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There is growing evidence of a counterintuitive phenomenon in the medical field. This means that the cash price is often lower than the insured price for the same service or product. The cash price is determined unilaterally by the provider, whereas the insured price is negotiated relatively between the provider and the insurance company. Don't insurance companies probably have more bargaining power than individual patients?
Our research shows that for common shoppable services such as lab tests, imaging tests, and joint replacements, half of U.S. hospitals offer cash prices that are lower than the median negotiated price. I understand that. Approximately 20% of hospitals set their cash price below the minimum insured price. System-affiliated hospitals and hospitals in low-income areas are more likely to have relatively lower cash prices.
What about non-shoppable services where patients cannot compare prices or plan ahead? A classic example is trauma activation fees. Hospitals designated as trauma centers charge such fees to patients who come to the emergency room. Our study, published in JAMA Surgery, found that nationally, at almost every level of trauma activation pricing, cash prices were lower than insurance prices at the mean, median, and various percentiles.
In Arkansas, the median cash and insured prices are $2,030 vs. $2,477 for Level I trauma activation (18% cheaper to pay cash) and $1,152 vs. $2,011 for Level II (43% cheaper) , $1,149 vs. $1,900 (40% cheaper) for Level III. , Level IV is $764 vs. $1,420 (46% cheaper).
For prescription drugs, cash prices have also been recorded to be lower than insurance prices. Although counterintuitive, these findings reflect the inherent and unavoidable tradeoffs between using cash or insurance to purchase health care.
Insurance protects us from financial risks, but it also adds complexity to management. If the financial risk is low, there is little point in using insurance. So car insurance won't cover oil changes, and home insurance won't cover faucet replacement. Otherwise, premiums would skyrocket and such plans would be forced out of business.
Additionally, financial interests between insurance companies and plan sponsors are not well aligned. Lower health spending usually means lower profits for insurance companies. It's no surprise that they often engage in uncompetitive price negotiations, leaving the plan sponsor's money on the table.
From a provider's perspective, serving cash-paying patients is less costly than dealing with insurance. Eliminate administrative burden and time and energy spent on insurance compliance. As Dr. Mario Molina recently stated, “When I see a patient complaining of a sore throat, I want to focus on the sore throat. I don't have them run all the tests that insurance requires. .”
Importantly, patients who spend their own money are price-sensitive and actively shape a provider's reputation by having full agency, just as consumers typically do in cash-pay markets. That's it. Providers understand this and set their cash prices accordingly. In low-income areas, the cash price is more likely to be lower than the insured price. Hospitals affiliated with strong systems and even non-shoppable services such as trauma activation offer cash prices that are lower than insurance prices.
Insurers need to focus on what they do best: cover services that pose significant financial risks that may justify administrative complexity. Patients should be able to control their healthcare costs (earned or subsidized) to purchase other services, allowing healthcare providers to focus on care delivery and innovation. .
As we wrote in JAMA Internal Medicine, “More health insurance coverage is not the same as better health care or improved health outcomes. Policy solutions to improve health while lowering costs. The focus should be on putting patients in control of their health care costs, not insurance, as much as possible, otherwise high prices and dynamic innovation centered on patients' best interests. patients are deprived of a comprehensive medical care delivery system.
