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One thing I've never understood about the US system is why do the doctors charge more for paying cash e.g. $200 for a visit, whereas insurance reimburses them l

One thing I've never understood about the US system is why do the doctors charge more for paying cash e.g. $200 for a visit, whereas insurance reimburses them less than half e.g. $80. In everything else e.g. car repairs, the cash price is always lower than insurance covered price. Any ideas why this is so?

harryh 11y ago
Insurers negotiate a volume discount.
- chvid 11y ago
  But not for car repairs?
  - harryh 11y ago
    I guess not. Which does seem a little weird now that I think about it. Not sure why cars would be different.
    - secabeen 11y ago
      Because the law allows you to go to any mechanic to get your car fixed, and they can't negotiate with every mechanic in the market. Most auto insurers have "approved" repair shops, and if you go to one of those, the rates can be cheaper than cash.
      - harryh 11y ago
        Ah, that makes total sense. Thanks!
  - blakeyrat 11y ago
    I don't know about your auto insurance company, but mine has "preferred shops" and I presume the reason they are preferred is because they have negotiated some form of discount.
mattzito 11y ago
So the doctors have a list price, which is then negotiated down. They set the list price high for the same reason many sophisticated goods are set at a high price (cars, houses, enterprise software, etc.). However most, if not all, doctors will absolutely charge you less if you pay cash, you just have to ask for it and have the conversation.
- chimeracoder 11y ago
  > They set the list price high for the same reason many sophisticated goods are set at a high price (cars, houses, enterprise software, etc.). Everything else in your comment is true, but this line is not. Healthcare is expensive, just like cars, houses, and enterprise software, but the reason that healthcare prices are high is very specific to healthcare (there aren't any other industries that have similar models).
  - mattzito 11y ago
    I just meant it's yet another model where people set prices high because they want room to negotiate down. If a test was priced at $500, and insurance was willing to pay $800 for it, they've left money on the table. Far better to price it at $1500, and let insurers reimburse for $800.
chimeracoder 11y ago
> In everything else e.g. car repairs, the cash price is always lower than insurance covered price For starters, insurance smooths risk. It is not there to save you money. By definition, insurance will always cost more than than paying out-of-pocket in the long run[0]. Think of insurance as a luxury that mitigates (but does not eliminate!) the worst-case scenario for you. It costs more (a premium[1]) because this luxury has value to you. The fact that this does not always apply to health insurance is a sign that health insurance isn't entirely (in the economic sense) insurance; we just happen to use that word. > One thing I've never understood about the US system is why do the doctors charge more for paying cash e.g. $200 for a visit, whereas insurance reimburses them less than half e.g. $80. In general, Medicare and Medicaid reimburse the least - the amount that they reimburse is actually less than COGS (not on all individual services, but in the aggregate, it amounts to 7% less)[2]. As a result, providers have to overcharge private insurers and uninsured patients in order to cover their own costs. The price that you see on your bill is basically a starting point for negotiations. A company like Aetna will say "okay, there's no way we're paying that, but we will pay you 250% of what Medicare reimburses for the same procedure". As an uninsured patient, you can do this as well if you know to ask. It's less of a practice for outpatient care, since that tends to cost less and also have more predictable costs associated with it, but for (e.g.) unexpectedly large bills for inpatient care, you can always just tell them "I will pay $X today in cash if you reduce the bill to that amount." They'll always be willing to do it, because they literally do not care about the money that they get from uninsured patients - the large bill is intended to be received by an insurance company, not by an individual. [0] ie, on an infinite time horizon. [1] The fact that your fixed monthly payment to an insurer is also called a premium is not a coincidence. [2] To preempt the inevitable question: COGS refers to the direct costs of providing a service, so this is before even accounting for the fact that an outpatient office has to pay rent, pay its staff, etc.
- JamesBarney 11y ago
  In general, Medicare and Medicaid reimburse the least - the amount that they reimburse is actually less than COGS (not on all individual services, but in the aggregate, it amounts to 7% less)[2]. As a result, providers have to overcharge private insurers and uninsured patients in order to cover their own costs. I don't understand how doctors paying less to medicare/medicaid causes them to have to overcharge other customers. If they are not making money on Medicare or Medicaid patients it's my understanding they aren't forced to see them.
refurb 11y ago
Insurance companies contract with providers and set reimbursement levels. An insurance company might go to a hospital and say "we'll pay 30% of your chargemaster rates". So when a patient has surgery that costs $50,000, the insurance company shells out $15,000. If you don't have insurance, you just pay the chargemaster rate. Keep in mind this is negotiable.
jessaustin 11y ago
This isn't universal. Several times I've gone to "urgent care" clinics for e.g. persistent illness without insurance, and my bill showed a 50% discount for paying cash. Perhaps if I had had the right insurance the effective discount would have been even higher, but it makes sense that cash is worth more to a provider than an insurance claim that might be disputed or delayed. This is kind of the "sweet spot" for cash, though. For more expensive procedures even a 50% discount wouldn't make it easy to pay cash. Anyway, it's clear that a portion of the high prices for care in USA are specifically for dealing with insurance companies, both for "negotiating room" and to compensate for the hours that must be spent every day dealing with insurance companies.

