A recent study has revealed a surprising phenomenon in healthcare – cash prices for medical services are often cheaper than insurance prices for the same services. This is particularly true for shoppable services such as lab tests, imaging, and joint replacements. The study found that half of U.S. hospitals set cash prices lower than their median insurance negotiated prices, with about 20% setting cash prices equal to or lower than their minimum insurance prices. System-affiliated hospitals and those in low-income communities are more likely to offer relatively cheaper cash prices.
The study also looked at non-shoppable services, such as trauma activation fees billed by hospitals designated as trauma centers. It found that cash prices were lower than insurance prices for almost all levels of trauma activation fees on a nationwide basis. For example, in Arkansas, cash prices were 18% cheaper for level I trauma activation, 43% cheaper for level II, 40% cheaper for level III, and 46% cheaper for level IV.
This trend of cash prices being cheaper than insurance prices extends to prescription drugs as well. The findings highlight the trade-offs between using cash and using insurance to pay for healthcare services. While insurance offers protection against financial risk, it also adds administrative complexities. For services with low financial risk exposure, it may make more sense to pay cash. This is similar to how car insurance does not cover routine maintenance like oil changes, as it would drive up premiums.
From providers’ perspective, serving cash-pay patients is less costly and time-consuming than dealing with insurance. Without the administrative burden of insurance compliance, providers can focus more on patient care. Cash-paying patients are also more sensitive to prices and play an active role in shaping the provider’s reputation. Providers understand this and set cash prices accordingly, particularly in low-income communities where cash prices are more likely to be cheaper than insurance prices.
The study suggests that insurance companies should focus on covering services that pose significant financial risks, while allowing patients to control their healthcare dollars for other services. This would allow providers to focus on care delivery and innovation, ultimately benefiting patients. The authors of the study argue that broader health insurance coverage does not necessarily equate to better healthcare or improved health outcomes. Instead, policy solutions should empower patients to control their healthcare spending whenever possible to promote a more dynamic and innovative healthcare delivery system centered around their best interests.
