Ending Hospital Price Discrimination Against the Uninsured

http://economix.blogs.nytimes.com/2009/09/04/ending-hospital-price-discrimination-against-the-uninsured/

September 4, 2009, 7:27 am
By Uwe E. Reinhardt, an economics professor at Princeton.

As President Obama and Congress find themselves constrained by a rapidly growing federal deficit, they may have to be parsimonious in the subsidies granted uninsured families toward the purchase of health insurance. Many solid middle-class, uninsured Americans may not benefit much or at all from such subsidies. Absent a mandate to the contrary, and perhaps even with such a mandate, they may remain uninsured.

When they fall seriously ill and require in-patient care, many of these families may find themselves hit by a double financial whammy.

First, medical bills may quickly chew up the family’s lifetime savings and other wealth, especially as health care costs keep rising at twice the rate of inflation or more.

Second, left on their own they will have little bargaining power vis-à-vis hospitals. Therefore, because they may not qualify for discounts granted the lower-income uninsured, middle-class patients may end up being charged the highest prices that a hospital charges its paying customers.

This will not always happen, of course, and may not even in a majority of cases.

But there have been some truly shocking reports, like this one in The Wall Street Journal, about price discrimination visited on the uninsured and on some rough tactics used to collect the inflated bills; several Congressional hearings; and a spate of class-action suits on behalf of the uninsured. After all this, most hospitals by now have put in place sliding-scale, income-based discounts off their full list prices (known in the trade as “charges”), with outright charity care for the poorest patients. A good number of hospitals may have had such sliding-scale fees all along.

A careful recent study of hospital pricing in California, however, found that 49 percent of the uninsured in 2005 were treated at hospitals where prices charged the uninsured still were higher than those paid by Medicare, and 27 percent were treated at hospitals whose charges to the uninsured exceeded the prices paid by commercial insurers.

The hospitals in the study did not necessarily collect all they had charged the uninsured. When the researchers multiplied the average prices charged the uninsured in 2005 by the average fraction of those charges ultimately collected from them, they concluded that the resulting “net prices” actually paid by the uninsured in 2005 were, on average, close to the prices paid by Medicare.

But averages can be highly misleading in this context because there is great variation in the prices that different hospitals charge for the same services. Furthermore, data from only one state is not necessarily representative of the entire United States. There are still plenty of hardship cases reported in the media.

I recall taking a car service to a New Jersey airport in 2007 and asking the driver, as is my wont, whether or not he had health insurance.

He did not. After queried further what would happen if he or someone in his family needed health care, he relayed that not long before he had taken his 3-year-old boy to the emergency room of his neighborhood hospital, as pus was oozing from the little boy’s eyes.

After one test there, it was determined that the boy suffered from an allergy. Father and son were sent home with a prescription for an ointment of sorts. He was charged close to $1,200 for that service, as he proved to me by sending me the hospital’s bill.

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