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With Health Insurance, the Deck Is Always Stacked

We buy health insurance for the promise that the insurance companies will protect us from enormous medical bills. But what happens when they don't keep that promise?
04/12/2016 10:25am ET | Updated April 13, 2017
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We buy health insurance for the promise that the insurance companies will protect us from enormous medical bills. But what happens when they don't keep that promise? We all know that medical costs are a nightmare for the uninsured. Hospitals and other health care providers mark up medical bills to many times what they expect to get paid, then give insurance companies enormous "discounts" on those bills.

Of course if you're uninsured, you don't get the insurance "discount." But what many people don't know -- at least until it's too late -- is that having insurance can sometimes leave you even worse off. Insurance companies can deny claims for any reason, and without warning you in advance. This can leave you stuck with the entire, marked-up bill which you can't even negotiate. At least the uninsured can negotiate.

Here's an example:

Last June Jordan used his insurance to get some blood tests I had ordered for him. No one at the lab told him there was any problem with either his insurance, or the tests I ordered. About a month later, he called my office complaining that he got a bill from the lab for $697.

It turns out, I made a mistake when I filled out the order. The reason I gave for ordering the tests wasn't accepted by Jordan's insurance, so they refused to cover the tests.

Places like LabCorp usually bill many times the cost of the blood tests they run. When I had a blood test last year, LabCorp billed my insurance (Blue Shield, which is also Jordan's insurance provider) $328 for my tests, of which Blue Shield "allowed" only $56.47. So LabCorp billed roughly six times the amount they expected as a payment (which is common).

But what happened to Jordan? When you use your insurance to pay for any medical service, your insurance has the right to deny the claim for any reason. Whenever they deny a claim, you are responsible for the full billing charge for that service; no exceptions unless you can prove that you're too poor to pay the bill. Jordan's insurance didn't like the reason I gave for ordering his blood tests, so they rejected the claim -- punishing him for my mistake by forcing him to pay LabCorp hundreds of dollars more than his blood tests were really worth.

And here's where the promise is really broken: If you don't use health insurance, you're free to negotiate the price of any medical service on your own behalf with a health care provider, and they can (and often will) give you a discount off their grossly inflated charges. In fact, if you have a high deductible policy, you might even be able to get yourself a better deal on the cost of a medical service than your insurance company will get you.

However, if you have health insurance and choose to use it, then the negotiation is between your insurance company and the health care provider. That means that the health care provider will give your insurance company a negotiated discount for all approved medical services. But that discount doesn't apply if they don't approve your particular service. Then, since the contract is with your insurance company and not you, you don't get a discount. In fact, any discount given to you by a medical provider for an unapproved service can be viewed by your insurance as a breech of their contract.

Now in Jordan's case, it was my mistake, so I was able to fix it for him. I resubmitted the order and, since his insurance liked my reason this time, they knocked $577 off the bill. But the same thing happens:

- If your claim is denied because the lab sent the bill to the wrong insurance company (which happened to us),

- If your claim is denied because your medical services wasn't properly authorized in advance,

- And, if your claim is denied because the insurance company decided the medical service you received wasn't indicated.

For any of those cases, you get the full bill, non-negotiable.

To make matters worse, any of these denials can occur after you receive the medical service and without warning.

So who's looking out for you here? Your insurance company can get out of paying for your medical bills just about any time they like, and your medical provider gets a huge bonus (that you have to pay them) for each denial. That ensures that you really can't count on hospitals, labs or imaging centers to help you much when your insurance denies your claim, because they're paid quite well to not help you.

Why do insurance companies operate this way? After all, as your representative to health care providers, couldn't your insurance company arrange the same discount for you even if they deny the service? Probably, since they write the contracts.

Perhaps they do this so health care providers won't complain about denials. And it works well for the insurance company because it reinforces the perception that health care is really expensive. That means you'd better have insurance, even if you can't always trust them. Of course, this arrangement results in higher health care costs overall, so insurance denials really aren't about keeping costs down.

So, to summarize:

If you don't have health insurance, you have to fend for yourself against massive over billing by nearly all health care providers for any medical service you might need. Maybe you'll be able to get a good deal on a medical service, but you can't count on it.

If you have high-deductible health insurance, you still might be able to get yourself a better deal if you don't use it, because insurance companies often won't negotiate aggressively when they're spending your money. You'll almost never know in advance if you or your insurance company will get you the better deal though. And, if your claim is denied, you're always stuck with the full bill, which could leave you exposed to crushing debt just for using your insurance.

So the deck is stacked against you in every way possible.