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September 10, 2020

What My $18,289 Medical Bill Says

Summary:

Systemic problems don’t sound catchy, don’t boil down to one sentence and take time to implement -- but we need systemic solutions.

Photo Courtesy of Pixabay

Warning: While this is not quite as disturbing as the poor woman with a spider in her ear on Twitter, I’m still sleeping with one eye open.

Also, TLDR: Prices play a key role in free markets, right? They help set supply and demand and indicate value. My guess is that the vast majority of healthcare and by extension health insurance in the U.S. is a badly functioning market in part because prices are nearly irrelevant.

The story, in which I bravely warn my family of danger.

Not long ago, I went to bed early and was woken up by what sounded like a very loud fly knocking against the inside of our bedroom window. I turned on the light to see a bat weaving and darting just overhead. (We have low ceilings – the bat was way closer to me than any bat should be.)

I’m happy to report that I bravely warned the rest of my family by shrieking (repetitively) at the top of my lungs; the bat got a broom-to-the-rear-end assist out the bedroom window.

Really, there was no dignity to be had for anyone that night.

But, I had a bigger problem. I had two little marks on my arm that Dr. Google suggested could be a bat bite; my primary care physician’s office told me to go to the emergency room. 

Turns out, showing up as bat woman at a suburban ER late on a Monday night makes you an absolute rock star.

I ended up getting the rabies vaccine and a shot of human rabies immunoglobulin, which was absolutely the largest shot I have ever seen in my life. Follow up was three more doses of vaccine over a three-week period.

And that’s why I received an $18,289 bill: $1,120 for the ER visit, which didn’t shock me, and $17,169 for the shots, which did.

Pic, or it didn’t happen:

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I looked at the bill, nearly fell over and fortunately made it as far as the “You owe” box. My share, luckily, is $300; my insurance company paid $3,986.

Then I started thinking.

Why do we pay people to make up prices for healthcare, and what does it feel like to do that job?

Is $17,169 even a real price? Does anyone actually pay that?

I’m guessing no, if my health insurance company can get the hospital to knock 74% off the tab. And, given the way health insurance works in the U.S., I’d assume that every other insurance plan has negotiated some similar discount.

So, how does it feel to sit in a room with Excel open, presumably, and figure out what the rack rate is for care? What are the numbers even based on, if anything? And how does it feel to know that the only people who may get charged that are the people who are uninsured? (More on that later.)

The Centers for Disease Control and Prevention’s page on the cost of rabies prevention (published June 2019) pegs the expense for the immunoglobulin plus the four vaccine doses at $1,200 to $6,500, for the medications alone, not the hospital charge. So, how do you get to north of $17,000? And, according to First Databank, a company that monitors drug prices, the price of the drugs I received has increased 388% in the last decade, for no obvious reason, as best I can tell. Think the CDC missed that.

What is it like to be on the opposite side of this pricing, to be negotiating on behalf of the health insurer? Does someone go back to the boss to say, “Hey, I negotiated us a 74% discount!”? Doesn’t that doesn’t just strike everyone involved as laughably bizarre?

Why do we ask people to do useless work? What does that do to them, and what are we failing to grow or build or improve by asking them to focus on this nonsense?

Was it cost-effective to treat me?

This bill got me metaphorically scribbling on the back of an envelope.

Is $17,169 a fair price? Well, maybe that’s a silly question, because that’s not what my insurer and I paid together.

Let’s just assume that the fair price is about $4,000, which is roughly what we paid for the shots.

Rabies is a nearly completely fatal disease, and the onset of symptoms to death is about seven days. Let’s say the resulting hospitalization and treatment costs $100,000 (source: wild guess). Soullessly assigning no economic value whatsoever to my life (which I, by the way, value greatly), we should be willing to pay for 25 courses of rabies shots to prevent one case, or whenever the risk of catching rabies is 4% or higher.

What was my risk of catching rabies? The estimates I saw suggested that anywhere from .1% to 10% of bats are infected with rabies, depending heavily on local conditions. It is easily transmissible, apparently, especially with a confirmed bite, so let’s assume that, if my bat friend had rabies, I would get it.

So we’re within a wide margin of error based on avoiding costs. What if we ghoulishly try to value a life? There are lots of papers on this topic. I’m no expert, but I’m going to pick $100,000 per remaining high-quality year of life left, which seems roughly reasonable based on the literature. Let’s assume I have 40 high-quality years left, or $4 million of value.

Treating a known bat bite definitely makes sense.

Maybe the cost makes sense from that perspective? But would you need to consider it as part of all of the healthcare I will receive from this point on in my lifetime? Or just at this moment, with this choice?

I don’t know, but I’m pleased that I was able to make a rational economic decision on the fly.

Ha.

See also: Mental Health Even More Critical Now

How did we end up in a place where life-saving, cost-effective treatment is most ruinously expensive for the people least able to afford it?

If I had been uninsured and gone to the hospital, I’m going to assume I would have been treated, at least with the first set of shots, though I don’t know for sure. If I had gotten the full series of shots, how much would I have been billed? The full rack rate? The worst negotiated rate with an insurance company? Something different?

