Any backpacker travelling on a shoestring budget in Thailand knows not to blow their entire budget on premium whiskey in a premium hotel on the first night in Bangkok. Rather, you need to skip the occasional meal, stay in a cheap dorm with random strangers, and drink cheap beer on Khao San Road if you wish to see the country and return home without having to wash dishes in a restaurant in Bangkok to repay the loans. Both Democrats and Republicans seem impervious to a simple wisdom that I learnt when backpacking – you save money if you go for cheap stuff. The operative word here is “cheap.”
Both the Affordable Care Act (ACA) and the Better Care Reconciliation Act (BCRA) impose cost sharing, such as deductibles. Deductibles lower premiums by cost shifting. Because the sick, for obvious reasons, are more likely to meet their deductibles sooner than the healthy, deductibles shift costs from the healthy to the sick, or are a “tax on the sick.” Deductibles also reduce premiums by reducing the administrative loading of insurance – because insurers have fewer small claims to process, administrative costs reduce.
Whatever the morality of deductibles, and they are a trade-off between higher premiums for healthy Peter and higher out of pocket expenditure for sick Paul, a deductible is short-lived if decimated, for example, by a single visit to the emergency department (ED) for vague chest pain which leads to a triple rule out CT angiogram. This is because the charges imposed on the patient before insurance kicks in are the list charges – the dreaded, illogical, evil and, frankly, stupid chargemaster rates. This is not like drinking premium whiskey in a premium hotel. It’s worse. It’s paying ten times the rate for premium whiskey in a premium hotel for cheap beer in Khao San Road.
The chargemaster is a hospital’s list price which hospitals use to show how much charity work they’re doing.
“Look we just did $3000 of charity by giving away ten $100 saline drips, which only cost us $2, for free. Can we keep our Mother Teresa, I mean non-profit status?”
Hospital administrators, in clandestine meetings, use the chargemaster to negotiate with insurers reimbursement for medical services. To give you an example of the negotiation, let’s take Tom, a brash CFO in a hospital in New York who, negotiating with Price, a brasher CEO of Blue Cross Blue Shield, says “see, we charged that poor bastard, Abdul the cab driver, who has no insurance, $10, 000 for a triple rule out CT angiogram, and all we’re asking you for is $1000 for the rich employees at Goldman Sachs who make thirty times Abdul does. Is that really too much to ask for, Price?”
You can instantly see several elements, lunacies actually, about this set up. The higher the list price, the higher the starting point of the negotiation. The more aggressively Tom bargains, the more dollars the hospital gets. The more aggressively Price counter offers, the fewer dollars the hospital receives. If Tom knows that Price is an aggressive, alpha male bargainer, he’s likely to raise the list price of a CT angiogram. If Price adduces from Tom’s swings at the local golf club that he’s a “win at any cost”, Harvard MBA gunner with a Napoleon complex, he’s likely to make a ridiculous counter offer. This is a vicious cycle – logical and illogical in equal measures.
Let’s revisit their imaginary, though not unimaginable, conversation.
Tom: $10, 000 for CT angiogram for uninsured Abdul. For the rich people your plan covers, all I ask is $1000.
Price: No, $200. Take it or leave it.
Tom accepts, but his ego is bruised. Once bitten, twice shy. Tom returns with a vengeance.
Tom: $15, 000 for MRI/ MRA of the brain. That’s what we charged Abdul, that uninsured cab driver straddling the 400 % Federal Poverty Limit (FPL). For your Goldman Sachs’ bankers, all I ask for is $2000.
Price: No, $200. Take it or leave it.
Tom: Did I tell you we’re merging with three other hospitals in New York?
Price: ok, can we make it $1800?
Tom: Price, what difference does it make to you? The Medical Loss Ratio means you can pay hospitals as much as you want – it’ll get counted as “medical expenses.” Those framers of the ACA missed this obvious point.
Price: Tom, it’s not always about the money. Sometimes it’s the ego. Remember, I got bullied at school for not sharing my chocolate.
Tom: ok, $1900 – just because I got bullied at school, too.
Price: Thanks. Please don’t charge anyone else less than $1900 for MRI/ MRA of the brain. I know you might be tempted to because you could feel bad for bankrupting people. I also know Medicare only gives you $500 for MRI/ MRA.
Tom: I don’t feel bad for bankrupting people. You want the “most favored nation” status? That’s fine. Also, I can always use the anti-trust law to keep our negotiation secret. I’ll use a law to our advantage. These regulators are such idiots!
Price: Ha! They’re asses, to be precise.
Tom: Ha! Ha! Yes, asses!
Price: not even that uninsured cab driver, straddling the 400 % FPL. You can’t feel sorry for him just because he’ll be bankrupt. Remember, that’ll violate our treaty.
