We are a nation of shoppers who heed the cardinal rule of consumers: Never pay retail. Department stores put seasonal merchandise "on sale," long before the season starts. In the post-season, shoppers scoop up bargains at 85% off "list price." Who pays list prices? Nobody I know. Somebody must pay sticker prices. But who?
With health care, we don't need to wonder who pays retail: the uninsured do. HMOs and insurance plans have negotiated prices with hospitals, pharmaceutical companies, and physicians. The March 17 Wall Street Journal highlights how steep negotiated discounts are -&endash; and how high sticker prices are.
The story began as so many Manhattan stories do: a 25-year-old woman, newly-graduated from college, left her Texas home for an exciting future in Manhattan. She worked for a magazine. But after Sept. 11, the magazine retrenched and laid her off. She opted not to keep health insurance via COBRA; the premiums were high, and she was healthy. But illness is random, and she needed an appendectomy. Medically, the story has a happy ending: the patient recovered fully. Financially, the story is not so happy. She ended up owing more than $19,000 to the people who saved her life -&endash; a debt that drove her back to the Texas plains.
Behind the story, though, is the sobering schedule of prices. Hospitals sell the same procedure, at different prices, to different buyers. The Brooklyn hospital billed the heroine (or victim) of this tale $14,000 for her appendectomy; it would have billed an HMO $2,500; Medicaid, $5,000; and Medicare, $7,800. The reporter tabulated the disparate charges for a bilateral mammogram at UCLA Medical Center, Oregon Health & Sciences University, Jamaica Hospital (Queens), Johns Hopkins Hospital & Health System, and Grinnell Regional Medical Center. In all cases, the official charge outstripped the charge to large insurers. UCLA, for instance, officially charged $460, but charged Medicaid $127. Admittedly, the hospitals had provisions for helping the uninsured: sliding scales, payment schedules, discounts based on income. In Maryland state law forces hospitals to keep charges to the uninsured within the range of charges to large insurers. Overall, though, the person who walks through a hospital door without insurance is going to be billed much more for the same procedure than the person who walks in with an insurance card. The same is true for prescription medicines. The HMO will pay less for a year's supply of a drug than an uninsured consumer.
The reason is obvious: Large insurers negotiate deep discounts. Indeed, we-the-insured want our insurers to negotiate those deep discounts. Insurance premiums have been creeping up over the past few years, even with these discounts. A more "equitable" pricing schedule would mean higher prices for us-the-insured, which would spike premiums.
It is, of course, one of those ironies of economics that the poor often pay more. They pay more for food: inner-city grocery stores charge higher prices than suburban supermarkets. The latter have lower costs, thanks to the economies of scale inherent in super-purchasing. The poor pay more to borrow money, whether for homes or cars; people with shaky credit, or employment, histories, end up borrowing from "sub-prime" lenders, who charge higher interest rates than do mainstream banks.
Yet making the poor pay more for health care is counterproductive. After all, we want people to be healthy and productive; surely appendectomies, medications, and physicians serve that goal. It is also absurd, because poor people cannot pay multi-thousand-dollar bills. Multiple dunning letters later, most people faced with bills they cannot pay will default. Finally, it is cruel.
Joan Retsinas is a sociologist who writes about health care in Providence, R.I.