Health Insurance Primer For Idiots

Health Insurance 101

Chapter 1 Correlation Between Provider Reimbursement & Rate Setting

Chapter 1 Takeaway: GREEN IS GOOD, RED IS BAD

By Molly Mulebriar

Provider reimbursement difference between a traditional Managed Care plan (PPO) and a Reference Based Pricing plan is illustrated in the graph above.

Managed Care (PPO)                                                                            

Plan Payment based on a discount off the sticker price (RED LINE) goes up year after year disguised as medical trend. Whoever (never you) sets the sticker price wins.

Car dealerships, for example, set the sticker price at a level where they get your trade-in for free while giving you a warm and fuzzy feeling you’re getting a hell of a deal. It’s called “Working The Spread,” (the area between the RED LINE and the GREEN LINE). What idiots we’ve been!.

American health care delivery system practices are no different. “Look Mildred how much our insurance company saved us, a whopping 50% off the bill! Thank God we have insurance!” The reality is the insurance company didn’t save you a damn thing, you just think they did.

Tying provider reimbursement to a discount off sticker pricing has historically proven to guarantee double digit annual health insurance rate increases while the opposite is true when tying reimbursement to known benchmarks as is the case of Reference Based Pricing plans.

Reference Based Pricing

Provider reimbursement tied to known benchmarks (GREEN LINE) such as Medicare and hospital required cost-to-charge reporting to CMS makes better sense. The Plan Sponsor (no one else) sets the sticker price on a percentage of the benchmark/s.

The GREEN LINE in the graph above is one hospital’s CMS Cost-to-Charge reporting to CMS. Tying provider reimbursement on a cost-plus basis which is characteristic of Reference Based Pricing plans has produced static health insurance costs, proportionally mirroring the cost of health care which has remained essentially static over the past 15 years . (Please read the last sentence 25 times so that it really sinks in as you begin to understand the difference between health insurance cost and health care cost).

The RED LINE is the hospital’s charge master rates (sticker price) for the same period of time. Tying reimbursement to sticker prices guarantees health insurance cost increases each year.

Chapter One Quiz (True or False, Circle One)

  1. PPO’s guarantee annual cost increases                                   T                           F
  2. Sticker Prices have no relationship to cost                             T                           F
  3. Discounts mean nothing                                                             T                           F
  4. I’ve been an idiot all these years                                                T                          F

NOTE: A passing grade means you are no longer deemed an idiot and you qualify to move on to Chapter 2 – Guiding Status Quo Idiots Towards Redemption 

 

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