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All Americans need health insurance

Young Americans sign-up for coverage under the Affordable Care Act just prior to the April 1, 2014 deadline.
Young Americans sign-up for coverage under the Affordable Care Act just prior to the April 1, 2014 deadline.
Photo by Joe Raedle/Getty Images

Why do Americans really need health insurance? One answer, to pay our sickness expenses, may seem obvious. But just as important is the market power of insurance companies and governments to negotiate low prices for services.

Medical service pricing in America is made opaque and capricious through a process known as cost shifting. Cost shifting is the practice of attaching operating costs to specific groups of demographically identified patients. It affects the way in which services are subdivided for cost purposes in the hope that no one will notice. Thus, we get $10 boxes of Kleenex and $4.00 aspirins.

Differences between list prices for services and actual payments accepted for those services can vary as much as 90 percent. The difference is then written off as a medical loss. More commonly, two thirds or more of the list price of any service is written off in this way. All these prices and negotiations are very tightly held. They are never made available to the public.

Actual price can only be divined through extensive number crunching and backing into the real costs after all payers and payees explain to you what they have done in “your summary of benefits” statement.

Confused yet? So are the providers on the other end of the transaction. They have mainly forgotten that their own prices are phony and they believe that they have given up revenue that should have been rightly theirs.

Exacerbating the problem is the fact that there is no market price for any service. A hip replacement surgery (for example) can list for $15,000 at one facility and $60,000 at another.

The medical services price carousel first began whirling with the passage of the Medicare Act in 1965. The original Medicare payment model promised to pay hospitals for their actual cost of services plus two percent. List prices became fantasies. The differences in supposed cost between differing providers was so immense that Congress soon imposed structure to the pricing chaos with the establishment of acceptable pricing within Diagnostic Related Groups (DNGs). This should have made pricing easy to understand, but adjustments to DNGs through negotiation cause even more pricing confusion and continuing bad feeling between government and health providers. Insurance companies followed the government’s example. Each negotiated their own prices with providers.

The patient who has ended up slammed is the person in the middle who is too young for Medicare, too rich for Medicaid, or (up to now) not eligible for private insurance. The ACA created help for previously uninsured individuals to escape the worst of fantasy medical billing.

Those Americans who choose not to be insured “out of principle” risk being hit by a triple whammy of full price billing, cost shifting, and a certain penalty for not signing up.

Medical bills have forced more than half of all personal bankruptcy actions in America even though medical bankruptcy hardly exists in other advanced countries. And that is why the ACA is a step in the right direction despite its many faults.

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