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Health insurance, disrupted: Direct cash payment for services

February 16th, 2016

As consumers get savvier about shopping for health care, some are finding a curious trend: More hospitals, imaging centers, outpatient surgery centers and pharmacy chains will give them deep discounts if they pay cash instead of using insurance.

Source: How to Cut Your Health-Care Bill: Pay Cash – WSJ

This Wall Street Journal article discusses a trend worth watching that has the potential to significantly disrupt the payer and provider relationship, particularly for high cost elective procedures. The WSJ item explains the market forces driving it:

  1. Hospitals and other providers seek higher reimbursements from commercial health plans to make up for lower reimbursements for government programs such as Medicare and Medicaid.
  2. Higher reimbursements drive up commercial plan premiums, pushing more consumers into high deductible plans with lower premiums.
  3. High deductible plans make consumers much more price sensitive since they are responsible for paying a large percentage or all of the cost of sub-catastrophic care.
  4. Price sensitive consumers are highly receptive to deep cash discounts offered by providers — undercutting contracted health plan reimbursement rates that they would otherwise pay out of pocket — and willing to forgo credit toward their calendar year deductibles to obtain the discount.
  5. Online price comparison services spring up, reinforcing and expanding the direct cash pay health care market.

In essence, these market forces are combining to partially disintermediate commercial health plans in the current payer-provider scheme. This is a profound trend that may accelerate a shift back to days of “major medical” coverage, reforming insurance to a true insurance product designed to cover very high cost, unexpected and catastrophic events like serious injuries sustained in traffic accidents and heart attacks rather than routine care and elective procedures.

If the trend of direct cash payment for sub-catastrophic care grows, it will run counter to the Affordable Care Act’s requirement that individual and small group health plans include ambulatory (outpatient) services as an essential health benefit. If people covered by high deductible, consumer directed plans are paying directly out of pocket for this level of care, it will naturally raise questions as to the value of including it as a commercial health plan benefit, further disrupting the traditional payer-provider relationship.

Provider discounts for direct patient cash payment for services falling within health plan deductibles could also set off broad price deflation in medical services.

 


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email fpilot@pilothealthstrategies.com or call 530-295-1473. 

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