Imagine that you were fed up with managed care health insurance, that you were fairly young and healthy, and that you were quite affluent. Say that you still had the choice to opt out of health insurance altogether and pay for your health care as you go - but before you do, you decide to compare the prices of different medical procedures, labs tests, and radiological procedures like MRI's at different doctors' offices and laboratories.
How would you go about finding out who was offering the best deals and who would be overcharging like a mad auto mechanic with a young girl who knows nothing about cars?
So you call up a lab and find out what a certain MRI costs (these are real numbers): $2635 at one facility. However, an insured friend just had the procedure at that very same lab, and, being of a suspicious sort, you ask to see the Explanation of Benefits (EOB) from your friend's insurance company. You are shocked to see that your friend's procedure only cost $2077! This includes both what the insurance company paid out and your friend's copayment.
So you take another look at the EOB. When you look closer, you see something on there that says that indeed the MRI "costs" $2635, but your friend and his insurance company only have to paid $2077. The EOB also brags about something called "Network Savings" of $558.
Look how insurance companies are working for you to hold down medical costs! You begin to wonder how come your friend's insurance premiums go up by double digit percentages every year when doctors, hospitals, and labs seem to be getting paid less and less for the most common medical procedures. Gee, I wonder who's pocketing all that extra money?
So you call up two more labs, tell them you have no insurance, and find out that they also supposedly charge around $2600 for this MRI.
What is really going on is that $2635 is a sort of list price, but that no one with insurance pays list price. The people with NO insurance routinely pay a much higher price for the exact same procedures at the exact same locations.
Your blood starts to boil. You think that maybe doctor visits are different, so you call up various medical specialists, ask the cost of an initial evaluation for a specific complaint, and lo and behold, you find exactly the same pricing schemes.
Next, you next try to call some doctor's offices and demand that they give you these procedures at the same discount that the insurer gets, but every single one says no.
Somehow you get a doctor on the phone and corner him, and ask him why you can't have the evaluation at the discount that the insured patients get. He won't tell you why, and yet he still refuses.
OK, so here's the real explanation of benefits: All doctors have a high list price for any given procedure or exam. The number is nonsense, however, because most of their practice is insured patients, and none of the insurance companies pay list price.
Although there is some room for negotiating prices between managed care and providers, if you started collecting EOB's from different doctors for the same procedure, you will find that all the different insurance companies get approximately the same discount. Also, the insured patients and their insurers when combined are all paying about the same price for the same procedures.
So why don't the doctors just lower the list price and give the same deal to all the insurance companies as well as the uninsured? I'm glad you asked.
When negotiating with an insurance company, doctors who want to be one of the preferred providers for that company are forced to agree to the discounted price. The insurance companies offer essentially nothing in return other than the doctor being listed as one of their preferred providers, who cost the patient less to see than an "out-of-network provider." Out-of-network providers cost insured patients more out of pocket than do in-network providers, but often still not the list price offered to the uninsured.
If the insurance company finds out that a physician offered an uninsured patient the same discount, they then start to demand a similar discount off of the price they agreed to pay the doctor when the doctor first signed up for their panel, while completely ignoring the fact that that price had already been discounted.
However, if the doctor offers the same discount to get on another insurance company's preferred provider list, the first company has no trouble with that all. Perhaps they offer one another professional courtesy. The fact that they all offer approximately the same remuneration for specific procedures seems to indicate that the different companies get together to fix prices.
And yet somehow they do not seem to run afowl of anti-trust laws. However, if doctors get together to insist on a minimum amount of remuneration that they would accept for a given procedure, the Justice Department threatens to charge them with violating anti-trust laws!
It is supposedly illegal for one doctor to merely ask another doctor how much the second doctor charges for services. And yet somehow doctors are supposed to divine what fee is "reasonable and customary" when they set their "list price" for Medicare and insurance companies. Of course, it is easy to get the data indirectly.
If the doctor decides to lower his or her list price, the insurance company will demand the same percentage discount off the new price. Hence, the doctor has an incentive to keep the list price as high as possible, and gets punished if he or she does not. So much for beneficial effects of the highly vaunted "competition" in the "free" private insurance market.
To get back to psychiatry for a moment, the insurance companies has used this state of affairs to ratchet down the price of psychotherapy, so that doctors earn a lot more money for just prescribing psychiatric drugs and doing nothing else.
So if you are uninsured and would like to pay up front cash for your medical care, you will be fleeced like a helpless little sheep. And you can thank your politicians for this state of affairs.