Why Your Health Insurer Doesn't Care About Your Big Bills
Michael Frank ran his finger down his medical bill, studying the charges and pausing in disbelief. The numbers didn't make sense.
His
recovery from a partial hip replacement had been difficult. He had iced
and elevated his leg for weeks. He had pushed his 49-year-old body,
limping and wincing, through more than a dozen physical therapy
sessions.
The last thing he needed was a botched bill.
His
December 2015 surgery to replace the ball in his left hip joint at NYU
Langone Health in New York City had been routine. One night in the
hospital and no complications.
He was even supposed to get a
deal on the cost. His insurance company, Aetna, had negotiated an
in-network "member rate" for him. That is the discounted price insured
patients get in return for paying their premiums every month.
But Frank was startled to see that Aetna had agreed to pay NYU
Langone $70,000. That's more than three times the Medicare rate for the
surgery and more than double the estimate of what other insurance
companies would pay for such a procedure, according to a nonprofit that tracks prices.
Fuming, Frank reached for the phone. He couldn't see how
NYU Langone could justify these fees. And what was Aetna doing? As his
insurer, wasn't its duty to represent him, its "member"? So why had it
agreed to pay a grossly inflated rate, one that stuck him with a $7,088
bill for his portion?
Frank wouldn't be the first to wonder. The United States spends more per person on health care
than any other country does. A lot more. As a country, by many
measures, we are not getting our money's worth. Tens of millions remain
uninsured. And millions are in financial peril: About 1 in 5 is
currently being pursued by a collection agency over medical debt. Health
care costs repeatedly top the list of consumers' financial concerns.
ProPublica
and NPR are examining the bewildering, sometimes enraging ways the
health insurance industry works by taking an inside look at the games,
deals and incentives that often result in higher costs, delays in care,
or denials of treatment. The misunderstood relationship between insurers
and hospitals is a good place to start.
About half of
Americans get their health care benefits through their employers, who
rely on insurance companies to manage the plans, restrain costs and get
them fair deals.
But as Frank eventually discovered, once he
had signed on for surgery, a secretive system of pre-cut deals came into
play that had little to do with charging him a reasonable fee.
After
Aetna approved the in-network payment of $70,882, (not including the
fees of the surgeon and anesthesiologist), Frank's coinsurance required
him to pay the hospital 10 percent of the total.
When Frank
called NYU Langone to question the charges, the hospital punted him to
Aetna, which told him it paid the bill according to its negotiated
rates. Neither Aetna nor the hospital would answer his questions about
the charges.
Frank found himself in a standoff familiar to many
patients. The hospital and insurance company had agreed on a price, and
he was required to help pay it. It's a three-party transaction in which
only two of the parties know how the totals are tallied.
Frank
could have paid the bill and gotten on with hi
s life. But he was
outraged by what his insurance company agreed to pay. "As bad as NYU
is," Frank said, "Aetna is equally culpable because Aetna's job was to
be the checks and balances and to be my advocate."
And he also
knew that Aetna and NYU Langone hadn't double-teamed an ordinary
patient. In fact, if you imagined the perfect person to take on
insurance companies and hospitals, it might be Frank.
For three
decades, Frank has worked for insurance companies like Aetna, helping
to assess how much people should pay in monthly premiums. He is a former
president of the Actuarial Society of Greater New York and has taught
actuarial science at Columbia University. He teaches courses for
insurance regulators and has even served as an expert witness for
insurance companies.
The hospital and insurance company may have expected him to shut up and pay. But Frank wasn't going away.
Seeking answers
Patients
fund the entire health care industry through taxes, insurance premiums
and cash payments. Even the portion paid by employers comes out of an
employee's compensation. Yet when the health care industry refers to
"payers," it means insurance companies or government programs like
Medicare.
Patients who want to know what they'll be paying —
let alone shop around for the best deal — usually don't have a chance.
Before Frank's hip operation, he asked NYU Langone for an estimate. It
told him to call Aetna, which referred him back to the hospital. He
never did get a price.
Imagine if other industries treated
customers this way. The price of a flight from New York to Los Angeles
would be a mystery until after the trip. Or, while digesting a burger,
you could learn it cost 50 bucks.
A decade ago, the opacity of
prices was perhaps less pressing because medical expenses were more
manageable. But now patients pay more and more for monthly premiums, and
then, when they use services, they pay higher copays, deductibles and
coinsurance rates.
Employers are equally captive to the rising
prices. They fund benefits for more than 150 million Americans and see
health care expenses eating up more and more of their budgets.
Richard
Master, the founder and CEO of MCS Industries in Easton, Pa., offered
to share his numbers. By most measures, MCS is doing well. Its picture
frames and decorative mirrors are sold at Walmart, Target and other
stores and, Master said, the company brings in more than $200 million a
year.
But the cost of health care is a growing burden for MCS
and its 170 employees. A decade ago, Master said, an MCS family policy
cost $1,000 a month with no deductible. Now it's more than $2,000 a
month with a $6,000 deductible. MCS covers 75 percent of the premium and
the entire deductible. Those rising costs eat into every employee's
take-home pay.
