Tomorrow afternoon, my co-author Dr. Alex Hoagland of the University of Toronto will be presenting our paper Medical Bill Shock and Imperfect Moral Hazard to the Electronic Health Economics Colloquium (EHEC) at 14:00 ET on Zoom. It is an open presentation.
We want to know how does the provision of accurate billing information change the consumption of medical services. We live in a society where we make policy with the assumption that people are reasonably rationale and forward looking so patients are intended to act as consumers. We know from other research that people are really bad at responding to clean incentives from deductibles but we wonder how good are people at guessing what they owe and does this matter?
PEOPLE ARE REALLY BAD AT GUESSING WHAT THEY OWE
AND IT MATTERS A LOT!
We use a triple difference design to estimate changes in consumption before and after the arrival of a bill for Household Member A for everyone else in the household.
Below is a bunch of economic-speak from our abstract:
Consumers are sensitive to medical prices when consuming care, but delays in price information may distort moral hazard. We study how medical bills affect household spillover spending following utilization, leveraging variation in insurer claim processing times. Households increase spending by 45% after a scheduled service, but this is curtailed by 15% after the bill arrives. Bill effects are driven by learning about prices from particularly informative bills, and affect the type and location of care received. A model of household belief formation with delayed information suggests households overestimate expenditures by 10%, ultimately over-consuming an average (median) of $842.80 ($480.59) annually.
This is, I think a BFD… and I would love for some of the econy and academic Jackals to join us tomorrow.
Meanwhile, in the Senate… They Are Getting it Done!
One of the Many Jens
I am both interested and confused. So, I have an ailment and I schedule a service. Is the increased spending after a scheduled service simply the spending on that service (more or less)? Or having gotten it, I supposedly engage in retail therapy? (I chuckle, but dammit, I do reward/console myself for doctor visits, so who knows?!) And then the bill comes in, and I freak out and start budgeting the heck out of my life? But then I’m confused about overestimating expenditures resulting in overspending – shouldn’t that be underestimating expenditures leads to overspending?
Anyway, very obviously not an economist, so I’m having difficulty wrapping my mind about the process of events :)
Thank you for all the posts you do/have done over the years, by the way!
minachica
@One of the Many Jens: I’m with you, a little confused, so I’m eager to know the answer. Or maybe we must join the Zoom to find out.
Martin
@One of the Many Jens: the issue is that you go in for a procedure, expect that you’ll need to pay $1000 afterward, go about your usually discretionary spending, then get a bill for (to use the average) $1842.80, and have an ‘oh, shit’ moment, and then have to cut back for a while to cover the unexpected excess cost.
If consumers got better information on the actual costs, they wouldn’t go about their usual spending, they’d immediately curtail the spending to cover the amount. It’s the uptick and then downtick when the bill arrives that informs us that consumers are being surprised, and the surprise is the thing the authors are seeking to measure.
Unexpected costs are bad for the economy. They’re something the government should be motivated to eliminate through policy, even if consumers are paying the same amount in the end, just making the surprise go away is good for everyone.
Manyakitty
One surprising thing I learned is the vast difference in cost amongst facilities. I thought fees were mostly standard, especially for insurance. However, that is not even close to the truth.
David Anderson
@Martin: Pretty much this — however the mechanism goes in the other way too —
Person A gets a left knee scraperonotomy done and think they owe $1500 which IF TRUE means they met their deductible for the year
Other family members consume goods and services as if the marginal incremental cost is zero.
The bill arrives at some point between 0 and 52 weeks later and it is $800
The family realizes that they still have cost-sharing exposure and cut back their spending.
I completely agree — accurate and timely pricing is really important and it should be susceptible to policy interventions. Insurers should be very motivated to compress their claims adjudication cycle time (ideally real time but 98% of claims in a week would be amazing)
One of the Many Jens
@Martin: Thanks for confirming! But that seems to be people underestimating costs of the service leading to overspending, right?
