What “charges” really mean in healthcare
When you get a bill from a healthcare provider there will be a line near the top called “charges” or “facility fee.” It will be a big number, and this is what scares most people when they get a medical bill. Carol developed tunnel vision and only saw the numbers at the top of her bills. This is why she was in such a hurry to declare bankruptcy. This is a wrong way of thinking. I will use an analogy to explain why we do this.
Let’s compare an MRI scan to getting a new transmission for your car. If ten different people take their car to the same body shop to get their transmission replaced, they are all going to pay the same thing. Let’s say that bill is $900. Even though some will pay by check, some by cash, and some by credit card, they will all pay $900.
However, if ten different people go to the same hospital to get an MRI scan, their insurance companies are all going to pay different amounts and the patients are all going to pay different amounts. This is because:
- Insurance companies get “volume discounts” for the number of enrollees they cover. The more enrollees they have in their plan, the cheaper prices they can negotiate with healthcare providers. Providers will agree to lower rates, if being in the health plan means more patients will come see them. So a big insurance company like United Healthcare may negotiate a price for an MRI at, say, $1,000 while a smaller insurance company like Union Pacifc Railroad Employee PPO might pay, say, $1,700 for the same MRI.
- Also, employers select different beneft plans within each insurance company based on what they can afford. Patients at Company A and Company B may both have United Health Insurance, but the patients at Company A could have a 20% coinsurance for an MRI while patients at Company B may have a 60% coinsurance for an MRI. This is purely a function of the plan your employer chooses
Because there is no standard fxed price for medical service (like there is for transmissions) everybody pays something different. What’s worse is that what everybody pays changes every year because employers, providers, and insurance companies re-negotiate every year. It is a real mess.