Medical Care in the U.S is Bad, But Insurance Sucks Too

Opinion April 2nd, 2013 by Eran Galperin

There's been a lot of media attention recently to the high cost of medical care in the U.S compared to other countries (see some nice graphs on this NY Times opinion piece). Most of the attention has been on medical care itself, with medical insurance getting a pass with reportedly low margins.

As someone who recently moved to the U.S (from Israel), I'd definitely put some of the blame for the cost disparity on the medical insurance system in the U.S. To explain why, I'll relate from my own experience -

A few months after I moved to the states, and before my travel insurance expired, I set up my health insurance with the Blue Shield of California. After much deliberation, I settled on a PPO plan costing 200$ a month. It might sound on the low side to you, but consider that up until now I was paying 71NIS (~19.5 US$) a month for the highest level of coverage (you can see the actual costs on this Google translated page of the "Gold" plan at the Maccabi Health insurance provider). In Israel, all citizens are covered by law, and most medical needs are subsidized through the a health tax (which is collected by the social security office).

At this point I thought I was set - since I'm used to insurance that "just works". However, that was not the case when I actually needed medical care.

A couple of months later, I developed a minor condition in my ear - swelling and build up of fluids - a common affliction for those who train in grappling (I train BJJ - if you never heard of it, it's kind of similar to Judo / Wrestling). If not treated within a few days, this swelling can become permanent, leaving your ear permanently deformed (a condition called "califlower ear"). This was not the first time I had this condition, and in Israel I treated it with the help of a physician without any problems, so I figured I'd do the same now (time to finally use that 200$ a month insurance!).

So I go to my insurance's website, and find an ear doctor (an otolaryngologist - try saying that 3 times fast) in my area, set up an appointment and go to have the procedure done. On the day of the appointment, I arrive on time, hand out my insurance card and then I'm led to a small doctor's office. An interesting footnote about the operation they run here - one doctor is responsible for 4 (or 6?) closed offices, visiting one at a time and then assistants such as nurses and so forth take care of his instructions while he visits the next room. Pretty efficient for the medical center.

Anyway, after 10 minutes wait, the doctor comes to see me, we exchange pleasantries, he takes a look at the ear and says he can perform the operation right now, which is what I had expected. I say great, he says the nurse will bring me a form to sign since it's an invasive procedure (a small cut to the ear). After everything is signed and he comes back from one of the other rooms, he performs the procedure, which takes him about 2 minutes + 2 minutes to suture it and wrap it up. I say "Thank you very much, see you in a week (to remove the sutures)", and leave, feeling pretty good that it went as smooth as expected. At no time did were any medical costs discussed.

Well, you can guess what happened next - 3 weeks afterwards I receive a bill from my insurance company, for the sum of 1,076$. The breakdown was as follows:

  • Doctor's visit - 300$
  • Procedure - 776$

To say I was surprised would be an understatement. 1,076$ for a 5 minute doctor's visit? I'll mention at this point that this procedure is so simple, that many do it at home by themselves (and from now on that includes me). I call my insurance to see WTH is going on. I go over the claim with them, and slowly it dawns on me what makes the lower tier insurance plans relatively "cheap". I was in the dreaded "deductible" for both the doctor visit and procedure - which means I need to pay it all out of pocket. In Israel, many standard medical needs (such as a doctor visit) and procedures are covered completely by  insurance - there's no copayment or deductible for either. If there's any out-of-pocket expenses for the procedure, medicine or exam, they are listed visibly and are approved beforehand by the needing party. At no time was I informed of any expenses - let alone over $1k (for some people that might not sound like a lot of money, but for me at the time it definitely was - for an unexpected expense). I had just assumed that my insurance will cover it if no one informed me about the costs and asked for my approval.

At this point I call the medical center's billing department itself, trying to understand the nature of those costs and why wasn't I informed. Here are some excerpts:

  • Me - Does 300$ for a 5 minute doctor visit sound reasonable to you?
  • Medical Center Billing Dept. - Those rates are within the range found in this area.
  • Me - I wasn't asking about that. Does 300$ for a doctor visit sound reasonable to you? for a physician within my insurance network?
  • MCBD - Sir, let me check something with my supervisor. Could you hold on for a minute?
  • Me - Sure. I'll be here
  • ...
  • MCBD - Sir, I checked with my supervisor, and he says we can offer 30% discount on the bill. Would that be fine?
  • Me (after a short deliberation) - I guess if that's the best you can do, I have no real choice. I'll take it.
  • Me - I'm surprised that neither the reception of the doctor informed me of the cost of the treatment.
  • MCBD - They do not have that information.
  • Me - I see... so for future reference - how can I tell in advance how much would a service cost me when I visit your center?
  • MCBD - *pausing, not sure what to say* You could ask for the procedure codes and then check with your insurance.
  • Me - You mean you guys can't tell me in advance how much a treatment would cost?
  • MCBD - Unfortunately, no.
    (Meaning I would need to ask my doctor to wait, fetch the procedure codes, call my insurance, have them cross-reference against the medical center I'm visiting, probably wait for them to call me back while they get the specific cost from that center - all in the middle of a doctor's appointment).
  • Me - Ok... thank you.

