Comment by chimeracoder | Hacker News Reader

Comment by chimeracoder | Hacker News Reader

Parent Full thread

> (Insurance was originally for catastrophic care where the cost for a major illness or surgery would get too high.)

Agreed 110%.

> Having prices so high that only insurers can pay them means only insurers DO pay them and since hospitals and clinics know this they can charge whatever they want.

I've explained this in more detail on another recent HN thread, but basically: prices are 'so high that only insurers can pay them' by design, but it's not for the reason most people think.

It is generally illegal for providers (hospitals/doctors/etc.) to charge different rates to different patients based on their insurance status[0]. However, it is not illegal for providers to negotiate standard rates for specific payers. Combine this with the fact that providers lose money on their publicly-insured patients[1], and it becomes clear that they have to overcharge the rest in order to end up in the black.

So what they do is set absurdly high sticker prices, knowing that the private insurers will negotiate those down (usually this is done in multiples of what Medicare pays - e.g., Aetna will say, 'We'll pay you 150% of the Medicare price for billing code 99481 this year'.

Uninsured patients are stuck with huge bills as a result, though this is basically an unintentional side-effect of the fact that hospitals can't give them lower bills initially. It's also the reason that hospitals are almost always willing to negotiate with uninsured patients. If they know to ask, they can almost always get that down to 10% of the original rate. That bill isn't meant for individuals, they don't really expect individuals to pay, and they'd much rather negotiate a discount and have it paid in full immediately than have a patient default, which has negative repercussions for their bad debt ratio.

Privately insured patients end up having higher premiums as a result, because their insurers are paying higher rates to subsidize other patients who are not paying any premiums at all (publicly insured patients)[2].

[0] There's a little nuance to this, but that's the general idea.

[1] Medicare reimburses less than the actual costs of services provided per-patient, before accounting for any overhead

[2] This subsidy happens at the claims level, so it counts towards the insurer's requisite MLR.

[1] Medicare reimburses less than the actual costs of services provided per-patient, before accounting for any overhead

Hospitals don't even know what a given service costs, so this statement seems to need a little more equivocation around it.

> Hospitals don't even know what a given service costs,

That's not really true. We're talking about the costs of goods sold, which means it's pretty easy to place a lower bound on the marginal costs. For example, if the lab supplies for running a certain test cost $100/unit from the vendor and Medicare pays $93, you know that the hospital is losing money off of it. We're not taking into account the overhead, infrastructure, or any of that stuff, since it doesn't factor into COGS.

Anyway, this number comes straight from Medicare's own figures, astonishingly. I can't dig it up right now, but it's in the public record, somewhere within a ~100 page PDF. I have the PDF at home and have linked to it on HN before. Medicare literally acknowledges that they reimburse less than 100% of the direct costs that they incur (in 2012 it was 93%, IIRC.)

I don't see it here:

https://hn.algolia.com/?query=by:chimeracoder%20medicare&sor...

I don't think you would have linked it in a comment where you didn't mention medicare.

I'm honestly curious about it, I certainly believe that Medicaid reimbursements are not matching costs, but I think for Medicare they often are.

Not the PDF I'm thinking of, but just googling the numbers I remembered, here one example:

https://www.floridahospital.com/sites/default/files/finance_...

> In 2012, beneficiaries of Medicare and Medicaid received nearly 60% of the clinical services provided by Florida Hospital (as measured by charges)vi. However, payments from these government programs represented just 40% of Florida Hospital’s total net revenuevi . In comparison, private payers received 30% of the care provided by Florida Hospital and represented 56% of its total net revenuevi

And the next paragraph:

> hospitals such as Florida Hospital have no ability to negotiate the payments from the public payers – Medicare and Medicaid – that pay for the majority of the clinical services provided. This poses a tremendous financial challenge for hospitals because these payments do not cover costs. In order to overcome these shortfalls, hospitals negotiate higher rates from private insurance groups. For this reason, continuing cuts to Medicare and Medicaid payments create an unsustainable business environment and put undue financial pressure on private payers

(The common response to this is that we need to increase funding to Medicare. While it's true that Medicare happens to be underfunded, that doesn't actually address the structural problem. Because Medicare has the ability to change their reimbursement unilaterally[0] while it has to request additional funding from Congress, these two will always be out of sync).

[0] the word 'negotiate' is often used here, but since hospitals are essentially legally required to accept Medicare patients, it's no more a fair negotiation than the negotiation you have with Comcast over your bill. You can squeeze a few extra dollars out of them if you fight, but at the end of the day, Comcast has all the power, so they can - and do! - price-gouge.

Reply on news.ycombinator.com