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Having A Baby: Media Confusion Over Charges, Costs, And The Benefits Of Insurance



August 6th, 2014

Recent discussion about the Affordable Care Act has intensified the media’s interest in the cost of medical care. While as health services researchers we are perhaps in the best position to provide information on complex health care topics, we may need to improve our ability to distill information into one minute sound bites.

A particularly interesting example of the disconnect between media reporting and a more nuanced analysis occurred earlier this year, on March 4, when NBC ran a story about the cost of having a baby. The story confused the very different concepts of what health care providers charge, what they are actually paid, and what consumers owe, and in so doing obscured one of the key benefits for consumers of being insured.

We were startled to hear that, according to NBC, the cost of having a baby has increased more than 300 percent in the past 10 years. According to the report, the cost of a vaginal delivery went from $7,700 to $32,000, while the cost of a cesarean birth went from $11,000 to $51,000. A small heading in the table presented by NBC cited Truven Analytics as the source of these data.

These figures seemed very high to us, and we looked at data from the Medical Expenditure Panel Survey and the Health Care Utilization Project. We also looked at reports from Truven Analytics. None of these sources reported delivery costs anywhere close to $32,000. All of these sources had the cost closer to $8,000. So what is going on?

Sorting Out The Concepts

The problem appears to be confusion around the language used to discuss health care expenditures. The media might use terms like “charges,” “cost,” and “payment” interchangeably, but they mean very different things. The provider’s charge does not include the discount negotiated by both public and private payers and, for those with coverage, the “charge” is usually not relevant.

The NBC story came as part of an ongoing series called “What you pay.”  After presenting the $32,000 figure, NBC showed an explanatory clip with Dr. Renee Hsia who explained that “(p)roviders in general — not just hospitals but clinicians, I mean — providers are allowed to charge whatever they want based on what they feel is the quality of the care they give.”  Although NBC was showing a segment on “what you pay,” Dr. Hsia was explaining what a provider charges for services—not what they are actually paid.

While the statement that providers can charge “whatever they want” is in some sense true, most providers have much less control over the amount that they are actually reimbursed, since this amount is generally subject to the economic leverage that insurers have when negotiating payments. It is particularly ironic to suggest that obstetricians are not subject to restraints when the media, including NBC, has run stories about the economic pressures that have driven physicians away from obstetric practice because of the high costs they face in maintaining a practice and their professed inability to recoup those costs through payments for their services.

Do charges matter at all? They certainly matter if one is uninsured; in that case, the charge is what the provider hopes to receive, and, legally, what the patient is liable for. In a 2007 Health Affairs article, Gerard Anderson showed that “the rates charged to many uninsured and other “self-pay” patients for hospital services were often 2.5 times what most health insurers actually paid and more than three times the hospital’s Medicare-allowable costs.”  While many uninsured may not ultimately pay the full charges, medical bills have been shown to contribute to bankruptcy in many cases.

An Often Overlooked Benefit of Health Insurance

The media could play an especially valuable role in explaining these differences and their implications in assessing potential patient benefits under the Affordable Care Act; for those considering insurance for the first time, the value is not just in having coverage but in facing initially lower prices. The decision to buy insurance is complex and poorly understood by many. An insurance system can’t work unless that majority of policyholders pay more in premiums than they receive in benefits. The perceived value of benefits, however, may be underestimated if the value of the discount is not considered. This seems to be rarely discussed in media stories about the Affordable Care Act.

Let’s examine a hypothetical example. A young healthy woman is considering acquiring insurance through the exchange. When she looks at the bronze plan with a $1,500 premium and a $6,500 deductible, it seems very unlikely that the potential benefit could exceed the premium. If she were to become pregnant, however, she’d be underestimating what the plan could do for her—that’s when the $32,000 charge becomes relevant. If she is covered, her discounted cost might be around $8,000. She would face a $6,500 deductible and also pay 20 percent of the $1,500 cost that exceeds the deductible, so her total out of pocket cost would be about $6,800. If she isn’t covered, she might be faced with the $32,000 charge suggested by NBC.

For several of the highest volume Medicare DRGs (FY2011), the relationship between average covered charges and average total payments is shown here:

Berk-Schur-Table-1

We recognize the obstacles facing a broadcast media that tries to deliver news within very narrow time constraints. It is probably unfair to expect a successful effort to educate consumers about the wide range and complexity of choices they face; an informed decision will require a considerable time investment on the part of consumers. It is not acceptable, however, to imply that “what you pay” is several times greater than it really is. We hope that future reports will not only illuminate the difference between cost and charge, but also explain how that difference impacts the choices people should be making with respect to insurance enrollment and the value of the ACA.

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4 Responses to “Having A Baby: Media Confusion Over Charges, Costs, And The Benefits Of Insurance”

  1. Joe Fifer Says:

    As the authors point out, the media often conflate what providers charge, what they are paid, and what patients owe. This is not just a matter of semantics. A shared vocabulary is prerequisite to a shared understanding about these issues. As Mr. Berk and Ms. Schur state, for patients with insurance coverage, the “charge” is usually not relevant, because it doesn’t include the discount negotiated by both public and private payers. Therefore, price transparency based on charges is misleading because it doesn’t reflect differences in the negotiated prices that insurers pay on behalf of patients or the amounts insured patients actually pay out of pocket. And, of course, price of the care is not the only consideration; quality and safety matter too.

    Confusion about financial terminology is an ongoing challenge not only in the media but also within the healthcare industry. In an effort to bring clarity, the Healthcare Financial Management Association last year convened a multi-organizational task force with representation from key stakeholder groups. The task force was charged with developing concrete, practical recommendations for improving consumer price transparency. The starting point—and arguably the most challenging part of the entire process—was defining commonly used (and misused) terms.

    Among the task force’s recommendations: use “price” or “payment” to refer to the obligations incurred by a patient or other purchaser of healthcare services, because “cost” means different things to different parties to a transaction. The task force also reached consensus on a series of definitions for other key terms in its report, Price Transparency in Health Care. A subset of the task force went on to develop a guide to help consumers understand healthcare pricing and obtain price estimates ahead of service. The consumer guide is available as a public service for organizations that would like to post it on their websites.

    We agree with the authors’ conclusion that it’s unacceptable for the media to imply that “what you pay” is several times greater than it really is. Our hope is that wider dissemination of the price transparency task force’s consensus-based definitions, available at http://www.hfma.org/transparency, will facilitate more meaningful and accurate price comparisons and serve as a starting point for improving consumer price transparency overall.

  2. Christopher Kardos Says:

    Great post – thanks for clarifying an often overlooked (and critical) cost issue. One question: did you share this information with NBC, and if so what was their reaction? Did they clarify their reporting or issue a correction? Most reports on healthcare from the major news outlets are riddled with the most basic inaccuracies and oversimplifications… they would benefit from this feedback.

  3. Peggy OKane Says:

    Thanks Marc and Claudia for addressing on of the more irritating features of the current discussion on costs.

  4. georgian england Says:

    In the year she has the baby she will pay out of pocket $6800 plus the cost of her health insurance $1500 to cover the 8,000 covered charges and her insurance would pay 1200 and only pocket 300.

    If however she is a 50 year old woman with a plan that costs on average $400 a month or $4800 a year with the typical 4 visits a year ($150 each less copay of $25) her insurance company will make $4300 and she will pay $4900 – hardly makes sense that it is an insurance company making the money and the only service they provide is to enforce accurate billing?

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