I Have Health Insurance – Why Should I Shop for My Health Care?

Many healthcare consumers and employers have reached the point where the question “Are you in my network?” is the first order of business when considering a new healthcare provider or service. Being in the network simply means to most people that their benefits will be better and their costs lower. Given the complexity of benefits and the healthcare decision- making progress, this level of reasoning is about the best an average consumer can do when trying to purchase healthcare. Unfortunately, being in network does not necessarily save money for consumers or their employers in many cases.

To understand why, it is important to explore what it means to be a “Managed Care” health insurance company. Back in the 1980s, managed care health insurance companies took off on the premise that they could save money by steering members to healthcare providers (the “network”) who had agreed to provide services at a discount. In return for the discount, healthcare providers would receive increased patient volumes. Since the 1980s healthcare providers have battled with insurance companies over these discounted contracts increasing their complexity or destroying what little rationality remained in the healthcare charging system.

Today, almost no population of healthcare users pays the full charges associated with a healthcare service.

The end result is that the “cost of care” is not what a hospital charges but the amount the insurance company or the consumer pays after the “contractual discount”.

During this same time, employers and consumers increasingly challenged the right of a health insurance company to limit access to just a select few providers.

As a result, health insurance companies had to expand the number of providers in a “network” simply to compete and retain business. Given the mandate to improve access to providers, health insurance companies were forced to offer providers more favorable contracts in order to bring them quickly on board. As a result the meaningfulness of a network to steer members or decrease costs faded to the point where today almost every major health insurance company has over 95% overlap in its “network” of providers with other health insurance companies and less than 10% of providers are on standard contracts. Given the need to follow a unique contracting process for so many providers, health insurance companies began to focus primarily on the net expected cost of a contract in order to rise above the sheer volume of services that could be considered in the contracting process. Major healthcare providers such as large healthcare systems began to take advantage of this focus by demanding higher payments for services they believed would perform strongly and then agreeing to lower prices on services that were not a priority and would allow the contract to satisfy an insurer’s net cost standards. This contracting methodology made healthcare providers susceptible to competition since they were putting their eggs in just a few baskets and thus they demanded that the rates in the contract be kept confidential by the insurer (the reason you will never see a hospital or physician fee schedule lying around the office).

The result of these market forces over time is that the effective cost of care “the contract rate” varies significantly within network from provider to provider.

Compass Professional Health Services has identified maternity costs that vary by more than 50% and knee surgeries that have cost differences of 300%. Simply staying in the network does not guarantee you the lowest cost for a particular service and in some cases can cost you more than using a provider outside the network.

To achieve lower healthcare costs for employers and consumers, it is critical that they be educated on the actual cost of care and how to optimize the discounts available within their network. It is time to take advantage of the lower costs available within a Managed Care network and force healthcare providers to compete on both quality and cost.

Scott Schoenvogel
CEO, Compass Professional Health Services