One of the Many Jens
@David Anderson: I get that part of it – that was what I was trying to get at by my first option of cost of procedure, more or less. But I don’t really get patients’ overestimating expenditures resulting in overspending.
Thanks! :)
TBone
@Manyakitty: 👍
Hubby is going in for inpatient surgery (femoral endarterectomy) tomorrow at 5am. He got unilaterally dumped into this “accountable care organization” a few years ago.
https://www.keystoneaco.org/
It’s a bullshit front for skimming even more Medicare money (they pay the healthcare system up front for every capitated patient – no additional medical care or services ever result). Last major outpatient surgery, the hospital billing office called my home while I was busy being hubby’s home care nurse (no easy task). They’d call relentlessly at 8am every day. After 4 days I was so pissed that I told them to call said “care” organization SINCE YOU ALREADY GOT PAID UP FRONT. The haranguing stopped immediately.
When major surgery or emergency medicine is required, most people have no choice about how much they’ll pay. There is no “shopping around.”
Manyakitty
@TBone: what a misery.
Yeah, I can’t imagine there’s much option for emergency care or surgery, but a lot of diagnostics are much less expensive outside of the hospital.
Martin
@TBone: Man I am not looking forward to the transition from our current exchange plan to Medicare. I have a feeling this is going to be a substantial step down for us.
TBone
@Martin: it’s really not! Medicare Advantage is a scam though. Hubby has regular Medicare and, if the doctors (corporate office) hadn’t sold out to the “accountable care” org, we’d still be thrilled with it. These orgs prey upon healthcare systems for sweet, sweet government money. So do Medicare Advantage Plans (which is private insurance suckling first at the teat).
TBone
@TBone: the dead giveaway – check out the CEO job title.
Ohio Mom
I know we are talking about medicine but the same thing happens when I take my car in — are they going to find something or am I only going to pay for an oil change? Or when I think I hired a contractor to do X to my house but then they discover Y is about to go and needs repair/replacing
Granted, the time elapsed before I find out my original guesstimate was wrong is pretty short in these other instances. The common thread is that modern life is complicated and I’m just about always in over my head and dependent on experts.
The thing about never knowing what a medical bill is going to be that’s especially infuriating is knowing that in the rest of the developed world, people don’t have this worry.
TBone
As well, the more diagnoses appear for each patient, the more government money that Medicare Advantage and accountable care orgs receive up front each year for each patient. The incentive for fuckery is huge. There have been expose articles about all this, one at the FNYFT was good. I think Propublica also alerted.
TBone
@Ohio Mom: hugs
Odie Hugh Manatee
I had this happen with an MRI couple of years ago. Was told that my part would be $640 and paid that at the time of service just to get it out of the way. A month later I received an additional bill of $1,754 for the balance owed. Yes, we have shitty insurance and live in a rural area so I had the MRI done at the hospital’s outpatient services. Talk about the Sutter Screw.
When I yelled at them about the additional costs I was told that my initial billing was an estimate “based on my previous insurance history”. I pointed out that their estimate wasn’t even close and they were like “Card number, please?”
I would like a full price up front, please. It’s impossible to budget anything when shit like this goes on.
TBone
I avoid medical visits as much as humanly possible. My private insurance was renewed through the State ACA exchange and I thought it was the same plan. Nope. Deductibles quadrupled by magic!
TBone
@Odie Hugh Manatee: 😞
Ohio Mom
@Martin: Just stick with traditional Medicare, buy a gap plan (we chose one from AARP), and use the easy-peasy site for selecting a Plan D.
It feels more expensive than an Advantage Plan, and it might be in your younger, more healthier years. But you are better protected if/when you start collecting medical conditions. And you can feel proud that you are not helping a big insurance company rip off the government (which Advantage plans are famous for).
My experience hasn’t been all that much different from the days I was covered under Ohio Dad’s plans from his job. I am a little less worried about things the doctor wants to do being found “not medically necessary,” but a little more mystified about what my prescriptions will cost. Entering the Donut hole is always a shock.
