Healthcare and Health Insurance Are Not the Same Thing – Inside Sources

Through no fault of their own, most Americans often conflate healthcare with health insurance. Often, politicians, media personalities and families will remark that healthcare in America is getting too expensive, before describing how their premiums have increased. 

Healthcare is the process of providing care for one’s health. Health insurance is not healthcare; it is the tool many use to pay for healthcare. The cost of health insurance is not the same as the cost of healthcare, though the cost of healthcare directly affects the cost of health insurance. 

Perhaps on the surface, the concepts may seem intertwined. After all, most people don’t know what healthcare costs: The only healthcare expenses they incur are their premiums, copays and deductibles. Truthfully, however, the terms are completely distinct.

So in a sense, the root of the problem — the actual cost of the services rendered — does not get addressed by anyone. And that’s a problem, because many Americans on employer-sponsored health plans don’t realize that they can be engaged consumers of healthcare who make prudent, well-researched decisions for selecting cost-effective services. Until people understand the difference and unpack both why healthcare costs are rising and what they can do about it, no amount of legislation will adequately reduce health insurance costs.

When shoppers browse for a new TV or head over to a home and garden store for a new lawnmower, many are inclined to do extensive research by reading customer reviews and comparing prices of similar products from other companies. However, when it comes to consuming healthcare services — ones that, generally speaking, have a far greater effect on a person’s life than an electronic product or household appliance — why is it that precious few patients realize they have the ability to “shop around” for their coming knee replacement surgery or MRI?

From a patient’s health perspective, the risks of receiving subpar medical services at any given facility speak for themselves. The potential for complications and/or readmission should be enough motivation for patients to research the facilities where they will undergo surgery. And then there’s the financial component: The prospect of unexpectedly receiving a crippling medical bill largely hinges on the facility selected. A dirty little secret of the healthcare — not health insurance — industry is that two hospitals offering the same service can easily charge vastly different rates.

This is where the concept of “price transparency” comes in. Unknown to the general public, this pricing information is readily available for public consumption via the hospital chargemaster, otherwise known as a comprehensive electronic database listing the prices of billable items, services and procedures. Also unknown to many is that those prices don’t necessarily correlate with the quality of the respective services or items. There is a psychological phenomenon known as the “price quality heuristic.” This aspect of human psychology leads us to assume that a higher price indicates better quality, absent other data. It’s why user reviews and ratings are so valuable. They reveal whether higher costs may indicate better quality.

Thus, unfettered price transparency without quality metrics could have the opposite of the desired effect. A patient who would otherwise have received their care at the less costly facility may see the prices, and — believing that price is an indicator of quality — choose to move their care to the more expensive hospital. After all, they aren’t paying any more than their copay and deductible. Why shouldn’t the insurance pay for the better facility after that? Unknown to them, however, the less costly hospital may actually be better in terms of quality and outcomes.

It’s also vital to understand how health insurance is structured. When one member of the plan takes steps to contain costs, everyone else on the plan benefits. When one member of the plan incurs a costly treatment, every member of the plan will ultimately pay for it. An exceptionally large claim can severely drain an employer-sponsored health plan’s assets, eventually driving up deductibles and out-of-pocket expenses for all plan members. This is particularly true when the “shock claim” comes out of the blue and there is no robust stop-loss insurance protection in place.

To come full circle, while healthcare and health insurance are distinct, there is a strong financial relationship, which perhaps explains why many conflate the two terms. After all, those ever-increasing premium rates are based on two core factors: the amount of care used and the amount charged for that care. Thus, when the price and volume of care shoot upward, the cost of health coverage (i.e., insurance) naturally follows suit. All of which means that tens of millions of Americans are struggling to access affordable and high-quality healthcare while confronting out-of-control gas prices, stubbornly high grocery bills, and an unstable job market.

That’s where the stewards of employer-sponsored health plans can help by educating their respective participants about taking the initiative to be savvy healthcare shoppers — taking advantage of urgent care facilities and Direct Primary Care are just a couple examples — for the betterment of everyone’s finances.