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Probing disparity in healthcare bills

Private payers, including the uninsured, can face higher bills than insurers for procedures

By Sara B. MillerSpecial to The Christian Science Monitor / May 19, 2003

Kimberly Barton was 23 years old when she began a battle with stomach cramps. A diner hostess, she had no health insurance, and decided to ignore her problem.

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Months later, after landing a job with the Dallas city government, Ms. Barton went to a public hospital and was diagnosed as having gallstones. But she put off treatment again, because her Aetna health insurance plan had yet to kick in.

Then one evening in August 1995 - a week before her coverage was to take effect - she couldn't sleep. Barely able to move, Barton had her roommate drive her to a hospital emergency room. She was operated on hours later.

The hospital bill came to $12,000 - Barton finally paid it off last year with another $5,000 in interest. Had her insurance been in effect, Aetna would likely have settled the bill for about half what she was originally charged.

In a climate where the number of uninsured Americans is growing and hospital fees continue to soar, the disparity between what individuals pay versus what insurance companies pay for the same service is coming under some scrutiny.

"No one paid attention to it until now," says Bruce Vladeck, an expert in health policy at Mt. Sinai Hospital in New York, and administrator of the Health Care Financing Administration under President Clinton. "Not only are there a lot more people uninsured today, there are a lot more middle-class people who are uninsured."

Hospitals are required to put official "list prices" on all services provided. But only uninsured individuals end up paying the full bill, since big insurers routinely bargain their prices down.

"The price for private-pay patients is higher because they have no negotiating power," says Jeffrey Rubin, an economics professor at Rutgers University who has studied healthcare delivery to the uninsured.

The "buying power" that insurance companies have is a "market reality," says James Walsh, senior editor of Silver Lake Publishing in Los Angeles, which publishes consumer guides to insurance.

But consumer groups complain that in a hospital setting, the list price is well over the cost to hospitals of providing the care.

'List prices' inflating

List prices have been in effect since the onset of the government-run insurance program, Medicare, in 1965, says Irene Wielawski, a health writer who has detailed the evolution of the pricing system.

Hospitals established these prices to determine what percentage the government would pay for services. It did not take long for providers to inflate those prices to receive more money, Ms. Wielawski says.

Today, official charges are at least 20 percent above the actual cost of care, says Rick Wade, senior vice president of the American Hospital Association (AHA). Some charge double or triple the cost, depending largely on a state's regulatory policies. Maryland is strictly regulated, for example. California is not.

After Carmen Espinoza was injured in a head-on collision in Sacramento, Calif., in 2000, her bill came to more than $140,000. The drug counselor and young grandmother had no insurance at the time. She applied for welfare, was denied, and spent the next four months stressed over how she would pay off the debt.

Finally, a hospital social worker found a loophole in the welfare system, which made her eligible for Medi-Cal, the state's Medicaid program.

Mr. Wade says the pricing strategy helps hospitals survive. According to the AHA, hospitals nationwide lost $21.5 billion in uncompensated care in 2001, representing 5.6 percent of their total expenses. Hospitals also grumble about decreasing reimbursements from Medicare, Medicaid, and health-insurance companies.