Like many people, I'm trying to convince my health insurance company to pay for something for which it doesn't want to fork over cash. I don't completely blame Cigna; the bill sent by the provider is outrageous. Then again, as a third-party payer in a mess of a health care system, the company is part of the problem of distorted incentives and rising costs. Sometimes lost in the debate between advocates of a market-based health care system—which we don't have—and true believers in a fully government-controlled system is that divorcing patients from responsibility for paying for what they get is a huge problem whether bills are ultimately picked up by insurance companies or government agencies.
In my case, Cigna doesn't want to pay $4,000 for a week with a Holter monitor (external electrocardiogram) prescribed because, after I turned 50, my warranty ran out. Such is life. The reason the insurance company cites for not paying doesn't matter. I know from my wife's experience as a pediatrician and from speaking to other physicians that insurers—whether private, Medicaid, or Medicare—issue refusals on the assumption that some will never be appealed and so result in cost savings. Pushing back usually achieves results, and I'm confident that I'll prevail in the end.
Health Care Coverage That Drives Cost Higher
I don't entirely blame Cigna because four grand is a lot of money. Outright purchasing a Holter monitor runs from a few hundred to a few thousand dollars; the bill sent to my insurer was for a one-week rental. That doesn't cover the cost of the cardiologist's skill and time in reading the downloaded data, of course. That generally runs a few hundred dollars. But prices for monitoring and data interpretation are all over the place as they are for most health care products and services. There's little in the way of a real health care market to set prices and inform consumer decisions.
"Contrary to 'conventional wisdom,' health insurance—private or otherwise—does not make health care more affordable," Jeffrey Singer, a surgeon and senior fellow with the Cato Institute, wrote in 2013. "The third party payment system is the principal force behind health care price inflation. This should come as no surprise."
Singer pointed to American-style health "insurance" as an example of the last category of Nobel Prize-winning economist Milton Friedman's four ways to spend money: in this case, spending somebody else's money on somebody else. "Here you are the least incentivized to economize, or to buy something that meets the needs or values of the recipient," notes Singer.
"When the government buys goods or services for other people with other peoples' money, special interest pleading, political concerns, and cronyism run the game," he adds. "But private insurance companies are also spending other peoples' money—the premiums paid into a risk pool—on medical services for other people. When they negotiate compensation schedules with providers and facilities, they don't have to bargain hard enough to reach the best price possible. They just have to reach a price that is good enough—one that allows them to charge premiums that compete well with rival insurance companies."
Wayne Winegarden and Celine Bookin of the Pacific Research Institute's Center for Medical Economics and Innovation agree. They point out that, in 1960, patients paid 52 percent of their own health care costs, private insurance picked up 22.8 percent, and government and other third-party payers covered the rest. As of 2019, patients were only paying 11.3 percent out of pocket, private insurance covered 33.3 percent, and Medicare and Medicaid cover 39.3 percent.
"This shift in financial responsibility creates an ever-widening conflict of interest between the payer bureaucracy and the needs of patients, and this misalignment drives the unwanted outcomes that plague the current U.S. health system," Winegarden and Bookin write.
If You Want To Know the Price, Good Luck
In an effort to alleviate such problems, several years ago the Trump administration implemented a new rule that requires hospitals to publish prices for services. If you can find them buried on websites, good luck with that. My local hospital offers an Excel spreadsheet that shows over two dozen different prices for the same procedures and services, from gross charge to different categories of self-pay, Medicare, Medicaid, and the results of negotiations with different insurance companies.
"A colonoscopy might cost you or your insurer a few hundred dollars — or several thousand, depending on which hospital or insurer you use," NPR reported after the rule took effect. "Hospitals say the transparency push alone won't help consumers much, because each patient's situation is different and may vary — and individual deductibles and insurance plans complicate matters."
Well, yes. So long as somebody else—insurance companies, Medicaid, or Medicare—is paying the bill, the price really only matters to the relatively few self-pay patients who both receive health care and are responsible for the bill. For them comparing offerings across providers is important because, adds NPR, "in some cases, the cash-only price is less than what insurers pay."
Note that experts don't distinguish between government payers and insurance companies when assessing the problems of third-party payers. While consumers pay in the form of premiums (private insurance and government programs) and taxes (government programs), these payments are divorced from decisions about prices and responsibility for bills. That creates what's called an "economic wedge."
Private or Government, Third-Party Payers Are a Problem
"An economic wedge occurs any time government policies separate effort from reward or consumers from producers," Winegarden wrote in 2009 with co-authors Arthur Laffer and Donna Arduin in The Prognosis for National Health Insurance. "When government, lawyers, or third party insurance is responsible for paying the bills, consumers have no incentive to control costs."
Supporters of single-payer systems, or Medicare for All, would transform government into the last third-party-payer standing, without even the discipline that comes from competition among third-party payers. It would double down on the problems inherent in divorcing people from the cost of the health care they use, without addressing those problems at all.
"Policymakers need to understand that the key to 'affordable health care' is not to increase the role of health insurance in peoples' lives, but to diminish it," Singer wrote in 2013. He called for putting patients back in control of their own health care costs. Winegarden and Bookin also favor moving power and responsibility from third-party payers to individuals.
If I'd responded to my cardiologist's prescription by shopping around in a free-market health care system, I would have had a better handle on price—the real price, not a grab-bag of categories. I would have looked for an affordable option. I might have opted for one of the commercial home monitors that offer alternatives to Holter monitors. And I wouldn't be arguing with Cigna about a price we agree is nuts.
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