Healthcare in the US is…expensive. We spend almost double what other wealthy countries pay per person on healthcare and, for many, the cost is too much to bear. Currently, about 1 in 5 Americans are being pursued by a collection agency for financial debt.
Most people blame this issue on the source: hospitals and doctors overcharging for their services. And in a small way, that’s true. Prices have risen — after all, the doctors and the hospitals that are sending you the bill. However, the truth is, your bill is high is because of insurance.
In theory, this is how it should work:
In addition to picking up some of the cost of care, insurers are supposed to make deals with healthcare providers to lower costs for the insured. This is what insurers are promising with “in-network” providers — particular doctors, hospitals, and specialists with whom they’ve created terms. By sending more patients to these select providers, the providers agree to offer these patients a discount. That means that every invoice you get from an insurer will clearly show the “actual cost,” then the “insurance discount”– the deal you’re getting by going in-network.
Except this “actual cost” is a lie. In the US, private health plans pay 247% of what Medicare would pay. In fact, if employer-based and private health plans were to pay hospitals using Medicare’s payment formula, total payments would decrease by 58%. So why don’t they fight for lower costs?
When the Affordable Care Act was enacted, it made it the law that insurers had to use at least 80% of premiums for medical care. That means fighting to lower costs won’t help insurers increase their profits if premiums stay the same. They’ll still be bound by law to use 80% of premiums for care. If however, they accept (and even encourage) increasingly higher costs from healthcare providers, they can increasingly raise their premiums and their profits.
This is a huge part of how healthcare has gotten so expensive in the US. As of 2019, 92% of the US was insured. That’s a lot of insurers working with a lot of providers who all want to keep their businesses growing. This is why healthcare providers have been encouraged to charge more and more, and insurers can still make greater and greater profits.
Everyone wins. Except for us.