not money that pays for more doctors or medical equipment, and the way our current system works it has a very, very slim chance of even being money that gets put to use building more hospitals. It's money that goes off to build factories in China or call centers in Africa -- both potentially worthwhile goals, but waste as far as providing quality and affordable health care is concerned.

Posted by: NonyNony | May 9, 2007 10:36:04 AM


It certainly is possible that a for-profit hospital will charge a lot more and funnel the money outside of the medical system. However, your analysis is more than a bit narrow.

You ignore the possibility that the presumeably more competetive business practices at the for-profit hospital will reduce waste in other areas, offsetting or more-than-offsetting the monies that go to profit.

Probably more importantly, your claim that profit monies are necessarily destined to leave the healthcare system is naive. Yes, it's possible that profit could be rolled into a dividend, go to a scattered group of investors, and they would reinvest that money in different industries. But it's pretty unlikely that that's exclusively what will happen. Most companies roll at least a significant fraction of their profit into expansion and infrastructure, and I can't see any reason why that wouldn't be the case for a hospital.

Even if profits do get rolled back to investors, investment companies tend to specialize -- it's likely that that money will end up being a stake for some new for-profit medical industry company, rather than, as you seem to be assuming, immediately jumping on a boat for Africa or China.

Now, this isn't to say that for-profit hospitals are necessarily the way to go. I don't have any data on quality of care they provide, or care per dollar, or anything. But constructing some ultra-narrow story and saying that "utterly obviously" your story is damning to for-profit hospitals isn't a substitute for an informed opinion.

Posted by: Michael B Sullivan | May 9, 2007 12:03:59 PM

Ok, folks from current, personal experience: it appears to me that providers treat those of us who are insured but with high deductibles as if we are uninsured.

Posted by: Nat | May 9, 2007 1:23:25 PM

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