Saturday, January 17, 2009

Pulling back curtain on medical prices

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.
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