A simple explaination of why healthcare costs so much…
This is long, so bear with it…
TLDR… Hospitals and insurers have developed a workaround to avoid paying corporate income tax. It ends up costing patients way more out of pocket than it should…
For reference: Sister is a MD, Brother in Law is an MD, Wife is a NP, Mom is a pharmacist… I get drug into these conversations a lot, so I have a firm grasp on medical billing…
So, I’ll give you a scenario to understand…
You go in for a simple surgery
Surgery costs the hospital $2000 in labor (doctor and 2 nurses for 3 hours)
Hospital materials costs are $1000
Administrative costs $500 (billing department, scheduling, etc)
OH&P at 20% = $700
Total cost of surgery = $4200
Ok, here’s where it gets fucky
Hospital bills your insurance $100,000 for that surgery by over inflating the line items
Insurance sends you a bill for your deductible at 40% with a max out of pocket of $5000…
The cost trips the max out of pocket, so you get your portion of the bill which is $5000.
You pay the insurer and they remit $5000 to the hospital
The rest of the bill the Insurer refuses to pay as “disallowed” in billing.
The hospitals accounting takes this as $100,000 cost, minus $5000 received = $95,000 operating loss.
Their corporate tax rate is 21%… so they just wrote off $19,950, offsetting the $5000 they just received, effectively paying no income tax.
They just made $700 from OH&P and $800 in overbilling, total of $1500 in profit and just paid $0 in tax on that, with a loss carried forward…
Insurance continues to raise deductibles and max out of pocket as a way to shield themselves from the rising actual cost of healthcare and push it completely onto the patient. You are effectively paying the cash rate for healthcare while also paying for insurance as well
As a real world example, I got pricing on an ENT surgery and got them to send the line item costs to me.
The surgery was $4300 and the “administrative fee” line item was $20,000. My insurance would have made me pay the full surgery cost, then disallowed the admin fee (or a large chunk of it). The hospital would have made all of their profit tax free. I asked them to line item out the administrative fees and they responded back that they would have to reschedule my surgery, deleted the appointment and the proposed bill from my app so I couldn’t see it anymore. Now I can’t get an appointment for it with that hospital for another 20-24 months and that I’d need to call back to schedule when it gets closer to that timeframe.
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