My medical issues have been very illuminating. I need some MRIs and the insurance company is balking at paying for them. There’s a chance that they may come around, but an even better one that they won’t. But I need those MRIs, so what do I do? Like anything else I might buy, I’m shopping around.
I asked the regular place my doctor uses for MRIs what they charge for a single one. It is a hair under $3000. Ouch! Independent labs look like they are charging anywhere between $2000 and $2500 but I’m not sure that my insurance will be accepted at those places. That’s a little better but still… I have an insurance plan that pays 80% while I have a 20% copay. I’m going to ignore the deductible just to make the calculations easier. So, if my insurance does “pay” for the MRI, I would be out 20% or $3000, that equals $600.
What a lot of people don’t know is that if you pay up front, you can get big discounts. My doctor’s regular place will give you a 20% discount. That’s not bad, but there are much better deals to be had. With a little looking around, you should be able to find a place that will do an MRI and have a radiologist read it for you for $650 (without contrast stuff being injected into you, that’s extra), maybe even less depending where you are.
Of course that got me thinking. It is well known that insurance companies only pay a small percentage of whatever bills they get from medical establishments, but the copay is determined by the full amount. I assume that the $650 that the companies charge for cash payments is pretty close to what they end up getting paid when they jump through all of the insurance company hoops. In other words, all of those “hoops” cost the office money to process and there is a the issue of waiting for the payment to come through. After you subtract those costs the office probably clears $650 even though the insurance company eventually cuts them a check for something closer to $1000.
In any event, I know that $650 is a lot less then thousands of dollars. Why doesn’t my insurance company allow me to negotiate the best rate I can, pay for it, and then reimburse me. Let’s look at the typical dealings. I go to the MRI place and get one done. They charge $3000 to my insurance company and get some proportion of that. I’m thinking it’s going to be in the $800 to $1000 range, but I’m just guessing. I then have to pay a $600 copay. How about this alternative universe, I go to the MRI place and negotiate a price of $650 if I pay up front. I then submit that claim to my insurance company and they reimburse me my 20% copay of $130. The insurance company pays a total of $520.
What just happened? The total cost of the procedure and the work involved has just dropped. It’s true, I have to do a little more legwork and I have to wait to be reimbursed, but my total cost has gone down, the insurance company’s payments have gone down, and the provider gets their money much quicker.
If this model became popular, you can bet that competition would drive down the prices, just like it does for everything else. Making the consumer initially bear the entire cost of the procedure is a sure fire way to lower the overall cost of medicine. I know, there are some problems with this when you start to talk about really big things, but as a basic framework, it is a good model. One of the primary reasons that healthcare is so expensive is because consumers are so insulated from the costs. Consumers are likely to order every test and procedure without once considering the cost. That will make the price creep up no matter what kind of service we’re talking about.
Health insurance is so weird, if it were more like home insurance, everything would be much less expensive. It may seem counter intuitive to people, but paying up front would mean lower prices, insulating ourselves from the pricing mechanism is not in our best interests.