Deceit in Healthcare Pricing

The high cost of healthcare is an incredibly complicated problem. The healthcare industry itself employs one in ten Americans. It is undeniable that healthcare workers, whether they be frontline healthcare providers or support staff, have significantly benefited from the status quo. However, the real beneficiaries of the current system and the ones who reap the lion share of the financial rewards are hospital and health insurance executives.

Both hospitals and health insurance companies have reported record profits in recent years. Shiny new hospital buildings and office towers are just some of the visible signs of the obvious opulent wealth being extracted from everyday Americans.

What’s driving healthcare prices is a combination of hospital greed and insurer indifference. Hospital conglomerates, many of which hold de facto monopoly power in their local jurisdictions, dictate terms to insurers, employers, employees, and almost everyone else (with the notable exception of Medicare).

Health insurance companies are just as complicit. While in theory, it is the insurer's job to negotiate rates with hospitals and other healthcare providers, in practice, insurers often pass on the costs dictated by hospitals to their customers, both employers and employees alike, in the form of ever-higher premiums and ever-shrinking coverage.

The rise of bare-bones high-deductible health insurance plans in recent years is an excellent example of insurers providing essentially worthless health coverage. Many high deductible plans require patients to pay thousands of dollars out of pocket before they kick in, which only discourages patients from seeking the healthcare they need. It also encourages hospitals to charge outrageous prices with the expectation that the insurance company will pick up the tab once stated costs exceed an insured patient’s high deductible limit.

Of course, while it would be easy to blame all hospitals and insurance companies for the state of healthcare today, the truth is always far more complicated.

A third of nonprofit hospitals, mainly those serving poor and rural communities, often operate in the red.

Another third of hospitals break even.

However, a third of hospitals, particularly hospital chains with prestigious brand names, rake in enormous profits. Monopolistic hospital conglomerates run by business people concerned about the bottom line, not patient outcomes, is the real problem. Once doctors stopped owning the hospitals and left the essential decisions in the hands of profit-oriented executives, it was only a matter of time before hospitals learned to operate like cutthroat robber barons. Unfortunately for millions of patients, however, health is not a business. It’s a matter of life and death.

And do not be fooled into thinking these hospitals are doing tremendous good in the community; if one looks at the top 20 "not for profit" hospitals by revenue, the average proportion of operating expenses devoted to charity care is 5.21% and the median is 3.99%.

As for traditional insurance companies, many think that there is no place for them in a modern healthcare system. Insurance companies neither create nor provide healthcare services, goods, or products. They do not research promising drugs. They do not manufacture hospital equipment. They do not man the operating room. They do not care for the sick.

Instead, traditional insurance companies control the distribution of all these things. They are the gatekeepers and middlemen of medical goods and services. As intermediaries, insurers skim a healthy profit off the top of every healthcare transaction in the market outside of Medicare, Medicaid, and direct-pay cash transactions. In just the first quarter of 2017 alone, the five largest health insurance companies collected $4.5 billion dollars in net earnings.

In the view of many, traditional insurance companies have become an anachronism. In the early days of globalization, American corporations discovered that they could bypass the myriad of intermediaries and distributors and purchase the goods they needed directly from manufacturers. Cutting out the vast chain of intermediaries allowed them to offer drastically more competitive prices. Perhaps a future healthcare system should consider a similar paradigm wherein healthcare providers and consumers alike skip the middlemen and deal directly with each other.