Crazy Hospital Charges Medical Savings Accounts

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And now . . .

Stephen Gilbert: ‘Jonathan asks: ‘Why do hospitals charge higher rates to the uninsured (i.e. those who have the least money)?’ Answer: Because they can. The uninsured don’t have the bargaining (or political) power to get lower rates. (Although it is possible to negotiate lower rates. I had arthroscopic knee surgery a few years ago, $6000 for a 20 minute ‘procedure.’ A friend suggested I speak to the billing person at the doctor’s office and ask if I could get a discount. She reduced the bill to ‘only’ $5000. I went out and got health insurance a month later.) One benefit of health insurance is you get the lower fees even when you haven’t reached the deductible limit. I got a high deductible policy so I could open an MSA (when are you going to write about THEM? a great deal!), but still benefit from the rates Blue Shield has negotiated with its providers even when it’s me rather that Blue Shield who pays the bills.’

☞ Good points! Here is the IRS info on Medical Savings Accounts. If you are self-employed, or work for/own a small business, and have no health insurance, definitely check it out. Or visit medicalsavings.com to get some idea of rates. (I have no idea whether this outfit is reputable, but I was fascinated to see that my monthly rate would be $213 if I lived in poor Florida zip code, versus $633 if I lived in a rich one. It makes sense rates would vary geographically – care in Manhattan, New York, is going to cost more than care in Manhattan, Kansas. But I had not imagined it would vary that much.)

Jim: ‘The answer to Jonathan’s question about hospital charges is in several parts. First, he is incorrect about charging the uninsured or cash customer double or triple, but 30-40% more is very common. Second, bulk customers, like insurance companies, get better rates in any business. Third, with insurance companies the certainty of payment is much higher than with a private party and this is worth money also. Fourth, the insurance companies negotiate rates well in advance of need. You can also negotiate in most cases but [sitting there bleeding], few try.’

Mike Broderick: ‘Insurance companies have the ability to send their customers elsewhere. The uninsured aren’t likely to shop around when they have a critical need for care, which is usually the situation when such people see a doctor – at least it was for me when I had no insurance.’

Edward: ‘Given that in my ER over one-third of patients pay nothing, it makes sense to negotiate with those who do pay. Overall, we lose a little bit on every patient, but we try to make it up in volume.’

Ralph Sierra: ‘As an uninsured person who pays the top rate for medical care, I’d like to give my layman’s opinion on that. Doctors and hospitals set their standard rates artificially high because they know that insurance companies and Medicare (who pay most of the bills) will insist on negotiating a discounted rate. If the doctors and hospitals gave those same discounts to the uninsured, the insurance companies would insist on negotiating an even greater discount. And on and on.’

Ed Biebel: ‘I have a personal story about why the hospitals charge the uninsured outrageous rates. At least what they told my parents and brother is that Medicare and Medicaid make them do it. My brother was being seen at the Epilepsy center at one of Philadelphia’s university hospitals. The doctor suggested brain surgery might be the only way to correct his seizures and admitted him for two weeks of pre-surgery tests. A month or two after the tests, his employer filed for bankruptcy and closed. Unbeknownst to the employees, the employer was several months in arrears on health insurance premium payments. As a result, the insurer terminated all of the employees’ insurance as of the last premium they received, which was before my brother’s hospitalization. My brother was now responsible for over $100K in hospital bills. He thought he had insurance but now he didn’t. My brother, who was working as an apprentice in a printing company, certainly didn’t have that kind of cash.

‘He tried negotiating with the hospital but they filed suit against him. He saw personal bankruptcy as his only choice. When he went to file bankruptcy, the law firm for the hospital claimed that ‘he was indigent’ under an obscure Pennsylvania law and threatened to file suit against my parents and place a lien against their home. My brother was able to finally negotiate to file to ‘reorganize his debts’ and pay out about 50% of the bill over time.

‘There were some good people. His neurologist forgave all of his bills and convinced all of the doctors that treated him to do likewise. But that was a drop in the bucket compared to the hospital bill. My brother did not qualify for charity care under the law.

‘When we asked why the hospital was *so* tenacious in pursuing him, we were told it was not a matter of economics but of Medicare / Medicaid rules. We were told that Medicare / Medicaid regulations require that hospitals demonstrate that they pursue debts with vigor. If the hospitals allow the debts to be just written off, Medicare feels that it pays a disproportionate amount of the cost of healthcare and threatens the hospital. Essentially, the average cost of healthcare goes up because of bad debts, so Medicare has a vested interest in making sure that as much is collected as possible. The hospital claimed its hands were tied.

‘It was a real eye-opener to my family on the state of health care. It was very disheartening because my brother only wanted to be better and live a normal life. If he was destitute, we would have been fine. It he was wealthy, he would have been fine. But as an average working class guy, he was screwed and there was no one to help him.’

☞ I heard on the news over the weekend that some in Congress have begun investigating this problem, hoping to find a way hospitals can be less ruthless when it comes to collections. The solution to the health care mess, I think, is probably just more tax cuts for the best off. That last tax cut was, in the President’s words, ‘itty-bitty,’ and perhaps not enough to do the trick.

‘If this is class warfare, then my class is winning.’
– Warren Buffett