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:
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.