Why health insurance actually sucks
Insurance companies are terrible at their job. And we pay for their incompetence.
Even though insurance companies are horrible to us in tons of ways, there’s one thing we tend to think they actually do for us.
They say they save us money by negotiating better prices with doctors, hospitals, etc. And we tend to believe them. At least I used to.
Actually, they’re terrible at that.
And they can afford to be terrible at it. Because when they fail, we’re the ones who pay.
But our horrible non-system is just relentless at dishing out pain. We’ve got to be relentless too.
So, now that you’ve picked your insurance, it’s time to learn to fight them.
Coming up over the next bunch of months, we’ll talk about lots of strategies and tips for those fights.
Now is a good moment to learn a bit about WHY we have to fight so hard.
Of course, there’s an obvious reason we need to fight insurance companies: They don’t want to pay claims, that’s money out of their pocket.
But there’s this one place where you would think that their interests and ours are aligned: keeping prices down.
Because these are the same prices THEY pay when there is a claim.
But our interests are not aligned.
I’ll illustrate how with a story I reported from Chicago — which comes with a practical, money-saving lesson — and then we’ll zoom out to understand why this happens, with a big scoop from reporter Jenny Gold.
In Chicago: Blake Valkier’s knee was killing him. He couldn’t sleep at night. He could feel his heartbeat in his femur. The knee was twice its normal size.
Doctors at a local hospital told him he needed a brace on his leg — and they sent him downstairs to get one.
The good news: It worked, locked his knee right into place. (“I love it,” Blake told me. “I call it the Iron Maiden.”)
Blake was a little curious about the Iron Maiden’s price — only a little, because he figured his insurance would pay for it. A quick Google search showed it selling for $150.
He wondered briefly how much the hospital would try to mark it up.
A few weeks later, he got answers, in a statement from Blue Cross — an “explanation of benefits.”
It said the hospital had tried to bill $1,400, but Blue Cross had talked them down to...$529.
And it said Blake would be paying that $529. Because he hadn’t met his deductible for the year.
This, for a device1 that Blake had easily found selling for $150 online. (I looked it up too, and found the same price.)
The tale of Blake’s $529 leg brace was one of the very first stories I ever looked into for An Arm and a Leg.
As medical bills go, this wasn’t huge — and I know how that sounds — but it made me curious.
I was so used to the idea that insurance companies actually work hard to keep prices down. I thought it was in their interest.
Like, in this case: if Blake hadn’t met his deductible, Blue Cross would be paying $529 for a $150 device. Why would they agree to that?
Reporter Jenny Gold gave me the answer.
Jenny and I were talking about reporting she had done that sounds pretty far afield: what insurance companies paid doctors for delivering a baby in the Bay Area.
Jenny found that insurance did not pay all docs the same amount for this service. Not even close.
Independent doctors, who owned their own practices, got about $2,400.
Doctors at Stanford Medicine got more than double that: $5,200.
Doctors at the University of California got $8,000 — more than triple.
Why would insurance companies pay so much more to Stanford or U of C for the same service? Jenny Gold says it’s because market share gives those big players leverage.
A big hospital system like Stanford employs hundreds of doctors, who work from dozens of clinics and medical offices. Many, many thousands of people want to see those doctors.
This sounds like basic Econ 101, and Jenny checked it out: She talked with an independent doc, who hadn’t gotten a raise from insurance for eight years. And who had definitely asked.
“What they told her is, you have less than two percent of market share in this area, so we have no reason to increase your rates,” Jenny told me. “These insurance companies simply can't say that to Stanford or another large hospital system.”
OK, I thought. Maybe this is why insurance companies don’t hold prices down. They can’t. Not when they’re negotiating with big players.
But it got weirder.
Because: As Jenny’s reporting showed, this whole setup — paying small players less and big players more — actually keeps prices ratcheting up.
How so? Well, it gives the small players a really strong incentive to sell out to the bigger ones. Who end up with a bigger market share and more leverage.
