Third-Party Pay Health "Coverage" Meets The Real World

One of the accepted propositions of modern progressivism, on which it is difficult to find dissent in the precincts that I inhabit, is that in any "decent" society, everybody "should" have healthcare "coverage."  I put the word "coverage" in quotes because that word is often intentionally used by advocates to create confusion with the very different idea of insurance.  The word "coverage" gives the impression that somehow magically somebody else will take care of all of your expenses in the medical area, and you can consume as much medical care as you feel like while paying nothing.  And we come to a world where some large majority of people have healthcare "coverage" that takes care of not just major and unexpected expenses like a hospital stay or a heart attack, but also all kinds of routine and ongoing expenses like routine checkups, doctor visits, and prescription drugs.  Nobody in their right mind would buy insurance for such things absent massive government arm-twisting (in the form of tax-deductibility for employer-provided "coverage" as well as Obamacare mandates).  Would you buy insurance for the cost of your daily lunch?  As I wrote in that linked article (from 2013), in a world of third-party pay for routine expenditures, "you can be sure that [people] will buy the most expensive options and that the cost will zoom out of control."

In the medical arena, people have been pointing out the problematic incentives of third-party pay for a long while.  But it seems only in the last few years that medical providers like hospitals and pharmaceutical companies have perfected their pricing strategies to get the absolute last dollar out of the third-party payers like government and insurance companies.  Two examples recently came to my attention in my personal life, that I thought I should share with readers.

The first involves the former Official Manhattan Contrarian Summer Intern, who was my research assistant for this blog in the summer of 2014.  Today she is off attending the University of Chicago.  A few months ago, she fainted briefly while at school.  It turns out that she had also fainted a couple of times previously, in circumstances where she had let herself become a little dehydrated.  On those occasions she had thought little of it, and hadn't gone to a doctor or hospital.  But this time the U of C packed her off to their affiliate University of Chicago Medical Center.  With a well-insured (or "covered") warm body in their clutches, the hospital staff took the opportunity to run up every expense that their creative minds could think of, and then a few more.   The bill was $6000.  And the diagnosis?  "Nothing wrong that we can find."  

In this instance, the insurance company negotiated the bill down to about half that.  The parents got a bill for a co-pay of $75, which they gladly paid.  But do you get an idea of why health "coverage" may be getting so pricey?

The second example involves one of my own daughters.  Several months ago she jumped out of a tree (don't ask what she was doing in the tree) and landed the wrong way on one of her feet.  By the next morning, the foot was swollen and painful to walk on.  She hobbled over to the very fancy new "urgent care" center in our neighborhood in Manhattan, run by a hospital system known as North Shore/LIJ (currently in the process of changing their name to Northwell), and made the mistakes of first telling them that she had insurance and then allowing them to examine her without agreeing to a price in advance.  They took an x-ray, and, after a wait of a couple of hours she spent about 5 minutes with a physician, who evaluated the x-ray.  He said that it was not clear whether the bone needed to be set, and he did not treat her; but he recommended that she see an orthopedist promptly.  A couple of days later she got an appointment with an orthopedist, who also recommended that no treatment was necessary.  However, he advised her to keep weight off the foot and it would heel within a few weeks.  Sure enough, it did.

The bill from the orthopedist was about $400.  Expensive, but hey, this is Manhattan.  The bill from the urgent care center was $4700.  My daughter has insurance through her job, and again, the insurance company negotiated the bill down, in this case to about $2600, of which they paid about $1300.  That left a remainder of about $1300 that consists of various deductibles and co-pays applicable to various parts of the bill. 

I don't know about you, but I live in Manhattan and pay outrageous Manhattan prices for everything, and still $4700 -- or even $2600 -- struck me as rather wildly out of line for a visit that involved five minutes of doctor time evaluating an x-ray and no actual treatment of any kind.  

Meanwhile, I have recently become aware of a new kind of walk-in medical clinic springing up around our area, catering to an uninsured clientele that pays cash on the spot.  So in recent weeks I walked into a couple of those, described the circumstances of my daughter's visit to the urgent care center, and asked what their price would be for the same service to an uninsured patient walking in and paying cash.  The two were Union Square Urgent Care, on 14th Street, and CityMD, on 23rd Street.  In both cases their answer was the same:  $185.

I would be 100% sure that no individual paying out of his or her own pocket has ever paid North Shore/LIJ the $4700 -- or even the $2600 -- for a visit of this type.  Very few people would have that kind of money for an unexpected expense of this type, and the few who did would rightly refuse to pay it.  These numbers are purely picked out of the air by the hospital to see what they can game out of the insurance company, and in circumstances where if the insurance company refuses to pay the hospital knows that the insured will first blame the insurance company rather than the hospital.

The $185 price of the walk-in clinics is a clear demonstration that a functioning market of people paying with their own money has no trouble finding a reasonable price.  Sure, some people can't pay even that.  That's why there's charity in the world.  Or do you think that replacing "third-party pay" with "single payer" can suddenly magically do away with the phenomenon that everybody games whatever system there is to their own advantage?  Good luck with that!