(My $300 ER copay alone represents a significant burden for many families, including those affected by joblessness or reduced working hours because of COVID.)

I did some research – it turns out the major manufacturers of rabies treatments have programs to pick up the cost for those who can’t afford it. I’m sure this is an enormous relief for those who qualify, which I desperately hope is everyone who can’t pay the price. I also hope it’s easy to apply.

But, systemically, how does this make sense?

We set fake prices that are beyond crushing for most families. Then we don’t charge them to people who are insured. We save the worst prices for people who don’t have health insurance, who are even likely less able to pay ruinous prices than those who do have insurance. So then the manufacturers have programs (complete with separate paperwork!) to waive or minimize the cost for the uninsured, at least those who apply.

And since the manufacturers still need to make a profit, those waived costs actually get funneled back into the pricing the insurance companies negotiate with the healthcare systems.

Again, what information is in the pricing for these drugs? And in what ways are the healthcare and health insurance markets dysregulated as a result of the lack of clear pricing information?

As both the consumer of our healthcare insurance and the employer paying for it, how am I supposed to assess this situation?

My co-founder and I picked out our health insurance plan. While there seemed to be a whole lot of choice for a business of our size, the plans were really all the same… $2,000 deductible with $50 copays? $2,005 deductible with $49.75 copays? And so on.

I’m exaggerating, but not by much.

The service our healthcare plan provides is fine, and the cost seems reasonable, but how do I assess whether the plan is as efficient as it could be? The costs paid to healthcare providers get passed back to us (all of us insureds) through pricing. If the plan pays too little, it isn’t fairly compensating the medical providers, which will eventually refuse to work with our health insurance or go out of business, meaning we have an availability problem. If the plan pays too much, we pay for it.

Am I supposed to be really pleased that our health insurer negotiated a $14,000 discount? Or should I be mad it didn’t negotiate a $15,000 discount? How would I know? How could I make a more rational decision?

The answer is…I can’t. There’s so little information in the pricing, and so much opaqueness, that we’ll have to make another decision next year based on price and service when we renew our health insurance. 

Why do we tolerate the healthcare and health insurance mess we have in the U.S.?

I’m willing to believe that all of these ridiculous pricing mechanics exist for a reason, but do the reasons still make sense?

There are so many distortions here…

  • Even when I am both the buyer and user of employer-sponsored health insurance, I don’t have the information I need to make any kind of a rational decision except what makes the most sense for us for the next year.
  • There’s no easy way to understand how much healthcare will cost before treatment, especially in emergency situations.
  • The list prices are no more than sky high caps on medical procedure prices.

I’m no expert in health insurance, but I see that same underlying issue here that I do in my own familiar property and casualty space – massive systemic complexity.

In the P&C space, I’d argue that most of the complexity derives from old court cases that created boundaries between lines of insurance. This led to technology solutions for each line and specialized staff and culture to handle input into, maintenance of and output from these ossified systems. The market need for those silos has blurred or disappeared, but thus far they’ve been indelible marks in the insurance landscape.

The same is probably true of health insurance. I’ll add the root of employer-sponsored health insurance (which usually separates the buyer from the end user), which stemmed from wage controls during World War II.

There’s an interesting historical summary in National Bureau of Economic Research Working Paper 14839. In short, fringe benefits were excluded

The issue is that systemic problems require systemic solutions. Systemic solutions are so much less attractive than quick fixes – they don’t sound catchy, they don’t boil down to one sentence, they take time to implement.

Yet, as a people, our failure to fight for systemic solutions is surely catching up with us.

from WWII wage controls, which caused employers to add more benefits to attract and retain workers. Health insurance existed in a fragmented way before this, but really came into its own and was firmly established as an employer benefit in the period. And now, 55% of Americans get their health insurance through their jobs, according to the Census Bureau. This has to be a piece of the complexity.

See also: 6 Life, Health Trends in the Pandemic

Public Service Announcement: Rabies is really nasty. Nearly always fatal, and really, really nasty – it kills tens of thousands of people worldwide each year, mostly in places where rabid dogs are common. It’s also not specifically spread by animal bites; it’s spread in the saliva of ill animals, so a scratch or a lick to a mucus membrane can also spread it. If you may have been exposed (including if you wake up in a room with a bat — bat bites don’t necessarily hurt and can be nearly invisible), you really need to talk to a medical professional.

Postscript: I had a long conversation about CEO pay at pharmaceutical companies with someone regarding this whole situation. CEO pay can be grotesque, especially at companies that do not pay their workers living wages and don’t provide decent benefits. However, cutting CEO pay is largely an issue of equity, not much of a solution to this cost issue. I looked up the 2019 salary of the immediate past CEO of Sanofi Pasteur, which manufactured the shots I was given. If he had worked totally for free, applying the savings evenly over their revenue, my bill would have been $4 lower.

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About the Author

Kate Terry is co-founder and chief operating officer at Surround Insurance. She held senior roles in insurance product management before turning to the insurtech space, most recently as a senior vice president, commercial product management at Liberty Mutual.

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