Imagine eating in a restaurant where the waiter demands some information from you before you can have your check.
Depending on your answers, that hamburger you ordered might cost $5 or it could cost $15. Either way, you won’t know until after you’ve eaten.
That’s relative pricing, and it’s something we would never tolerate in a restaurant but accept as a well-established feature of our health care system. Hospitals charge one set of prices for patients who are covered by Medicare, and another set for people covered by private insurance. The difference between them varies from state to state, but in Maine, private-pay consumers shell out 300 percent more than Medicare patients would pay for exactly the same services.
The result is high private health insurance premiums that drive healthy self-employed people out of the insurance pool and put a lid on wages for people who get their insurance through work. And since consumers don’t know that it’s happening, providers don’t face pressure to innovate to control costs.
The latest relative pricing data come from a 25-state study by the Rand Corp., which compared the prices paid to hospitals by privately insured patients to what Medicare would have paid. Medicare, the federal health care program for people age 65 and older and some people with disabilities of all ages, is a single-payer system that sets its own prices – and that’s the problem, providers say.
Medicare covers only 90 percent of the real cost of the services, and Medicaid, the federal-state partnership for the poor, pays even less. So the hospitals say that they need the private pay patients to make up the difference.
That might help the hospitals balance their books, but it puts a heavy burden on the people who buy private insurance. People who pay out of pocket on the individual insurance market know how heavy the burden is, but it’s just as bad for those who have employer plans, where most of their premiums are part of their compensation, making increasing costs less visible.
Maine is an expensive place to buy health insurance. We are an old state, which makes us more likely to need medical care. And our population is small and spread out over a large area, making it expensive to deliver it.
You would expect some cost shifting if the federal bureaucrats set the prices too low, but 300 percent relative pricing is outrageous. It’s not as if people with private insurance are all rich – they included low-wage and middle-income workers who have watched their wages stagnate and out-of-pocket health costs climb as a direct result of the high cost of health insurance.
It’s time to link the prices paid by privately insured patients to the Medicare prices. If a discount for Medicare is considered necessary for the system to be solvent, then the state could cap private insurance prices at a reasonable point above the Medicare price. If that’s not enough for the hospitals to pay their bills, it would better for them to make their case to Washington than to pad the bills of people who might not even know that they are paying them.
The goal should be to set prices that are related to the real underlying costs, and all patients should be paying about the same amount for the same services.
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