Why Do Hospitals Charge More if You Have Insurance?

Having health insurance is supposed to make healthcare more affordable. But it’s not uncommon for hospitals to charge insured patients more for the same procedures than uninsured patients pay in cash. Why does this backwards-seeming practice happen?

The Role of Chargemasters

Part of the reason lies in hospital chargemasters. These are comprehensive lists of prices for every procedure, supply, and medication provided by a hospital. Chargemasters form the starting point for negotiations with insurance companies over reimbursement rates.

Chargemaster prices are usually very high, sometimes 10 times or more what Medicare pays. They serve as a bargaining chip for hospitals to negotiate higher allowed amounts from private insurers. The chargemaster also lets hospitals bill uninsured patients full “retail” prices.

Cost Shifting to Cover Uncompensated Care

Another reason for inflated chargemaster prices is cost shifting – raising prices for some patients to cover shortfalls from others. Hospitals have to provide emergency care regardless of a patient’s ability to pay. The costs of uncompensated charity care and bad debt get shifted onto insured patients.

Though chargemaster prices are unrealistic, they allow hospitals to maximize revenue in a roundabout way. Higher billed charges lead to higher negotiated insurance payments. And very high chargemaster prices mean very high bills for uninsured patients, even if only a small fraction is ever collected.

Negotiated Rates for Insured Patients

After setting its chargemaster prices, the hospital negotiates contracted rates with each private insurer. These are often still far above the hospital’s costs but much less than chargemaster prices.

Negotiated rates depend on the insurer’s bargaining leverage. Medicare and Medicaid have the most leverage, paying lowest rates close to hospital costs. Large private insurers have more negotiating power than smaller ones.

Surprisingly, uninsured patients often get the worst deal, paying a large portion of inflated chargemaster prices. Hospitals rarely offer uninsured patients their lowest rates upfront. Uninsured patients lack an insurer’s bargaining power and expertise. Though they can sometimes negotiate lower prices, it takes effort.

Why Uninsured Patients May Pay Less

Still, cash prices for uninsured patients are often lower than negotiated insured rates. Some reasons this occurs:

• Hospitals inflate charges knowing insured rates will be discounted. But very high cash prices lead to bad debt. Moderating cash prices increases payment.

• Uninsured patients lack an insurer’s negotiated rates, so hospitals offer cash discounts to attract patients and revenue.

• Chargemaster prices are set high to subsidize uncompensated care. If an uninsured patient can pay, the hospital may reduce charges since it needs less subsidy.

• Hospital finance departments may have flexibility to offer case-by-case discounts to fill capacity or for prompt payment.

• State laws or hospital fair pricing policies can require offering uninsured patients discounted rates.

Transparency in Hospital Pricing

Recent rules from the Centers for Medicare and Medicaid Services require hospitals to post payer-specific negotiated rates online for selected “shoppable” services like MRIs. This transparency reveals the wide variation in prices insurers pay for the same services.

Posting chargemaster prices is also required, showing inflated uninsured list prices. But discounts offered to individual uninsured patients remain opaque. Hospitals are not required to publish their case-by-case uninsured discount policies.

Greater transparency would help uninsured patients negotiate fair prices. It could also assist patients with high-deductible plans responsible for out-of-pocket costs up to the list price until meeting their deductible.

Strategies for Uninsured Patients to Save

If faced with high hospital bills and no insurance, patients have options to reduce costs:

• Ask about cash discount programs or charity care: Uninsured discounts are not well publicized. Don’t assume you’ll pay full chargemaster prices. Ask billing staff about available discounts or apply for charity care.

• Negotiate prompt payment discounts: Offering to pay a charge quickly rather than setting up a long-term payment plan gives you bargaining power to request a reasonable price.

• Seek pre-treatment cost estimates: Get cost estimates in writing beforehand and clarify what discounts apply to uninsured cash payment. This also allows price comparisons.

• Question high out-of-network bills: If treated by out-of-network providers at an in-network hospital, don’t assume you must pay the full billed charge. Negotiate with the hospital’s billing department.

• Request an itemized bill and challenge overcharges: Identify inflated line items without supporting details that you can try to get removed from your bill. Scrutinize whether you were billed for services not actually provided.

• Ask about financial assistance: If hospital bills are still unaffordable after uninsured discounts, request information on available financial assistance programs, payment plans, and medical bill mediation services.

The Need for Reform

Ultimately, the prevalence of high hospital charges results from lack of price regulation and transparency. Chargemaster prices and negotiated rates vary widely for the same procedures, with little relation to actual costs. This leads to confusion and unfairness.

Policy reforms like all-payer rate setting and consolidated price negotiations could realign hospital pricing incentives. Consumer protections are needed so patients are not overcharged. Billing practices must be more transparent and consistent across patients.

Until the system is reformed, advocating for fair pricing as an uninsured patient remains an uphill but important battle. With persistence and the right negotiation strategies, significant savings on hospital bills are possible.