Paying too much for healthcare? Your boss may be to blame

After months of stomach pain and bottles of ulcer medication, you are scheduled for an endoscopy. A gastroenterologist will gently slide a camera down your esophagus into your stomach, perhaps even to the beginning of your small intestine, to see what is causing your symptoms. How much will that procedure cost?

It can be expensive, for example $1200. Or can be very expensive – as much as $5000. And these prices matter, especially if you’re enrolled (also called “permanent”) in a plan with a high deductible and a lot of out-of-pocket costs,

The final price, whether it’s closer to $1,200 or $5,000, depends on how well your insurance company negotiates with the gastroenterologists in your area. If you’re faced with high prices, you may blame your insurance company.

However, if you work for a company large enough to be insured, the blame for the high prices lies with your employer.

Let me explain what’s going on.

I’ll start with an obvious fact: If I’m a gastroenterologist, or a healthcare organization that employs gastroenterologists, I want insurance companies to pay generously for endoscopy. On the other hand, if I am a private insurer, I want to pay as little as possible for endoscopy. As a result, many healthcare prices are the result of negotiations between provider organizations and insurance companies.

Next fact: the larger and more powerful an insurance company is, the lower the prices it will typically negotiate with providers. Likewise, the larger and more powerful the provider organization is, the higher the prices it will be able to demand from insurers; difficult to walk away from an organization that controls the majority of the area’s hospital beds.

Now a twist in our story: many companies are large enough to insure themselves; they take on the financial risk of paying for their employees’ health care costs. In these cases, there is no insurance company that can negotiate prices. Instead, your employer should bring themselves to the bargaining table (or perhaps the negotiating Zoom room these days?).

What happens when self-insured companies negotiate healthcare prices?

They eventually succumb to high prices. Here’s a photo showing that finding, from a study from the Healthcare Cost Institute. As the figure shows, most healthcare prices are higher for self-insured patients than for more traditionally insured patients. Therefore, most bars are located to the right of the 0% mark. The top bar essentially illustrates the cost of an endoscopy, which is on average about 8% higher for self-insured companies:

Why are prices higher for self-insured companies?

First, most companies are not large enough to demand low prices from healthcare providers. It is easy for suppliers to walk away if the company pushes prices too hard.

Second, most of these companies don’t have much experience negotiating prices. So even if they have significant market power, they may still fail to drive down the cost of healthcare.

In the absence of federal or state efforts to regulate health care prices, what we pay for medical care often comes down to whether we have a smart, experienced negotiator on our side. Unfortunately, the smartest thing your employer can do is push you into a high-deductible plan and make you foot the bill.