What we learned here

  • (Conjecture) Medical providers will over inflate bills to insured patients assuming insurance will cover. When it doesn't, they are mandated to give a "discount" to appease angry customers.
  • Since they are typically being overbilled, insurance companies will raise their rates so even the lowest packages are 10 times the cost of a top-tier insurance package in other counties.
  • Medical providers and insurance will make it very difficult to know medical costs in advance. Providers will obfuscate their prices through procedure codes, and insurance companies develop complex insurance packages with a ton of fine print for actual coverage, copayments and out of pocket costs.

If you already lived in the U.S for a couple of years, you probably knew this already. For anyone arriving from other countries, this can be quite a shock.

Cost opaqueness makes competition and informed choices very difficult - if you can't easily tell how to minimize your costs, you are left with trial and error. It appears most states in the U.S do not require hospitals and medical providers to list their prices. See here how your state ranks in this respect (California gets a D).

The NY Times article I referenced in the beginning also mentions how Americans use health care less frequently than other countries - considering the volatility of costs, I think that's hardly a surprise. I have been very cautious in using health care ever since that incident (even though I upgraded my insurance). I can also understand why so many people are uninsured here - I heard about so many cases from friends here on how their insurance didn't help them when they needed it, and then having to spend thousands out of pocket - no wonder you wouldn't want to add the insurance cost itself to it. The only reason to have insurance here in the U.S is to avoid going bankrupt if you do need something more than a simple treatment (like an operation).

The medical services and insurance cycle of raising and obfuscating prices to squeeze more out of people who need medical attention, is terrible. In my opinion, medical care is one of the core things that a 1st world country should make available to anyone, for cheap, by subsidizing it and enforcing transparency and price normalization for common needs (In Israel, we have a uniform benefits package that is provided for free for anyone with insurance - which includes every citizen). The prospects of this happening in the U.S do not look good, and it's a shame.

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  • wtpayne

    Yup, that’s one of the main reasons that we left the US. If you are young, healthy & not too risk-averse, the US is a great place to be, but if you are older, have kids, or are prone to worrying, then it is not worth the hassle. That *one* downside (dysfunctional healthcare) on it’s own outweighs all the other positive aspects of living in the US.

  • http://twitter.com/ATAKBigA andrewadriankarlin

    The relationship between insurance companies and providers is co-dependent. Insurance companies demand discounts from providers, so providers all raise their overall rates to compensate, providers demand more discounts. Providers re-code procedures so that they get more money from the same visit, insurance companies build up billing departments that know how to re-re-code procedures to return less money to the provider, this forces providers to do even more aggressive re-coding.

    I agree that it’s broken, and prices need to be clearer, but the problem is a lot more complex than your analysis implies.

  • Mark Brophy

    Socialism has been a failure everywhere it has been tried, including the kibbutzim system in Israel. Government should not subsidize health care because it punishes healthy people and rewards people who refuse to maintain their health. Aren’t there too many people who eat lousy food and exercise less than an hour per day?

  • Sara

    Eran, so sorry you had to have this experience. Unfortunately, it’s all too common in this country, but it’s good to see entrepreneurs with the creativity and guts to challenge the system and innovate through its many complex issues. I’ll be sending you an email at Binpress, as I think what we do here at Maxwell Health will be of a lot of interest to you and your team.

  • jorge

    I think it all depends on you you define insurance: For me, insurance (hopefully) prevents me from paying really high medical bills in case of a serious injury. I don’t (and wouldn’t mind) paying for regular/routine visits.

    Whether my US insurance will ever save my finance when the “big one” hits, is unclear.

  • Michael Acobas

    Eran – I currently live in Israel, and I do have to say that I’ve become a HUGE fan of socialized medicine (I am a member of Maccabi Zahav and it’s great). HOWEVER, it’s misleading to say it costs שח 71.66 – your BTL (Social Security) deducted from your salary, and for most people that will mean over 10% of their salary.

    The 71.66 is additional to that. I’m not saying it’s not worth it, but it is a bit misleading to say that it’s cheaper.

  • TheNHS

    To : Mark Brophy,

    I live in England where we have the NHS. Free at the point of use, paid for by small taxes. Does it surprise you that our current Conservative Prime Minister used the NHS for the care of his family, including all the care for his severely disabled son?