harryh 11y ago

Insurers negotiate a volume discount.

chvid 11y ago
But not for car repairs?
- harryh 11y ago
  I guess not. Which does seem a little weird now that I think about it. Not sure why cars would be different.
  - secabeen 11y ago
    Because the law allows you to go to any mechanic to get your car fixed, and they can't negotiate with every mechanic in the market. Most auto insurers have "approved" repair shops, and if you go to one of those, the rates can be cheaper than cash.
    - harryh 11y ago
      Ah, that makes total sense. Thanks!
- blakeyrat 11y ago
  I don't know about your auto insurance company, but mine has "preferred shops" and I presume the reason they are preferred is because they have negotiated some form of discount.

mattzito 11y ago

So the doctors have a list price, which is then negotiated down. They set the list price high for the same reason many sophisticated goods are set at a high price (cars, houses, enterprise software, etc.). However most, if not all, doctors will absolutely charge you less if you pay cash, you just have to ask for it and have the conversation.

chimeracoder 11y ago
> They set the list price high for the same reason many sophisticated goods are set at a high price (cars, houses, enterprise software, etc.). Everything else in your comment is true, but this line is not. Healthcare is expensive, just like cars, houses, and enterprise software, but the reason that healthcare prices are high is very specific to healthcare (there aren't any other industries that have similar models).
- mattzito 11y ago
  I just meant it's yet another model where people set prices high because they want room to negotiate down. If a test was priced at $500, and insurance was willing to pay $800 for it, they've left money on the table. Far better to price it at $1500, and let insurers reimburse for $800.

chimeracoder 11y ago

> In everything else e.g. car repairs, the cash price is always lower than insurance covered price For starters, insurance smooths risk. It is not there to save you money. By definition, insurance will always cost more than than paying out-of-pocket in the long run[0]. Think of insurance as a luxury that mitigates (but does not eliminate!) the worst-case scenario for you. It costs more (a premium[1]) because this luxury has value to you. The fact that this does not always apply to health insurance is a sign that health insurance isn't entirely (in the economic sense) insurance; we just happen to use that word. > One thing I've never understood about the US system is why do the doctors charge more for paying cash e.g. $200 for a visit, whereas insurance reimburses them less than half e.g. $80. In general, Medicare and Medicaid reimburse the least - the amount that they reimburse is actually less than COGS (not on all individual services, but in the aggregate, it amounts to 7% less)[2]. As a result, providers have to overcharge private insurers and uninsured patients in order to cover their own costs. The price that you see on your bill is basically a starting point for negotiations. A company like Aetna will say "okay, there's no way we're paying that, but we will pay you 250% of what Medicare reimburses for the same procedure". As an uninsured patient, you can do this as well if you know to ask. It's less of a practice for outpatient care, since that tends to cost less and also have more predictable costs associated with it, but for (e.g.) unexpectedly large bills for inpatient care, you can always just tell them "I will pay $X today in cash if you reduce the bill to that amount." They'll always be willing to do it, because they literally do not care about the money that they get from uninsured patients - the large bill is intended to be received by an insurance company, not by an individual. [0] ie, on an infinite time horizon. [1] The fact that your fixed monthly payment to an insurer is also called a premium is not a coincidence. [2] To preempt the inevitable question: COGS refers to the direct costs of providing a service, so this is before even accounting for the fact that an outpatient office has to pay rent, pay its staff, etc.

JamesBarney 11y ago
In general, Medicare and Medicaid reimburse the least - the amount that they reimburse is actually less than COGS (not on all individual services, but in the aggregate, it amounts to 7% less)[2]. As a result, providers have to overcharge private insurers and uninsured patients in order to cover their own costs. I don't understand how doctors paying less to medicare/medicaid causes them to have to overcharge other customers. If they are not making money on Medicare or Medicaid patients it's my understanding they aren't forced to see them.

refurb 11y ago

Insurance companies contract with providers and set reimbursement levels. An insurance company might go to a hospital and say "we'll pay 30% of your chargemaster rates". So when a patient has surgery that costs $50,000, the insurance company shells out $15,000. If you don't have insurance, you just pay the chargemaster rate. Keep in mind this is negotiable.

jessaustin 11y ago

This isn't universal. Several times I've gone to "urgent care" clinics for e.g. persistent illness without insurance, and my bill showed a 50% discount for paying cash. Perhaps if I had had the right insurance the effective discount would have been even higher, but it makes sense that cash is worth more to a provider than an insurance claim that might be disputed or delayed. This is kind of the "sweet spot" for cash, though. For more expensive procedures even a 50% discount wouldn't make it easy to pay cash. Anyway, it's clear that a portion of the high prices for care in USA are specifically for dealing with insurance companies, both for "negotiating room" and to compensate for the hours that must be spent every day dealing with insurance companies.