Economist Priyanka Anand
of George Mason University said employers nationwide are passing rising
health care costs on to their workers by asking them to absorb a larger
share of higher premiums. Anand studied Bureau of Labor Statistics data
and found that every time health care costs rose by a dollar, an
employee's overall compensation got cut by 52 cents.
Master
said his company hops between insurance providers every few years to
find the best benefits at the lowest cost. But he still can't get a
breakdown to understand what he is actually paying for.
"You pay for everything, but you can't see what you pay for," he said.
Master is a CEO. If he can't get answers from the insurance industry, what chance did Frank have?
Costly implant
Frank's
hospital bill and Aetna's "explanation of benefits" arrived at his home
in Port Chester, N.Y., about a month after his operation. Loaded with
an off-putting array of jargon and numbers, the documents were a natural
playing field for an actuary like Frank.
Under the words,
"DETAIL BILL," Frank saw that NYU Langone's total charges were more than
$117,000, but that was the sticker price, and those are notoriously
inflated. Insurance companies negotiate an in-network rate for their
members. But in Frank's case at least, the "deal" still cost $70,882.
With
a practiced eye, Frank scanned the billing codes hospitals use to get
paid and immediately saw red flags: There were charges for physical
therapy sessions that never took place and drugs he never received.
One
line stood out — the cost of the implant and related supplies. Aetna
said NYU Langone paid a "member rate" of $26,068 for "supply/implants."
But Frank didn't see how that could be accurate. He called and emailed
Smith & Nephew, the maker of his implant, until a representative
told him the hospital would have paid about $1,500. His NYU Langone
surgeon confirmed the amount, Frank said. The device company and surgeon
did not respond to ProPublica's requests for comment.
Frank then called and wrote Aetna multiple times, sure it would want to
know about the problems. "I believe that I am a victim of excessive
billing," he wrote. He asked Aetna for copies of what NYU Langone
submitted so he could review it for accuracy, stressing he wanted "to
understand all costs."
Aetna reviewed the charges and payments twice — both times standing
by its decision to pay the bills. The payment was appropriate based on
the details of the insurance plan, Aetna wrote.
Frank also
repeatedly called and wrote NYU Langone to contest the bill. In its
written reply, the hospital didn't explain the charges. It simply noted
that they "are consistent with the hospital's pricing methodology."
Increasingly
frustrated, Frank drew on his decades of experience to essentially
serve as an expert witness on his own case. He gathered every piece of
relevant information to understand what happened, documenting what
Medicare, the government's insurance program for the disabled and people
over age 65, would have paid for a partial hip replacement at NYU
Langone — about $20,491 — and what FAIR Health, a New York nonprofit
that publishes pricing benchmarks, estimated as the in-network price of
the entire surgery, including the surgeon fees — $29,162.
He
guesses he spent about 300 hours meticulously detailing his battle plan
in 2-inch-thick binders with bills, medical records and correspondence.
ProPublica sent the Medicare and FAIR Health estimates to Aetna and
asked why it had paid so much more. The insurance company declined an
interview and said in an emailed statement that it works with hospitals,
including NYU Langone, to negotiate the "best rates" for members. The
charges for Frank's procedure were correct given his coverage, the
billed services and the Aetna contract with NYU Langone, the insurer
wrote.
NYU Langone also declined ProPublica's interview
request. The hospital said in an emailed statement that it billed Frank
according to the contract Aetna had negotiated on his behalf. Aetna, it
wrote, confirmed the bills were correct.
After seven months,
NYU Langone turned Frank's $7,088 bill over to a debt collector, putting
his credit rating at risk. "They upped the ante," he said.
Frank sent a new flurry of letters to Aetna and to the debt
collector and complained to the New York State Department of Financial
Services, the insurance regulator and the New York State Office of the
Attorney General. He even posted his story on LinkedIn.
But no
one came to the rescue. A year after he got the first bills, NYU Langone
sued him for the unpaid sum. He would have to argue his case before a
judge.
Higher prices can boost profits
You would think that health insurers would make money, in part, by reducing how much they spend.
Turns
out, insurers don't have to decrease spending to make money. They just
have to accurately predict how much the people they insure will cost.
That way they can set premiums to cover those costs — adding about 20
percent for their administration and profit. If they're right, they make
money. If they're wrong, they lose money. But, they aren't too worried
if they guess wrong. They can usually cover losses by raising rates the
following year.
Frank suspects he got dinged for costing Aetna
too much with his surgery. The company raised the rates on his small
group policy — the plan just includes him and his partner — by 18.75
percent the following year.
The Affordable Care Act kept profit
margins in check by requiring companies to use at least 80 percent of
the premiums for medical care. That's good in theory, but it actually
contributes to rising health care costs. If the insurance company has
accurately built high costs into the premium, it can make more money.
Here's how: Let's say administrative expenses eat up about 17 percent of
each premium dollar and around 3 percent is profit. Making a 3 percent
profit is better if the company spends more.
