$2.5 trillion dollars a year. 17.6% of the United States Gross Domestic Product (GDP). [source, 2009 data]
These are big numbers that get thrown around a lot in the discussion of healthcare costs and healthcare reform. I stopped to think about my personal impact on these numbers after receiving a bill the other day and I can't sort it out… so maybe my LeanBlog readers can help (or refer me to a specialist who can!).
I received a billing statement the other day where the top-line price, or “fee,” was $900.
I have some problems with my neck (ironic, since some might consider ME a pain in the neck), so I received a steroid injection that's done in an outpatient surgery setting.
The fee for the injection and the fluoroscopic guidance was $900 total.
The next line lists the “Disallowed Adjustment” from my insurance provider = ($716.12)
I assume this is a negotiated rate between insurer and provider. This brought the “cost” down to $183.88.
My out of pocket cost was $27.59 (beyond what my wife and I already pay for insurance).
So here's my question: what's my contribution, then, to this $2.5 trillion national figure?
Does my health care contribute:
- $900 toward the $2.5T national figure?
- $183.88 toward the figure?
Let's say I didn't have insurance and I received a $900 bill that I paid out of pocket — what would be the contribution to “healthcare spending?” I assume that would be the full $900.
What if I were a deadbeat and didn't pay that full $900 out of pocket and the healthcare provider took a write off on the charge?
Can somebody please shed some light on this?
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Twitter comment from Paul Levy (@Paulflevy):
“Only the net amount billed/paid gets included in the national accounts. The gross charges are a hold-over from ancient times.”
As an aside, the total cost of the “one-payer” system in Canada is about 12% of GDP. About 95% of the that 5.7% difference between our countries can be attributed to the administative costs between the two systems… costs that you would be hard pressed to interpret as “value added” from the health care consumers perspective.
The US government would have been far better off mandating a single standard for insurance companies and hospitals to use for billing. That alone would have created savings to fund insurance for all Americans currently not insured and a ton of cash left over to continue with an open market system for health service delivery. Real big picture “lean”.
It’s also worth pointing out that some say the U.S. Medicare/Medicaid system has such low administrative costs because they don’t have many people checking for fraud, so therefore fraud is rampant.
Or there’s the view that administrative costs for Medicare are relatively low because so much is spent on caring for the elderly that, of course, administrative costs are going to be low on a percentage basis, compared to a private plan that covers all ages:
http://www.realclearpolitics.com/articles/2009/06/27/the_adminstrative_cost_benefit_myth_97193.html
Further response from Paul Levy (if I understand this right) – if I didn’t have insurance, yes I would have been billed $900. So if I paid $900, I assume that would go into the national number.
The fact that the same “value” can be represented by X or 5X in the summation of the national “healthcare spending” figure shows you how messed up that system can be.
Lesson learned, spending does not always equal “value.”
Mark,
That’s correct. CMS calculates annual health spending in the U.S. by “type of service delivered (hospital care, physician services, nursing home care, etc.) and source of funding for those services (private health insurance, Medicare, Medicaid, out-of-pocket spending, etc.)”
Because your provider participates with your insurance, your $900 bill was reduced to $183.88. This would be the figure included in the national expenditures. If your provider didn’t participate with your insurance that figure could be significantly different.
If the $900 bill was unpaid by insurance or the patient, it isn’t counted as an expenditure….although there are certainly costs associated with providing the service.