Baer Hanuz-Rajkowski cut the middle finger on his right hand with the claw end of a hammer. After the cut to heal on its own, Mr. Hanuz-Rajkowski visited the Bayonne Medical Center emergency room in Bayonne, New Jersey. After receiving a tetanus shot, antibacterial ointment, a finger splint and bandaging, Mr. Hanuz-Rajkowski got a bill for $9,000!
After NBC New York reported on Mr. Hanuz-Rajkowski’ s $9,000 bill, Bayonne Medical Center agreed to accept his health insurance provider’s payment of $6,640 for the emergency room visit. That might seem like a happy ending, but it is cost like this that drives up health insurance premiums. According to the Institute for Health & Socio-economic Policy, Bayonne Medical Center’s average charge to cost ratio is 1084%. Based on this information Mr. Hanuz-Rajkowski’ s actual cost was probably $830.26. Bayonne Medical Center’s charge to cost ratio is the sixth highest in the country. In Texas our average hospital cost to charge ratio is 398.31%. Had Mr. Hanuz-Rajkowski been treated at an average Texas hospital his injury would have been something like $3,307. That is still high compared to Maryland with the lowest hospital cost to charge ratio of 140.18% where his hospital visit cost would have most likely been about $1,163.86. If Mr. Hanuz-Rajkowski worked for an employer that offered insurance that used a market based pricing model, his hospital visit would have been approximately $954.80. Market based pricing is a simple concept: cost + a reasonable profit margin = patient cost.
Market based pricing eliminates the network and deals directly with the hospital. As reported in the NBC New York story, the health insurance company involved, United Healthcare is not a preferred network provider for Bayonne Medical Center. A market based pricing model would have eliminated this problem. Insurance company hospital networks do not offer the same benefit that they did twenty years ago. Almost every hospital is in every insurance network. As a result, networks have lost most of their leverage. Employers have had great success in controlling health insurance plan cost by eliminating hospital networks completely. However this does not eliminate the doctor network. In market based pricing, employer’s health insurance plans deal directly with hospitals by using a third party administrator to negotiate pricing on a case-by-case basis. Market based pricing saves employers an average of 30% on their health insurance premiums. Baker Nissan in Houston, Texas has not had health insurance rate increases for employees for the past three years by using this strategy.