The U.S. healthcare system is extraordinarily complex. The complexity originated in 1942 when the 1942 Stabilization Act was passed. This act allowed employers to begin offering healthcare as an employee benefit, as a way to recruit workers in a tight labor market. However, 80 years later it has resulted in a convoluted $4.3 trillion system that constitutes nearly 18% of the U.S.’s gross domestic product.
If you are one of the 156 million Americans covered by an employer sponsored health plan now you know why you are receiving health benefits from your employer. But we haven’t yet addressed why the bills you receive in the mail from your health carrier are confusing. Let’s dive in.
Your employer contracts with a benefits broker to present employee benefits, including health plans, that are suitable to the employees. There are three factors that will influence the quality and cost of health plans that are presented to employees:
- Concentration of health plans: Competition helps determine how aggressive health plans have to be with rates to win new employer customers (and member lives). If you live in a city that has one health plan that is dominant, then they have little incentive to compete on price and thus will charge as much as state regulators will permit. In this scenario, you and your employer have little to no negotiating power;
- The size of your benefit broker: Brokers will “combine” their employers book of business as a way to enact leverage over health plans. However, they must negotiate rates on a local basis. So, if they are negotiating in a concentrated market they don’t have much power even if they are a large broker;
- The size of your employer: Bigger companies have more leverage, as they have more business to offer brokers and health plans.
Now you are starting to realize the depth (complexity) of the system and how the plans that are offered to you get selected. Each employer is presented with different health plans. Think about that for a moment, as an employee of ABC Company you have been presented with completely different health plan options than XYZ Company due to the 3 factors described above. As a result of the health plan options you are provided by your employer, the medical bills you receive, and what you owe, from your health plan carrier will vary.
If you switch your health plan from one year to another, the medical bills you receive will vary. If you switch employers, the medical bills you receive will vary. If you drop employer coverage and get health insurance from your state exchange, the medical bills you receive will vary. If you are eligible to receive government sponsored health insurance (e.g. Medicare or Medicaid), the medical bills you receive will vary.
Over the coming months we will continue to explore this confusing and frustrating topic. We will dig a little deeper on the topic of medical billing and provide you with helpful resources to help you plan and pay for future medical bills.
Iryss is here to help
At Iryss, we are working to help improve your ability to be a responsible healthcare consumer. In the near-future, we will launch our healthcare bill review product. This proprietary technology identifies savings opportunities and intelligently describes how you can efficiently pay the bill while preserving wealth. You can learn more about our plans by visiting our website.