    For me, this is another reason never to go a third world country like the US.

  • John

    So what you’re saying is you didn’t read your plan design…

  • http://www.facebook.com/profile.php?id=100002314279835 Userul Lui Peşte

    You don’t agree that there’s an abuse in the current US healthcare system? I think it’s a nightmare and my worst fears are that it might spread outside, like a disease. We’re talking about luxury prices for a primary necessity. It’s a nasty game where you as a client lack any negotiating leverage, since usually your life is at stake. Forget socialism, I’m not talking about “free”, I’m talking about “affordable”. The amount of people that don’t have any health insurance speaks for itself and currently there isn’t any limit on how worse things can evolve.

  • Joseph

    @08affae31a1eca8573fbd1f49aaa1b54:disqus
    America spends a far higher proportion of GDP on healthcare than any country with socialized healthcare for arguably worse outcomes. Lack of social solidarity has allowed the healthcare business to divide and conquer.

  • Bob Jenkins

    ‘rewards people who refuse to maintain their health’ .. so, getting hit by a car whilst walking is ‘the persons fault’ I guess ?

    Healthcare is there to provide a system for sick, ailing and ~accidental~ injuries. I am pretty sure that the writer of this piece didn’t think “you know, I have two normal, healthy ears, lets get an infection”. You can’t assume ~everyone~ who get’s sick is their own fault. That’s jst beyond belief. I doubt anyone “chooses” pancreatic cancer.

    Also, another mis-idea in your comment is that medical care is a polticial/idealogical issue, it’s not. It’s an ethical issue. If you think medical care is political, next time, ask only for a republican doctor.

  • Zeljko Dakic

    When I immigrated to US, a lot of things didn’t make sense, healthcare especially but I hoped I will understand over time. I do understand, it still doesn’t make sense and people here are suckers, they talk about socialism, like breathing air is socialism. It is a shame that country that has so many things figured out well would be in the hands on big corporations and would treat it’s citizens so badly. The thing is, it will not get fixed because people are somehow convinced that this is how things should be.

  • Michael

    Nobody likes paying for insurance until they need it.

  • Blake Wenz

    Spot on.
    Politicized decency… crazy world we live in…

  • SGK

    All this would go away if we had price lists posted. This is one of the goals we have at the American Term Limits Party (.org). What kind of business functions without posted price lists? It violates the most fundamental economic principles.

  • Guest

    Stalinism was an unmitigated disaster. Stalinism was a brand of Socialism. Socialised healthcare is an instance of Socialism. Therefore it must fail.

    Facts be damned.

    http://www.businessinsider.com/best-healthcare-systems-in-the-world-2012-6?op=1

    Note that every single nation on the list of 36 nations with superior healthcare systems to the US (as ranked by the W.H.O.) have some form of public, “socialized” healthcare. (With the sole exception of the Netherlands, at number 17)

    Yes, many, many Americans fail to take care of themselves physically. However the implication that most people with health problems deserve their bad health is callous at best, and morally repugnant at worst. And if you are arguing that being financially responsible for all of own’s one healthcare costs will serve as a deterrent to unhealthy living, the United States serves as a huge counterpoint to this specious argument. In fact, the uninsured are *more* likely to be obese or make other poor health decisions.

    So from an efficiency standpoint, that argument is bunk. If you’re arguing that people being saddled with enormous debts because of their health issues is good from some sort of punitive reason… that is plain disgusting and not worthy of a response. Akin to arguing that it’s good for women who dress provocatively to be raped because it discourages that behavior.

  • specialist

    Hi “John”.

    “you didn’t read your plan design…”

    Implying that you read yours?

  • Yoav Farhi

    An important note about the comparison: in Israel you also pay a health tax directly out of your salary – 3-5%, monthly. This is the bulk of your health insurance payment, and what covers most of the healthcare costs. The 71 NIS mentioned is just for the “extras” your health care provider sells you, on top of the state regulated health insurance.

  • http://www.binpress.com Eran Galperin

    I mention the health tax in the article. This is a “pay by ability” method, which allows everyone to receive healthcare. A large percentage of the population doesn’t pay any health tax (due to being below a certain cut-off). In the U.S, the lowest tier packages *start* around 200$ – you can easily get to 900-1000$ when you have a decent salary.

  • http://www.binpress.com Eran Galperin

    Michael – BTL covers way more than the health tax, and is proportional to your salary. The U.S has Social security tax at similar rates, yet none of it goes to subsidizing health care. I don’t mind paying a bit more tax so that I’ll know I know be knee deep in payments whenever I need medcare.

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