Hospitals gouge private health insurance to care for others

Health care prices continue to rise precipitously despite the Coronavirus Recession, cutting into profits and paychecks, offering a powerful reminder that the nation’s chronic economic problem remains unsolved.

Hospital services make up 44 percent of health care costs in the United States, and the prices hospitals negotiate with private insurance companies keep rising compared to the rates paid by Medicare, the government health care program for the elderly.


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In Texas, private insurers paid 252 percent more than Medicare for the same medical services in 2018, according to a study by the Rand Corp., a Santa Monica, Calif.-based analysis and consulting firm. That’s 20 percentage points higher than the difference in 2016, according to the latest data available.

A hospital’s ability to charge self-insured employers and insurance companies higher rates is why hospitals spend so much on billboards and in newspaper advertising. The last thing they want is more patients on Medicare or Medicaid, the federal-state partnership covering the impoverished and disabled.

Rand took the extra step of breaking the data down by individual facility, revealing that hospitals located in wealthy suburbs charge much more than downtown hospitals, even if both are owned by the same system.

For example, Memorial Hermann Northeast in Humble charges 294 percent of Medicare rates, while Memorial Hermann Memorial City charges 205 percent. In San Antonio, Methodist Hospital charges 235 percent of Medicare rates, while an hour up Interstate-35, South Austin Medical Center charges 332 percent, even though both are part of HCA Healthcare.

Because hospitals keep negotiated rates secret, most business owners have no idea that prices can vary widely. If they did, they might negotiate a better deal.

“Many employers lack fundamental information about the health care prices that are negotiated on their behalf, which hamstrings their ability to be prudent purchasers of health care benefits,” the Rand authors warned.

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Most employers will want to include Memorial Hermann and HCA Healthcare in their network. But they might not know that directing their employees to seek treatment a few miles down the road could save 50 percent on their bill.

“Moving patient volume to lower-priced hospitals that offer better value is an opportunity for employers, their employees, and society to reduce health care spending, and also helps the market to reward the most efficient hospitals,” the report adds.

Employers should also demand better from their insurance company or plan administrator. Because those companies often get paid a percentage of the total health care bill, they are not motivated to negotiate lower prices.

Walmart famously brought down health care costs and provided its employees with better care through its Center of Excellence program. The company discovered that by negotiating a volume deal with the best hospitals for serious cases, it saved money by flying employees to those facilities rather than pay the local hospital.

Employers need to be realistic, though. Hospitals, doctors and pharmaceutical companies have long complained that they lose money on Medicare patients and need to charge private insurance higher rates to make an overall profit.

The reimbursement rates for Medicaid, which are set by state legislatures, are even lower, which is why Medicaid enrollees have a hard time finding a facility. Then there are the uninsured people treated in emergency rooms who never pay any portion of their bills, dragging down hospital profits.

We have socialized medicine in this country; we’ve just hidden it behind an opaque market. Those of us with employer-sponsored plans are subsidizing health care for the poor, elderly and uninsured. We’re only paying for it in the most inefficient way possible.

The Affordable Care Act tried to incrementally improve the health care market by requiring all Americans to have health insurance and access to primary care doctors. Routine checkups keep people healthier and often preempt expensive hospital procedures.

Obamacare, though, fell apart when the U.S. Supreme Court threw out mandatory Medicaid expansion. As one of the few states left that did not expand Medicaid, Texas has the highest uninsured rate in the nation at 19.7 percent. Layoffs due to COVID-19 are making matters worse, which means private insurance rates will spike to pay for the care of the newly unemployed.

If the Supreme Court throws out the rest of Obamacare next year, hospitals will charge those with private insurance even more. Higher rates mean higher premiums, lower profits and fewer raises.

Employers should expect better prices from hospitals when they renegotiate health care contracts, but in the long run, they should also demand a fairer, more equitable health care system so that the market does not punish businesses for supplying health insurance to their employees.

Tomlinson writes commentary about business, economics and policy.

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