There's an obvious culprit when it comes to America's sky-high health care spending: high prices.

But there's something less obvious, that's worth understanding a bit better: insurers do not have strong incentives to negotiate well on behalf of members.

A thread (1/8)

You can actually see that really clearly in the story I wrote yesterday, about a woman who got a drive-through coronavirus test. She used her insurance, and they were billed $6,408.

Her friend paid cash and was billed $199.

https://www.nytimes.com/2020/06/29/upshot/coronavirus-tests-unpredictable-prices.html

(2/8)

Why does an insured patient end up with a bill that is 3,200 percent of the cash price?

Most of the difference doesn't come from the actual price of the COVID Test. It comes from the ER tacking on a bunch of *other* tests just for the patient with insurance.(3/8)

The tests the insured patient got include Legionnaire's, herpes, enterovirus, a half-dozen others.

You can't do that to a patient paying cash. You tell them you're going to run a Legionnaire's test alongside COVID and they probably walk (or run!) away (4/8)

Insurers, however, are a better target.

They are managing a ton of claims. It is annoying for them to deal with complaints from members (ie "Why won't you cover this COVID test bill?"). It takes work to adjudicate what care is and isn't needed. (5/8)

So, an insurer can decide to just pay for all those tests and, tack a few more cents onto members' premiums the next year. At the end of the day, they aren't spending their own money. They are spending other people's money. (6/8)

There's a paper from 2012 that I think about a lot, which essentially suggested insurers are a bit of a wimp when it comes to negotiations with hospitals. I think the $6,408 coronavirus test is the outcome of of that dynamic. (7/8)
https://www.healthaffairs.org/doi/full/10.1377/hlthaff.2011.0920

Insurers aren't great negotiators because they don't have to be — their market isn't that competitive, and they can pass high prices onto consumers in the form of higher premiums.

That, I think, is the backstory to how you end up with $6,408 coronavirus tests (8/8)