Is the Insurance Company Really Saving Us $$$?

True Story

I am sitting in a meeting with a local hospital.  This hospital is very reputable and ethical.  They do things the right way.  I ask the CEO, “What is my discount if I use [INSERT ANY INSURANCE COMPANY] at your hospital?”  His reply is, “55% discount”.  At this point I am thinking this sounds like I am getting a pretty good deal.  I am getting 55% off the “normal price”.

I then ask this same CEO, “What is my discount if I pay cash?” (meaning pay the hospital without them running my claim through the insurance company)  His reply, “We will give a 60% discount”.

Let me give you a second to process what just happened …..

So if I go through the insurance company my discount is 55%, but if I pay cash then my discount is 60%!!!

So my next question seems logical.  How do insurance companies arrive at the following statement?

“You saved XXX dollars by using our service”

The top number appears to be totally fictitious.  I think the term most insurance companies and even health care providers use is “normal and customary charges”, but how do they arrive at such a number? Look at the following example

You go in for a CAT scan.  For the sake of easy math I will use small numbers.

Insurance Company Model
CAT scan cost = $1,000
Discount = 55%
Your price = $450

Cash Price Model
CAT scan cost = $1000
Discount  = 60%
Your price = $400

OK, so now that I have concluded that the “normal and customary” number is in fact fictitious, what number should I use?  Normal logic leads me to consider the “Cash Price” number.  This is the price quoted to those that don’t have insurance right?

With this said a normal person can easily conclude that it is more expensive to use the insurance company in this example.

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