Price ≠ Cost

Healthcare in the US is… expensive. We spend almost double what other wealthy countries pay per person on healthcare. In a perfect world, that would mean we get the best care, but sadly, when comparing Healthcare Quality and Access, we rank last among our peers.

There are many places to lay blame for the current situation. Politicians who won’t or can’t curb out-of-control healthcare costs. Hospitals and doctors who continue to charge more and more for care. A nationwide aversion to going to the doctor until symptoms become unbearable, leading to costly cures instead of affordable prevention. However, one large part of the problem is where you’d least expect it — insurance. And that leaves US employers stuck with problems they must tackle head on to address.

In theory, this is how insurance 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” isn’t the actual cost. In the US, private health plans pay 247% of what Medicare would pay. 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.

The simple fact of the matter is that, unlike any other industry, the price for healthcare is completely disconnected from the cost of the service. And insurers, the companies we think have us covered, are a huge reason for that. 

As of 2019, 92% of the US was insured which means there are a lot of us who can challenge the status quo. It could be that a healthcare revolution is just around the corner. Many of our representatives in Washington are working on a new vision for our healthcare system, attempting to change the way hospitals, doctors, and insurers do business. However, in the meantime, this is the system we have, and some of the best tools for working within it are alternative reimbursements.

We’ll explore various alternative reimbursements and their benefits in the weeks to come. For the time being, rest assured, there is a way to lower costs and improve care, and you don’t need to wait for a revolution to do it. Businesses have options to directly work to administer quality care at lower cost.