It's called an "Explanation of Benefits" and it typically arrives in the mail a short time after a visit to a doctor's office. Those who scrutinize their health insurance paperwork are familiar with the rug-merchant-style haggling it details. First, there's the starting amount that the health-care provider bills for the procedure. Then, the much lower amount the insurer will pay. The next entry is the reduced price the provider agrees to accept as payment for the procedure -- an amount usually much closer to the price set by the insurer. The last number on the form? Whatever amount the patient is responsible for paying out of pocket.
What the EOB doesn't explain is how the provider and the insurer calculated those amounts. How does the doctor set the starting price? What data did the insurer use, and how did it crunch the numbers to arrive at the price it would pay? Health-care costs are one of the biggest expenses for many households; nationally, $2.4 trillion is spent on health care each year. Yet most consumers have no idea how health-care prices are set -- one fundamental reason the nation's health-care costs are out of control.
This week the curtain was pulled back slightly on this mysterious process, though the need for reforms leading to far more transparency remains urgent. New York Attorney General Andrew Cuomo announced that he'd reached a settlement with UnitedHealth Group of Minnetonka concerning two databases owned by Eden Prairie-based subsidiary Ingenix Inc. Cuomo's office alleged that the databases "intentionally skewed 'usual and customary' rates downward," which may have caused millions of consumers to pay too much for out-of-network care. The settlement agreement, which contains no admission of wrongdoing by UnitedHealth Group, calls for the insurer to contribute $50 million to help set up an independent, nonprofit database to determine appropriate rates; Cuomo is expected to pressure other insurers that used Ingenix data to contribute. The agreement also calls for the nonprofit entity to develop an Internet site providing information for the public about health-care pricing. When this database is up and running, Ingenix will shut down its products, according to a UnitedHealth Group statement.
Details about the new nonprofit database and website are still sketchy. It remains to be seen how both will work, how much influence insurers will have over them and how consumers will benefit. Respected health-care consultant Robert Laszewski of Health Policy and Strategy Associates is skeptical that this new database will bump up insurance reimbursement rates all that much. And he astutely points out that the settlement agreement only addresses one end of the price equation: the amount set by insurers. On the other end is what he calls the "rack price" -- the high-end starting price for care on your EOB that is set by the providers. The price may be higher for some consumers because Medicare and Medicaid and some private insurer reimbursements may be less than the providers' actual costs. All of this influences the amount that consumers are responsible for paying out of pocket. It's of particular concern because the "rack price" is what the growing numbers of uninsured often wind up paying. The reason? There's no insurer to haggle the price down on their behalf, and consumers don't realize that doctors often charge far less for the same procedure.
Transparency is needed just as much on the providers' end as it is on the insurers'. The settlement's real accomplishment may be in pointing out just how arbitrary and opaque the current health-care payment/pricing system can be. In Washington, D.C., the incoming administration is weighing a historic overhaul of the nation's health-care system. Consider this settlement further evidence of just how badly such an overhaul is needed.