Doc Sardonic
I’m kinda worried about the Medicare transfer as well. I like my insurance. It allows for shopping around for procedures and other medical things to help you assess your cost exposure, but I also like the non ambiguity about hospital and ER costs. For example, when I got my pacemaker installed after my last NDE, the whole thing cost us $1200, due to admission from the ER. If I had just been to the ER and sent home it would have been around $500 or if I was direct admitted to the hospital it would be $1500, if I recall correctly.
TBone
Deleted
Brachiator
@Ohio Mom:
A very interesting point that I had not thought about before. I have Kaiser as my Medicare Advantage health care provider. I like the umbrella coverage, and currently don’t have a lot of medical issues to deal with.
At one point when I had employer provided health insurance, Kaiser was not an option, and I had to travel around all over the city to deal with various doctors. This would be more of a pain now that I am semi retired. Having doctors all at a few Kaiser medical facilities is much less stressful.
However, dental options under Medicare or Medicare Advantage are pretty crappy. Lots of low ratings and Better Business Bureau complaints.
A couple of good dentists I used when I had employer insurance do not participate in Medicare.
Martin
@Ohio Mom: We’re currently paying $165/mo for 3 people, $1000 MOOP, $3 prescriptions and never see a bill. It’s pretty nice.
TBone
In my dream world, we join together in localized patient unions that negotiate (collectively bargain!) all medical pricing and drug pricing. Take THAT Keystone Care!
TF79
What’s the triple diff-in-diff? Customer-by-year-by-processing time?
Manyakitty
@TBone: oh hey, and sending your hubs all the best — speedy recovery!
TBone
@Manyakitty: thank you!
TBone
Here’s the trajectory of the former CEO of the conglomerate healthcare system that gobbled up our local system. He went from central PA to Google. Now he’s making millions with another gig (Cerner). It’s head spinning.
TBone
@TBone: 🤮🤮🤮
No. Value. Added.
Jaybird
@David Anderson: Case in point: I get infusion services monthly at a local hospital that is not Kaiser, since they don’t have a facility here. Because Pfizer pays part of the cost of each infusion (yes, I know I am gaming the co-pay system. It begs to be gamed) it is in my best interest that these charges get submitted in a timely manner. Two infusions is usually enough to swallow the ~$7000 deductible/OOP on my exchange plan, then I’m good for the year. This year, despite getting infusion #1 on January 2 (having learnt the hard way last year that Jan 1 is part of the prior year AFAKIC*) it took Kaiser until this week to apply all the bills to my account. Meanwhile, I’m paying out of pocket for stuff I shouldn’t have to.
*as far as Kaiser is concerned
Prescott Cactus
David,
I’m time severely zone challenged with 14:00 EST.
Is it possible to watch a rerun ?
THANKS !
dnfre
@Martin: Here’s what else happens with Medicare. If you set yourself up on Medicare plus a supplement plan when you first enroll, they don’t take any pre-existing conditions into account in the cost of the supplemental insurance and they don’t turn you down. But if you subsequently develop a serious condition, you may not be able to change to a different supplement carrier. I have BCBS insurance and after I had a heart attack, no other insurance company wants me but BCBS has to keep me. So choose your insurance carrier carefully.
I’ve said before that when I was about to go on Medicare, I attended an Advantage sales presentation. The presenter even said “IF you have a pre-existing condition, and IF you can afford it, you’re better off with traditional Medicare and a supplement.” It’s actually pretty good—no “network”, any doctor or medical facility in the country that takes Medicare. Yes, I have to pay for my own dental and vision, but my heart attack and rehab cost me not a single penny out of pocket.
TBone
@Jaybird: grrrrrrrrr
It’s all a big effin game.
Ohio Mom
@Brachiator: Kaiser’s set-up is somewhat unique, or at least unusual. There isn’t anything llike it in Ohio. So I wouldn’t compare it to other Advantage plans.
gwangung
@Ohio Mom: In what way? Good or bad? I know the Advantage plan is what my workplace offers for a retiree benefit…
Ohio Mom
@Martin: Oh yeah, you won’t see anything like that in Medicare. Enjoy it while you have it.
