I opened up a piece of snail mail yesterday. To say I was a little bit shocked is an understatement. This was the first bill I’ve received after a fairly intense medical procedure five weeks ago. I’m fine now, things could not have gone better. But the bill was, let’s say, a little on the high side of my expectations.
At the very top it had one eye catching line labeled “Total Charges”. Great, no wading through pages to get to the crux of the matter. So how much were the total charges? That three hour surgery and the eight hours I was a guest in their stage one post-op ward resulted in total charges of $249,320.50. I didn’t mistype that, it was just a few dollars short of two hundred fifty thousand US dollars. Or stated another way that’s nearly twenty-three thousand dollars per hour! Man, I’m glad I did not stay overnight.
That’s a lot of money. And while I feel its a heck of a bargain in exchange for keeping me alive and kicking, that’s still very nearly a quarter of a million dollars. And I’m not even sure there won’t be more bills trickling in over time (although I think this is the grand total).
This is also my first real test of how Medicare and my Medi-Pak supplemental insurance work when facing a major medical expense. I haven’t had many health scares in my life and the times I did run up a sizable bill I was under my company medical insurance plan. Obviously I won’t be facing the entire $250K out of my pocket. But just how much of that is going to have to come out of my retirement nest egg?
The answer was just as surprising as opening the bill, but in a much happier way. Total out of pocket expense for yours truly was zero. Zero, nada, zilch. Not even a single penny. How wild is that? No co-pay, no deductible? Not a single penny for this extremely expensive medical care? The other five pages of the invoice offered an “explanation”. At this point I was feeling like there had to be a catch and I was afraid I might be facing an unpleasant surprise hidden somewhere in the fine print, so I kept reading.
The bulk of the “Total Charges” showed up on page 3. That was the portion that was from the hospital surgical center and post-op ward. Those added up to over $225K. And of that Medicare applied a “Member Discount” of $215K. In other words Medicare told the hospital, “Sorry, doesn’t matter what you think it cost, we are only paying you ten thousand. You can eat the rest, the other two hundred thousand plus dollars. And by the way, you cannot go after Steveark for any of that, he’s golden.” Of that $10K that was paid to the hospital, that was split 80-20 between Medicare and the supplemental policy I purchased. It could not have worked out better for me if Don Corleone had handled the “negotiations” with my provider and made them an offer they couldn’t refuse.
As far as the rest of the costs which included anesthesia, oxygen, robots and my rocket scientist surgeon, they were not as bizarre. Medicare only disallowed a small part of their fees and they and my supplemental policy paid that with zero out of pocket from me.
What a great deal for me, I got a little health issue fixed forever and paid nothing. I know everyone says our system is totally broken compared to the rest of the world, and maybe they are right. But I got first class care where I wanted, when I wanted and with no cost to me. That doesn’t feel broken.
I said no cost to me, but that is not entirely correct. Medicare charges me and my wife premiums, our supplemental policies do also and so does the prescription plan we use. Those six premiums total up to about $8,000 a year for the two of us. That isn’t free but it is affordable and only about half of what I paid for private insurance before we hit age 65.
But something is broken. I don’t think my procedure cost anywhere near a quarter million dollars. Pretty sure the hospital made that number up, that it is pure fiction. But it certainly cost a lot more than Medicare agreed to pay. So I got a pretty big free ride. Except, there are no free rides in life. And that medical center is a for profit business, it is not a charity. So they have to make a profit or they will shut down, right? If I didn’t pay for my surgery, who did?
That’s the question that points to the where the brokenness lies. It is you, kind reader, you who are on private insurance, employer provided insurance or health share plans. They do not have the power of the federal government and while they certainly would have negotiated the total charges down to maybe half of what the hospital asked for, it still would have been a six figure surgery instead of the small fraction they got from Medicare for fixing me.
I have one additional data point that gives me confidence that I’m right about how this works. I was on a hospital board for a locally owned hospital back in the day. I remember the CEO explaining how the thing that determined if the hospital made money or lost money was the patient mix. He used this example. He said a standard heart surgery at our hospital actually cost about $20,000, that was the amount the hospital needed to recover to break even. He said if a patient had insurance through their employer or any other kind of private insurance they would get paid $40,000 for the procedure and net a $20,000 profit. However the same surgery for a Medicare or Medicaid patient would only result in a $10,000 payment resulting in a loss of $10,000 for the hospital. Therefore you needed one private insurance patient for every two Medicare patients just to break even. That’s a broken system and that’s a big reason private and employer provided insurance is so expensive. You are paying a big share of Medicare and Medicaid patient costs.
It is broken on many levels. But a main one is it sends a perverse signal to the provider. If they know they are losing money on me as a patient, they have a huge incentive to underserve me, to rush me in and out, to provide the least post operative care possible. I’m not a opportunity for them to make money, I’m a drag on their profitability. I’m more like a tax than an income stream. That’s a terrible business model in a capitalistic economy. Plus how can the government tell you to operate your business at a loss, how is that moral? It is like telling a car dealership that they have to give away one third of their new cars for free each month. What does that do to the price of the cars they don’t give away? Exactly.
What is the answer, socialized medicine like our neighbors to the north? Or just keep things like they are? I mean it worked great for me, I can’t complain. I got an incredible bargain even though I could have paid the full quarter million and not seriously impacted my net worth. I do think any kind of “Medicare for all” is asking for disaster the way things are now because hospitals generally cannot make a profit just with Medicare reimbursements. They have to be able to overcharge private insurance companies to offset the low Medicare payments. At the same time giving wealthy boomers free medical care paid for by the insurance premiums of Gen X, Y and millennial patients feels unsustainable and unfair. I have no suggestions at all. How about you?
OK, maybe you stayed at a Holiday Inn Express last night, how would you fix this mess?
Have you experienced something bizarre in terms of medical bills and insurance?