Hospitals have to collect as much as it costs them to take care of their patients. That is hard for small hospitals, most of which are rural. Those costs include not just the services that individual patients realize they received, but also a share of the salary of the maintenance crew, the light bill and the cost of replacing the stained carpet.
Different payers have greatly different abilities to pay, so the hospital has to charge its costs to whoever can pay them. Otherwise the hospital will go broke and close.
Understanding the general pattern of hospital and medical bills can help a patient or voter understand why Medicaid expansion is important for them, why “self pay” patients are at risk of bankruptcy, and why their insurance bill is so high.
The following illustration is pure fiction, but the pattern is accurate. Specific numbers will be different for every hospital and every community.
Suppose each of four people in their 60’s falls, breaks an arm, goes to the hospital emergency room and gets an exam by a salaried physician. Their scraped knees are cleaned up and bandaged. Each gets an x-ray, cast and sling for their broken arm. Services to each patient, including their share of the electric bill, etc., cost the hospital $1,000.
The first patient works at a convenience store, has no insurance, brings home about $1,000 per month. She gets a very large bill from the hospital (more about that later) but can pay only a total of $300, spread into installments over several months. The hospital is out $700.
The second patient has Medicaid, the joint state-federal payment program for low-income people. It pays, say, $750. The hospital loses only $250…not great, but better than its collection from the uninsured patient.
The third patient is covered by Medicare, the federal program for people over age 65. It pays what a panel of experts thinks a perfectly efficient hospital would spend. That usually turns out to be more than Medicaid but less than the actual cost. Let’s assume $900 this case, a net loss of $100 for the hospital. At this point the hospital has lost a total of $1,050 on the first three patients.
The fourth patient has commercial insurance. She is billed $2,050. That covers the cost of her care plus the unpaid costs of caring for the uninsured, Medicaid, and Medicare patients. The insurance company gets to keep $15% more than it pays out on its total pool of patients, so the company will collect about $2,350 to pay a bill of $2,050 for care costing $1,000.
But the insurance company feels it must be able to claim that its customers are getting a discount on their hospital bills. The hospital can only offer such a “discount” by setting the charge for examination and treatment of a skinned knee and broken arm well above the costs charged to the insurance company….say, $3,000. That is the amount billed to the uninsured first patient. That is likely to be the amount of the bill turned over to a collection agency and reported to a credit bureau.
This story illustrates several points:
Getting low-income people on Medicaid lowers the cost of commercial insurance.
Using commercial insurance is an expensive way to pay shared community costs.
Uninsured people are likely to take a terrible financial beating in the current medical care situation.
Wayne Myers is a retired pediatrician and rural medical educator. He directed the federal Office of Rural Health Policy from 1998 through 2000, and was president of the National Rural Health Association in 2003. He and his wife, JoAnn, farm in rural Maine.
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