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When Paying Cash Is Cheaper Than Health Insurance

When it comes to health care, paying upfront in cash instead of through your insurance could save you money. Here’s the WSJ, h/t Tyler Cowen:

Not long ago, hospitals routinely charged uninsured patients their highest rates, far more than insured patients paid for the same services. Now, in the Alice-in-Wonderland world of health-care prices, the opposite is often true: Patients who pay up front in cash often get better deals than their insurance plans have negotiated for them [. . .]

“My favorite was the $5,400 MRI at an academic medical center in California,” Ms. Pinder says. “Insurance paid about $2,900 and the patient paid about $2,500. It looked like he got a great deal—but he could have paid $725 cash down the street.” When people see this data, she says, “they don’t behave the same way in the marketplace again.”

The WSJ chalks up the change to, in part, the ACA, but the cash discount is also not new, according to many of Cowen’s commenters. “As someone who has always had high deductible insurance, doctors offices would routinely give me cash discounts even prior to the ACA, charging rates well below what would have been billed to the insurance company,” wrote one commenter. That accords with what others have written about negotiating prices with hospitals; the option was there, if you knew about it.

Though it’s not a new phenomenon, the cash discounts the WSJ highlights point to the importance of empowering consumers to shop smartly. There are obviously key macro questions about health care policy and prices, but for the individual user, $2,500 versus $750 makes a huge difference in most people’s budgets. And for some health care spending, people can shop around for the best deal when it comes to health care, just like they can in other markets. Giving consumers more tools to do so, such as price transparency, could make a big financial difference to many Americans.

And given a number of factors—the ongoing trend of disintermediation in the U.S. economy, the growing impatience with America’s technocratic class, new technological developments, and intense media focus on health care prices—the odds are good that the space for consumer choice will grow. Public policy should do everything it can to help that process along.

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  • Fat_Man

    Hospital should be required to publish their price lists (called charge masters), discounts given to any insurance plan, and cash prices. For all practical purposes they are units of the government, and they should be subject to the same FOIA requirements.

  • vepxistqaosani

    This may well be illegal. Look for a massive enforcement operation by the Obama administration in the near future. Link: http://www.drjarodcarter.com/partial-cash-practice-pricing-legalities/

    • FriendlyGoat

      The “Obama administration” does not enforce private contracts between providers and insurers. Why not blame the illegality of this on the contract terms insisted upon by the insurance companies and networks? That’s what your link implies, after all.

  • CapitalHawk

    That payment in cash in advance is cheaper than insurance should not be surprising. This is no different than the cash discount you get a some gas stations (as compared to the credit card price). Credit cards charge the vendor a fee which results in less revenue for the vendor. Insurance companies also charge a fee – in the form of reduced payments, disputed charges, and the large amount of manpower the health care professional needs in order to code procedures according to the insurance company’s preferred method, deal with the insurance company, etc. If you can eliminate all of that cost, which is 100% associated with getting paid, via getting paid up front, you can reduce your fees substantially.

    • FriendlyGoat

      I’ve never been to a gas station with a sign reading: Credit card price $7.00/gal, Cash price $1.00/gal.

      That is approximately the ratio of a $5400 MRI compared to a $725 MRI.

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