One thing that is important to keep in mind is that if you don’t sign up for Medicare with that six month window around your 65th birthday (three months before through three months after), some parts of it will be more expensive — in essence, you will be charged an eternal monthly penalty for being tardy.
When I learned that, I immediately thought of the original plan for ACA, where people who didn’t sign up would be fined.
Ohio Mom
@gwangung: Advantage plans in general are known for denials and run-arounds. They operate like managed care systems, in that patients have to choose doctors that are in their network. And they do subtle things to discourage sick patients with their co-pays and deductibles.
It’s pretty easy to Google — “problems with Advantage plans” or something similar should do it.
But if an Advantage plan is a retirement benefit, that changes your calculations.
Chris T.
@TBone:
Not me, I always wait for a sale on livers whenever my liver fails! Of course I’ve died six times from this method, but look how much money I saved!
(do I need a /s ?)
David Anderson
@Prescott Cactus: yep
sab
@Ohio Mom: I signed up for Medicare and AARP supplemental. My husband signed up for SummaCare Medicare advantage. He thought that would be safe because Summa is both an insurance company and a hospital system. But then the hospital system sold iteself to another company which is in the process of running off all of my husband’s doctors. I use Summa doctors too and mine are really unhappy also.
TBone
@Chris T.: 😓❤️ thank you, by the time most people who need medical care realize it, they’re sick and unable to focus on cost or any possible savings until it’s too late. Many think their private insurance will handle/cover it for them. Then the voluminous, mysterious invoices, all in code and jargon, start arriving and they find out who really handles their medical needs. You’re on your own! It’s the entire for-profit model of price gouging for, or outright denial of, medical claims by private, for-profit insurance “coverage.” What healthy, youngish person thinks ahead about any of this? What older person thinks about this happening before it does? Not me or anyone I ever knew! Ever tried to get pre-authorization for an emergency? The whole entire premise is fucked.
TBone
P.S. I received invoices for my FREE government -provided Covid vaccinations. The phone call I made to the billing office was LIT. Then I reported it to the State insurance/medical oversight board.
crulge
A good rule of thumb is that Medicare Advantage is fine, sometimes preferable, if you don’t need much healthcare. They’re allowed to do things that traditional Medicare isn’t allowed to do — supplemental benefits like gym memberships or hearing aids. But once you get sick (and it really is “once,” not “if”), you’re generally better off on traditional Medicare. However, usually it’s much harder to enroll in a Medigap plan once you’re sick (they’re not regulated like ACA plans), so you’re kind of SOL to some extent.
This is because it’s generally not profitable to pay for healthcare for sick people. Never is. Medicare Advantage regulations tried to work around this by paying MAdv insurers bonuses for each sick patient they had on their roster, but this led to MAdv companies investing a lot of resources into diagnosing everyone with everything possible, whether it’s a “real” diagnosis or not. This overbilling costs something to the tune of *$100 billion* a year. Great system! So: Medicare Advantage insurers want you to be sick on paper, so they don’t need to pay for any healthcare but get bonuses because you have a diagnosis. Once you start receiving care, they’re interested in paying as little as they’re legally required to—bad for patients.
Recently, MAdv companies were permitted to offer additional supplemental benefits to sick people, like food delivery and home healthcare. We’ll see if this encourages them to keep sick people around longer… I’m skeptical.
This all comes at the tremendous expense of the taxpayer. Naturally. What good is a healthcare system if we’re not using it to transfer public money to private companies?
(Addendum: never been to this blog before, but I write about healthcare a lot. I was sent here by a friend who asked if I was the “TBone” in the comment section, as “TBone” is a nickname of mine. It’s not me, but my regards to the Balloon Juice commenter TBone.)
WaterGirl
@crulge: Your first comment has to be manually approved – I just saw your comment and approved it. Future comments will show up for everyone right away.
Welcome!