Why do healthcare providers charge patients much more than the amount covered by the insurance?
If the amount covered by the insurance takes into account the amount of money healthcare providers charge, then why the latter isn't even higher?
If the amount covered by the insurance does not take into account the amount of money healthcare providers charge, then why the latter is so much higher than the amount covered by the insurance?
Example:
The price the provider charges you is the amount he would like to get for his services.
Let's take an example, you do a blood test at a lab, and they charge you 1200.00$
If you have insurance, and the provider has a contract with that insurance (meaning 'they take them'), the contract limits what they can charge and what the will get.
For the example, that might be 21.56$. This is what the insurance pays them (or what you pay them, if you have deductible).
Note that if you have no insurance, you owe them 1200.00$. They are typically willing to negotiate that you only pay maybe 850.00$, but it still will be much higher than the insurance price. Why?
The reason is that the insurance-agreed payment of 21.56$ does not cover their cost (but the insurance forces them to make that contract or basically be out of business). Let's say for example they need 26.56$ to make a living on it; so they lose 5.00$ on every insured customer. One in 235 customers has no insurance, and his price is calculated as 26.56+235*5.00 = ~1200.00$, so his bill covers the losses for all insured 'under-payers' (all numbers are examples made up to illustrate the math the provider does).
My bloodwork typically comes between 800 and 1400, and gets reduced to around 20: so the numbers are not completely off. The ratio and concept works for doctors and hospitals the same, just not as significant a difference.
The amount covered by the insurance takes into account the amount of money healthcare providers charge, according to this Quora post by Amy Chai (MD). For example, Medicare pays about 20 cents on the dollar for what a health provider bills. As a result, health providers have to artificially increase the amount of money they charge. Health providers cannot charge uninsured patients differently from insured patients, otherwise health insurances may complain to the feds, which in turn may charge the health providers with fraud for artificially inflating the medical bills.
