You won't hear this in a Debate

In February, I described the disparity between self-pay, at time of service, medical lab charges and the amount that was billed to – and paid by - insurance, or by me if I opted to be billed. One critique posited that the difference was accounted for by the amount that insurance carriers are subsidizing the uninsured. That doesn’t seem to be the case, at least in hospital costs.

Uninsured patients and those who pay with their own funds are charged 2.5 times more for hospital care than those covered by health insurance and more than 3 times the allowable amount paid by Medicare, according to a study by Gerard F. Anderson, PhD, a health economist at the Johns Hopkins Bloomberg School of Public Health.

Anderson’s analysis determined the ratio between the prices hospitals charged self-pay patients and Medicare-allowable costs, which are the costs that Medicare has determined to be what it costs to provide care to all patients. In 2004, the ratio was 3.07, which means that for every $100 in Medicare-allowable costs, the average hospital charged a self-pay patient $307.

The study also shows that the gap between the amount self-pay patients are charged and what Medicare pays for hospital services more than doubled over the past 20 years. Anderson argues that the widening gap in prices makes it increasingly difficult for the uninsured to pay their medical bills. The ratio between the amount hospitals charged self-pay patients (gross revenue) and the amount the hospitals actually collected (net revenue) was 2.57 in 2004. This means that hospitals collected only $0.39 for every dollar charged. Anderson estimated that if hospitals had actually collected the full amount charged to every patient, the profit margin per hospital would average more than 200 percent.

In other words, on average hospitals were paid $120 by self-pay patients for treatment that Medicare valued at $100. Interestingly, the amount paid for those same services by insurance companies and their insured? $122 – almost exactly the same.

Thus, when a hospital reports it has “donated,” say $1,000,000 in services, what it really means is that it billed an inflated $1,640,000 for treatment, and was paid $640,000 of that.

For the same treatment, however, insurance companies (including patient co-payments) would have been billed – and paid - $656,000. Medicare would have reimbursed $427,000 and Medicare patents(or their co-insurance) would have paid $107,000, a total of $534,000.

More simply, on a same-service basis, the insured pay $656,000, the uninsured $640,000, and Medicare $534,000.

Not included are federal payments (your tax money) under the Disproportionate Share Hospital Program (DSH). Those are intended to defray the costs that hospitals incur delivering services “not paid for.” In 2004 the total (including state matching funds) was $16 billion, or $385 per uninsured patient. In addition even to that, states and hospital have funds donated over many decades (similar to college endowments) to cover “free beds,” or to use a more classical phrase “charity patients.” It’s hard to know how much that is in total, but Connecticut’s “endowment,” for instance, is more than $130 million.

It’s clear the reported $1,000,000 “donation” is entirely bogus. In fact, if all that treatment were delivered to “normally” insured and Medicare patients, a hospital would actually be worse off. If our mythical hospital has a patient population consisting of 1/3 of each group receiving exactly the same treatment, its net revenue will be $1,830,000. If it has no “uninsured” patients at all and its population is made up of the other two groups, half each, its net revenue is $1,785,000 – and it can no longer claim it’s “losing” or “donating” $1,000,000.)

It seems logical the proportion collected would increase if the billing amount wasn’t initially so inflated. After all, if an uninsured patient received a bill for $100 (the value of the treatment according to Medicare) rather than $300, it’s far more likely to be paid.

What’s also clear in the data is that insurers are not subsidizing the uninsured, as they claim.

Whatever the reality is, it seems we won’t hear it from television’s talking heads – or from candidates.