How the Health Care Industry Can Fleece You

It’s come to this: A typical family’s health insurance costs as much as a typical family car.

If you’re a typical American family, your “health” will set you back $20,728 every year. That figure comes gratis of Milliman, a benefits consulting group. A base-model Toyota Camry… the typical family’s most-popular make? It costs $22,055.

Milliman’s numbers account for only the premiums and out-of-pocket costs. Heaven forbid you actually get sick.

Back in 2006–07 while researching and filming our documentary I.O.U.S.A., we made the intimate discovery that health care for an aging society… not just, but mostly in the United States… is by far the biggest driver of deficits, debt and default — for families… and businesses… corporations… and the entire nation.

“In America,” wrote an expatriate reader to The 5 Min. Forecast, “workers are held hostage to jobs they hate because working independently or taking early retirement means no access to health care unless you are willing to pay $1,000 a month for insurance. International health insurance costs me less than $100 a month.”

As we go to print, the Supreme Court is trying to decide if the Frankenstein piece of legislation known as “Obamacare” jibes with the vision of the Founding Fathers. Specifically, can the federal government force you to buy a private company’s product?

The trouble for you… and me, frankly…. is more profound. Let’s say you don’t give two proverbial defecates about the politics of the situation. Let’s also say you’re trying to figure out how to deal with the rising cost of education, food, gas, heat etc., all while your stock investments and house “value” decline… what are you supposed to do?

Unfortunately, the only thing up for debate in 2009–10 when the Patient Protection and Affordable Care Act was being hashed out in closed-door committee hearings was by what means the government would enable insurance and pharmaceutical companies to fleece patients and taxpayers. So now we’re left to our own devices.

The good news? You don’t have to expatriate to take your health care into your own hands. The Apogee Advisory is an ongoing experiment. While we can’t possibly address every issue on our plate at the moment — the Fed, Goldman Sachs, two-party electoral charades, spoiled milk — we can address one critical item a month.

Another Case of “Extraction” by One of the Nation’s Most Powerful Interest Groups

New Yorker Beverly Weintraub is one of the “lucky” ones. She has employer-provided insurance.

Last year, her teenage son choked on a piece of turkey. He spent four hours in the emergency room — a physical exam, sedation, endoscopy and removal of the offending poultry.

For these services, the hospital billed her insurance company, Aetna, $22,214.92.

Aetna agreed to pay only $2,885.67. And the hospital cheerfully settled for that amount. Ms Weintraub was out of pocket about $800.

“How could those numbers possibly be reconciled?” she wrote. Being employed as a reporter for the New York Daily News, she set out to find answers.

What she found first is that her story is commonplace. “There are the sky-high costs that a hospital will claim reflect its expenses, and the much-lower fees it accepts under contract with insurance companies.”

“What’s missing from this complex web,” Weintraub writes, “is any hint of what the services a patient received actually cost.”

That’s by design. For the U.S. health care system is yet another mechanism of “extraction” — a theme we’ve touched on the last two months. “Washington’s empire,” economist Paul Craig Roberts reminds us, “extracts resources from the American people for the benefit of the few powerful interest groups that rule America.”

The health care complex is surely one of the most powerful… and the utter lack of “price transparency” is what allows them to retain that power.

“The rates that insurance companies pay,” Weintraub writes, “are negotiated based on what they believe a hospital’s true costs are. But then those rates are jacked up an average of 30–50% to make up for money that hospitals lose in treating patients who don’t have private insurance — which is the majority of them. So to make up the difference, they overcharge patients who are insured. This practice is called cost-shifting.”

Cost-Shifting: A Double-Barreled Scam… and How You Pay for Both Barrels

Ms. Weintraub tells a good yarn… but it’s incomplete. Cost-shifting takes place in the form of

two insidious scams, patiently described to us by Dr. G. Keith Smith, an Oklahoma City MD who’s doing his level best to undermine the practice.

The first scam is called “uncompensated care.” To understand how it works, it helps to know a rough breakdown of who is treated in a typical hospital:

  • About 50% are covered by either Medicare or Medicaid… which don’t pay for the full cost of treatment
  • About 10% have no insurance at all. For obvious reasons, they too typically don’t pay full freight
  • About 40% have private insurance. They carry the burden for the other 60%.

At the end of each year, many hospitals collect money from an “uncompensated care pool” — funded by federal and state taxes and typically administered by a state government. “That creates the perverse incentive for hospitals to issue fictitiously insane bills,” says Dr. Smith.

“Let’s say they charge $100 for an aspirin for which they pay a penny. They collect $5 [from insurance], and claim they lost $95. That $95 goes into the ‘uncompensated care’ pool and helps them get this rebate at the end of the year.” It also, Smith explains, helps many hospitals maintain the fiction of not-for-profit status.

If you’re a taxpayer, you pay for this.

The second scam involves the insurance scheme known as preferred provider organizations, and is called “PPO re-pricing.” Here too there are perverse incentives: Insurance companies, contrary to popular belief, have zero desire to keep costs to a minimum. “The bigger the bill the insurance company receives, the more money they make,” says Dr. Smith.

“If a large hospital submits a bill to an insurance company for, say, $100,000, and the insurance company pays $22,000 of it, the insurance company then goes back to the employer who provides this insurance product to the employee and says, ‘Look what we did for you; we saved you $78,000.’ The employer, as part of his contract, pays the insurance company a percentage of that fictitious savings.”

If you have employer-provided health insurance, you pay for this. Were it not for the insurance company’s cut, you’d have a bigger paycheck.

Cost-Shifting’s Biggest Victims: Why You Can’t Afford to Be Uninsured

Meanwhile, “the only people who are actually billed such astronomical sums are the uninsured,” says reporter Weintraub, citing figures from Medical Billing Advocates of America.

“If an uninsured patient can pay even a fraction, it will still far exceed the cost of treatment. So hospitals will gladly settle for a lesser amount — and may even helpfully offer a payment plan or high-interest loan.”

If you have no insurance, you pay through the nose. Little wonder that medical bills are the catalyst for 60% of personal bankruptcies, according to a 2009 study in The American Journal of Medicine.

Which gets us back to this question: What is the actual cost of that “$100,000” procedure? About $7,000–8,000. For everything. Including the facility, surgeon and anesthesia charges.

That’s what Smith would charge you at his outpatient surgery center in Oklahoma City… a lone outpost of “price transparency” within U.S. borders.

Smith and his facility — more about them in the latest issue of Apogee Advisory — are one possible solution if you want to break free of the whole sordid cost-shifting system… but not if you need a procedure that requires more than a one-night stay. No open-heart surgery or major abdominal procedures there.

For that, you need to go overseas. And a friend of mine has been helping make that possible for nearly 10 years. We tell his story — and explain how he can help Americans like you free yourselves from the health care system that would bankrupt you — in this month’s issue of Apogee Advisory.


Addison Wiggin
Executive Publisher, Agora Financial

The Daily Reckoning