Why Healthcare Prices Vary so much!
By: Eric Bricker, MD
The New York Times posted an article explaining hospital prices for patients on private insurance plans such as Blue Cross, United Healthcare, Cigna, and Aetna.
The article rightly points out the huge variability in hospital prices:
- Same hospital, same procedure, different insurance carriers – a colonoscopy at the Univ. of Mississippi Medical Center with Cigna costs $1,463, and with Aetna costs $2,144.
- Same hospital, same service, SAME insurance carrier, just different plan type – an MRI at St. Luke’s Hospital in Milwaukee with UHC PPO costs $4,029, and with the UHC HMO costs $1,092.
- Same insurance carrier, same service, different hospital – a rabies prevention treatment at Intermountain Health in Utah costs $5,000, and at the University of Florida Medical Center costs $10,000.
WHY? Why the variability?
Here is why… hospitals and insurance carriers negotiate Total Annual Contract Value.
Each individual service (e.g. colonoscopy, MRI, rabies treatment) goes through a process of ‘horse trading’ to come up with a total contract that has a value of $X (e.g. NYU and United might come to a total annual contract value of $500M).
Each hospital and each insurance carrier does their own unique ‘horse trading’ of prices for each service, but it’s the total contract value that matters to both parties… not the wild swings in individual prices.
What Employers Can Do to Help Their Health Plan Members
Employer-sponsored health plan members must navigate these wildly swinging healthcare prices.
However, the plan design can shield them from the chaos and translate differences in price and quality into easy-to-understand copays.
Translating confusing, variable prices into understandable, consistent copays is really the ‘last mile’ in plan design that most plans leave out.
It’s like delivering a heavy package to the end of your block, but not to your home. It’s close, but just not close enough to be useful.
Employers can go that last mile… with copays ranked by value.