For example, Jenny talked with another obstetrician, practicing right across the street from the first. He’d been independent for 25 years, but — fed up with getting the shaft from insurance companies — he sold to Stanford.
Nothing much changed — not his address, and not his take-home pay — but insurance was now paying twice as much. To Stanford.
“It doesn't make a lot of sense to me from the insurance company’s standpoint,” that doc told Jenny. “Because they're losing all these doctors to the bigger groups and having to pay more.”
This is where Jenny Gold’s story circles back to the same question raised by Blake’s leg brace:
Why don’t insurance companies work harder — and think a little smarter — to save themselves some money?
Jenny Gold had the answer:
“It's not like insurers end up paying the higher costs out of their own pockets,” she said. “They're passing those costs along to all of us in the form of higher premiums. And they can do that. They can jack up the premiums.”
And if it’s not a higher premium, it’s a higher deductible. Like Blake’s.
So, insurance companies don’t have to work hard to keep prices down because when prices are high, they’re not the ones paying for it.
We are. Me and you.
Yes, you. Even if you get your health insurance from work, this costs you a lot. Take it from a CEO:
So, yeah. That’s what we’re up against. The deck is stacked against us. Nobody’s on our side.
That’s why I’ve got First Aid Kit installments for the first half of 2022 already mapped out here. And that’s why so many of those installments are about fighting with insurance or working around it.
Finally: I promised you a practical lesson, and you probably picked it up along the way, but just in case, here it is.
It’s the lesson Blake says he learned from his knee-brace adventure:
Hopefully I'll never be in that situation again [with a throbbing, swollen knee], but if I know someone who is, I will absolutely say: Find out what they were going to put on you — and go home and buy it, at a fraction of the cost.
This applies to lots of medical devices: A brace? A CPAP machine for sleep apnea? I’ve seen those. You tell me what else in the comments.
We’ll kick off 2022 with a series on how to (maybe) avoid getting ripped off on all kinds of things: prescription drugs, medical tests, even the emergency room.
Nothing is guaranteed to work all the time — our enemies are wily, and always inventing new ways to screw with us — but this stuff is worth trying.
Meanwhile, next week, we’ve got a holiday giving guide.
If you’ve got a little cash to spare and you want to help someone who is struggling with the awful price of health care…we can steer you to some places where your dollars can really make a difference.
Of course, we’d love it if you donate to us as well — this newsletter and An Arm and a Leg are free but not cheap — and your contribution goes twice as far right now. A project called NewsMatch will match every dollar you give.
I get an email every single time someone gives to the show — and for monthly pledges, I get a note every single month — and it lifts me every single time. Some of them even come with notes like this one:
I LOVE your podcast - it's become my new favorite listen! So glad to have someone identifying the truly dastardly way in which our "sick care" system operates to take advantage of the most vulnerable time in most people's lives. Plus you provide solutions!!
Here’s where you sign up to help keep this project going.
Till next time, take care of yourself.
Resources: Further reading (and listening)
You can listen to a version of this story, and hear the voices of Blake Valkier, Jenny Gold, and the docs Jenny talked with, in this early episode of An Arm and a Leg.
Jenny Gold’s story about those docs: Guess Who Pays The Price When Hospital Giants Hire Your Private Practitioner?
Want a deep dive into how messed-up American health care is? Check out Elisabeth Rosenthal’s book An American Sickness. (Warning: It will make you SUPER-mad.)
Actually, health insurance is more than $20,000 per family. $22,221, on average. You can read all about it in this report.
… or here’s the tweet:
Larry Levitt @larry_levittNew: Our 23rd annual employer health benefits finds that health insurance is still frigging expensive and getting more so, with coverage for a family topping $22,000 per year. https://t.co/0T59ZcPLez
Blake showed me his insurance statement, and the bills he got: The $529 does not include a charge for fitting the brace, or the doc’s consultation. None of that.