Understanding the Complexity of Healthcare Costs

In a recent survey of 222 health plan executives, when asked, “how do you think COVID-19 will impact health insurance premiums?” 29% said lower, and 25% said stay the same. However, when asked the same question to 3,000 consumers, only 5% said lower, while 67% said premiums will increase. This is just one example from the survey that shows how hyper-focused consumers are on cost. In addition, consumers also said the costs have the greatest negative impact on their satisfaction with their health plan.

However, there are many components to healthcare costs, but those outside the industry may not always understand the complexities. Sometimes, even those of us within the industry have difficulty understanding and explaining all the complexities! Many responses to the consumer survey, not surprisingly, related to a lack of understanding of costs and blaming health insurers for the high costs.

As most consumers have seen on “explanations of benefits,” there are always “billed charges,” and several “discounts” or “allowed amounts.” Recently, a colleague had a medical procedure that was fairly expensive at $233,000 in “billed charges.” However, other than the office visit co-pays, this colleague paid nothing else – as everything was covered by insurance.

Billed charges originate with the provider of the care. From there, there are complex schedules that dictate what can be charged, based on the type of insurance. Sometimes, the consumer-paid insurance premiums help cover that cost. Sometimes, our taxes help cover that cost – for Medicare and Medicaid. It’s often the insurance company policies and sometimes State or Federal regulations that ensure that consumers don’t pay those high fees. The proposed Federal No Surprises Act is intended to help clear up some of this confusion. In all cases, the providers of the care also must pay the doctors, nurses, and other members of the care team. Those charges can help providers break even, sometimes make a profit, and sometimes a loss.

Pricing within the industry is confusing – leading to consumer dissatisfaction and mistrust. “Billed charges” can be compared to hotel “rack rates” – no one ever pays them – there is always some sort of discount. In the case of health insurance, all types of insurance (e.g., Employer-based, Individual, Exchange/Marketplace, Medicare, Medicaid) will cover some or all of these costs.

Patients want lower costs. While it varies by type of insurance, both insurance payers and providers of care are constantly looking for ways to lower costs while still recovering their expenses and making sure their overhead is covered.

Healthcare costs and transactions are complicated. Health plans need technology that enables them to be flexible, agile and provides real-time data sharing and transparency with the ability to make changes quickly. Improving operational efficiency, automation, and accuracy, with a system such as HealthRules, are key factors that can help payers and providers reduce administrative expenses and ultimately lower overall healthcare costs.