Incomprehensible?

By Amir Zaman,
WEA Insurance
employee benefits specialist

October 1997

Health care shopping can be mindboggling

If you ever need to find the cost of a medical service, you’ll discover that you need all the skills of Sherlock Holmes. That’s because there is so much variation in what medical providers charge for services — and in what they accept as reimbursement for those services — that doing any comparison shopping is virtually impossible.

Fortunately, most people who have health insurance don’t have to deal with the mysteries involved in trying to match a medical service with a price tag because their health insurance usually pays the bills on their behalf. However, if you’ve ever wondered why your out-of-pocket costs (coinsurance, deductible etc.) would increase or decrease by switching from one type of health plan to another, knowing how medical services get reimbursed can provide part of the answer.

Variation in fees

As you would expect, there are differences — at times significant — in what providers charge for their services. One thing that variation in medical fees does not reflect is difference in quality. Research studies done across the country have failed to establish any link between higher fees and better quality of medical care.

Between the two extremes lies a range of fees. For individual consumers, it’s very difficult to assess where their provider’s fee ranks on a scale. Unlike other products and services, most people who require medical care rarely shop around for the price. Even if a person did call around, he or she probably would not be able to pin down a correct price because of fee discounting.

Dealing with discounts

Finding out what a medical service costs is just the first step. The more significant challenge is trying to figure out what amount a provider will accept as reimbursement. Your cost for a medical service depends in large part on the kind of fee arrangement your health plan has with your provider. Those who pay the bills on behalf of health care consumers — insurance companies, managed care organizations, or the government — can and do negotiate discounts from medical providers. The levels of these discounts vary so greatly that assigning a price to a service is almost impossible.

Further, many providers have fee agreements with more than one health plan. This can result in two people from two health plans receiving the same service from a provider, but having to reimburse the provider very different amounts of the bill because their health plans have negotiated different discounts.

As a medical consumer, you need to understand that rates for medical services vary greatly, and that providers who agree to discounts aren’t lower quality providers. Instead, providers agree to accept lower fees because they expect to recoup their loss through an increase in patients. It’s a business strategy that may confuse individual consumers, but is integral for survival in today’s health care system.

Posted October 6, 1997