It's as if a mom told her son he could have 3 percent of a bowl of ice cream. A clever child would say, "Make it a bigger bowl."
Wonks call this a "perverse incentive."
"These insurers and providers have a symbiotic relationship," said
Wendell Potter, who left a career as a public relations executive in the
insurance industry to become an author and patient advocate. "There's
not a great deal of incentive on the part of any players to bring the
costs down."
Insurance companies may also accept high prices
because often they aren't always the ones footing the bill. Nowadays
about 60 percent of the employer benefits are "self-funded." That means
the employer pays the bills. The insurers simply manage the benefits,
processing claims and giving employers access to their provider
networks. These management deals are often a large, and lucrative, part
of a company's business. Aetna, for example, insured 8 million people in
2017, but provided administrative services only to considerably more —
14 million.
To woo the self-funded plans, insurers need a
strong network of medical providers. A brand-name system like NYU
Langone can demand — and get — the highest payments, said Manuel
Jimenez, a longtime negotiator for insurers including Aetna. "They tend
to be very aggressive in their negotiations."
On the flip side,
insurers can dictate the terms to the smaller hospitals, Jimenez said.
The little guys "get the short end of the stick," he said. That's why
they often merge with the bigger hospital chains, he said, so they can
also increase their rates.
Other types of horse-trading can
also come into play, experts say. Insurance companies may agree to pay
higher prices for some services in exchange for lower rates on others.
Patients,
of course, don't know how the behind-the-scenes haggling affects what
they pay. By keeping costs and deals secret, hospitals and insurers
dodge questions about their profits, said Dr. John Freedman,
a Massachusetts health care consultant. Cases like Frank's "happen
every day in every town across America. Only a few of them come up for
scrutiny."
In response, a Tennessee company is trying to expose the prices and steer patients to the best deals. Healthcare Bluebook
aims to save money for both employers who self-pay, and their workers.
Bluebook used payment information from self-funded employers to build a
searchable online pricing database that shows the low-, medium- and
high-priced facilities for certain common procedures, like MRIs. The
company, which launched in 2008, now has more than 4,500 companies
paying for its services. Patients can get a $50 bonus for choosing the
best deal.
Bluebook doesn't have price information for Frank's
operation: a partial hip replacement. But its price range in the New
York City area for a full hip replacement is from $28,000 to $77,000,
including doctors fees. Its "fair price" for these services tops out at
about two-thirds of what Aetna agreed to pay on Frank's behalf.
Frank,
who worked with mainstream insurers, didn't know about Bluebook. If he
had used its data, he would have seen that there were facilities that
were both high quality and offered a fair price near his home, including
Holy Name Medical Center in Teaneck, N.J., and Greenwich Hospital in
Connecticut. NYU Langone is one of Bluebook's highest-priced,
high-quality hospitals in the area for hip replacements. Others on
Bluebook's pricey list include Montefiore New Rochelle Hospital in New
Rochelle, N.Y., and Hospital for Special Surgery in Manhattan.
ProPublica
contacted Hospital for Special Surgery to see whether it would provide a
price for a partial hip replacement for a patient with an Aetna
small-group plan like Frank's. The hospital declined, citing its
confidentiality agreements with insurance companies.
Day in court
Frank
arrived at the Manhattan courthouse on April 2 wearing a suit and
fidgeted in his seat while he waited for his hearing to begin. He had
never been sued for anything, he said. He and his attorney, Gabriel
Nugent, made quiet conversation while they waited for the judge.
In
the back of the courtroom, NYU Langone's attorney, Anton Mikofsky,
agreed to talk about the lawsuit. The case is simple, he said. "The guy
doesn't understand how to read a bill."
The high price of the
operation made sense because NYU Langone has to pay its staff, Mikofsky
said. It also must battle with insurance companies that are trying to
keep costs down, he said. "Hospitals all over the country are
struggling," he said.
"Aetna reviewed it twice," Mikofsky added. "Didn't the operation go well? He should feel blessed."
When the hearing started, the judge gave each side about a minute to make its case, then pushed them to settle.
Mikofsky
told the judge Aetna found nothing wrong with the billing and had
already taken care of most of the charges. The hospital's position was
clear. Frank owed $7,088.
Nugent argued that the charges had not been justified and Frank felt he owed about $1,500.
The lawyers eventually agreed that Frank would pay $4,000 to settle the case.
Frank
said later that he felt compelled to settle because going to trial and
losing carried too many risks. He could have been hit with legal fees
and interest. It would have also hurt his credit at a time he needs to
take out college loans for his kids.
After the hearing, Nugent
said a technicality might have doomed their case. New York defendants
routinely lose in court if they have not contested a bill in writing
within 30 days, he said. Frank had contested the bill over the phone
with NYU Langone and in writing within 30 days with Aetna. But he did
not dispute it in writing to the hospital within 30 days.
Frank paid the $4,000, but held on to his outrage. "The system," he said, "is stacked against the consumer."
Source : https://www.npr.org/sections/health-shots/2018/05/25/613685732/why-your-health-insurer-doesnt-care-about-your-big-bills