Tom: You mean Abdul? I wasn’t planning to. We still need to get the $100 he owes us for a saline drip we started just in case he was dehydrated. He wasn’t dehydrated, and he only used 1/3, but that’s not the point. If I must bankrupt that cab driver to keep our legal treaty, I will.
Price: Thanks Tom. No mercy on the middle class uninsured.
Tom: Don’t worry, Tom. There’ll be no mercy on those free riders – even the Democrats are on our side. They didn’t touch the chargemaster.
Price: They need both of us, which is why we supported the ACA. Without your high charges what’s the point of insurance? They need the insurers. They wouldn’t know their posteriors from their elbows without the insurers. Single payer? Bring it on. It’s great opportunity for administrators in private insurance to run the country.
Tom: I agree you guys are invaluable. But we stuffed the Democrats’ mouths with gold. That’s why they didn’t get in a tizzy with the chargemaster.
Price: But what about the Republicans? What if they get a whiff of the chargemaster? They’re an unpredictable lot – they have no principles. I really fear them.
Tom: Don’t worry about the Republicans. Just say “abolishing the chargemaster is a short step to socialism” and their frontal lobe will stop working.
In the phallic war, and eventual financial kumbaya, between Tom (hospital) and Price (insurers) it’s Abdul (unsubsidized middle class) who gets shafted. The chargemaster is American healthcare’s most evil component. It embarks on a feeding frenzy like remorseless sharks. It is responsible for the medical bankruptcies, which seem to cause angst in many who aren’t bankrupt. It’s like a local infection which causes septicemia, so one wonders why undifferentiated bombardment of the septicemia deliberately misses the source of infection.
The chargemaster is still here. How did the ACA miss this elephant in the room?
Healthcare reform is like an Olympic Valsalva maneuver which first leads to a belch then a fart.
That the ACA failed to tame the charges is testament either to the incompetence of central planners or the power of rent seeking. That the BCRA doesn’t even pretend to touch the charges exposes an extraordinary depth of Pavlovian anti-ACA feeling among the Republicans – they’re like a toddler, still mastering sphincteric control, who doesn’t want what his older brother has simply because his older brother has it.
That the policy wonks, health economists, and other quantitative moralizers who, in an unprecedented moral frenzy, have compared healthcare’s re-reform to ISIS and the Iraq War, have proposed little to tame the charges, reveals a troubling level of mathematical puritanism which resides in that no man’s land between absurdity and idiocy. Ideology, particularly when ostensibly supported by statistics, truly guts common sense.
For crying out loud, it’s the costs, stupid. Instead of moralizing about deductibles, “taxes on the sick,” whether healthcare is a right or privilege, personal freedom, and other ideological chicanery, how about lowering the ducking costs, people?
The left believes, rather disingenuously, that costs can be tamed by incentivizing doctors to do the right thing. It’s a Goldilocks aspiration which, far from dealing with costs, has created a Father Bear’s electronic medical records and a Mother Bear’s regulatory overload. Goldilocks ran away before tasting the porridge.
The right believes, rather comically, that costs can be tamed by giving people choice. The latest of this façade in choice is the Health Savings Account (HSA) – where pre-tax, Abdul can put aside money that he’d have used for visiting his relatives in Afghanistan to pay for medical services should he need them.
Let’s bring Abdul back into the story. Say he has a very low premium plan with a super high deductible of $15, 000. Say Abdul decided to go a little thrifty with his Eid celebrations and put $20, 000 over 3 years into the HSA. Unfortunately, Abdul has a dizzy spell, and visits the emergency room, gets a head CT to rule out stroke where some fastidious radiologist reports “please note MRI is more sensitive for acute stroke.” Abdul has an MRI, but also an MRA (because you might as well have a look at the arteries whilst you’re there). Everything is normal.
The unadjusted bill is $25, 000 – $15, 000 for the MRI/ MRA, which Tom used to extract as much money from Price. Abdul pays $15, 000 out of the charged $15, 000. The insurer, thanks to Price, pays $200 of the remaining $10, 000.
Abdul’s HSA is carpet bombed more mercilessly than Dresden. He defers that trip to Afghanistan, again, to visit his family he left behind. He wonders if the chargemaster was invented by the Taliban to fight the Americans.
At the risk of sounding naïve, allow me to make a modest proposal which I believe will be more effective in the long run than both the comically biblical ACA and the biblically comical BCRA.
Here it is. Please don’t be shocked by its brevity.
Jha’s Healthcare Reform in a Tweet:
“Thou shalt not charge un- or under-insured more than Medicare rates for services rendered in any hospital which accepts Medicare.”
Quad Erat Demonstrandum
About the Author:
Saurabh Jha is a cantankerous contributing editor to THCB. He can be reached on Twitter @RogueRad