Why do healthcare providers charge patients much more than the amount covered by the insurance?

If the amount covered by the insurance takes into account the amount of money healthcare providers charge, then why the latter isn't even higher?

If the amount covered by the insurance does not take into account the amount of money healthcare providers charge, then why the latter is so much higher than the amount covered by the insurance?


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  • This is really not a personal finance question. And the details depend n what health the nsurance you have. The real answers are somewhere between politics and economics.. Healthcare services, like every other business, charge somewhere between what the market will bear and what's required to keep the business in operation. Insurance companies play the other side of that. Negotiated prices are often nonsensical, chosen just because they make those negotiations work.
    – keshlam
    Commented Dec 23, 2016 at 2:42
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    There are no rational answers to questions about healthcare economics in the US.
    – BrenBarn
    Commented Dec 23, 2016 at 2:48
  • @keshlam I don't think the details depend on what health the insurance I have. I posted here as I saw some questions pertaining to understanding health insurances, e.g. Why do insurance companies in the United States have an enrollment period?. Also understanding one's medical bills can be useful for personal finance (e.g., it would help see to what extent an uninsured patient may negotiate a medical bill). Commented Dec 23, 2016 at 2:48
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    It looks like this question is likely to be closed. The issue was touched on in my answer to Hospital charges for ER visit. Not quite identical, to your "why" but still, an acknowledgement our system is broken. Commented Dec 23, 2016 at 9:52
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    Note that this is an arm's war. If a doctor knows the insurance company will only pay 10% of their nominal fee, it makes sense for them to multiply by 10 before filing. The insurance companies try to play the same game in reverse, when trying to get doctors to settle for what they are willing to pay. The result is that all the raw numbers are fictitious, and everyone knows they are, and somehow -- inefficiently! -- they make it work. True HMO, or single-payer, remove these perverse incentives to fabricate, but the insurance industry detests both.
    – keshlam
    Commented Dec 24, 2016 at 0:33

2 Answers 2


The price the provider charges you is the amount he would like to get for his services.
Let's take an example, you do a blood test at a lab, and they charge you 1200.00$

If you have insurance, and the provider has a contract with that insurance (meaning 'they take them'), the contract limits what they can charge and what the will get.
For the example, that might be 21.56$. This is what the insurance pays them (or what you pay them, if you have deductible).

Note that if you have no insurance, you owe them 1200.00$. They are typically willing to negotiate that you only pay maybe 850.00$, but it still will be much higher than the insurance price. Why?

The reason is that the insurance-agreed payment of 21.56$ does not cover their cost (but the insurance forces them to make that contract or basically be out of business). Let's say for example they need 26.56$ to make a living on it; so they lose 5.00$ on every insured customer. One in 235 customers has no insurance, and his price is calculated as 26.56+235*5.00 = ~1200.00$, so his bill covers the losses for all insured 'under-payers' (all numbers are examples made up to illustrate the math the provider does).

My bloodwork typically comes between 800 and 1400, and gets reduced to around 20: so the numbers are not completely off. The ratio and concept works for doctors and hospitals the same, just not as significant a difference.

  • I find it highly unlikely that the insurance payment "does not cover their cost". Many uninsured patients don't have the ability to pay (after all, if they could, they'd be paying for insurance), and the hospital will often eat those costs entirely.
    – ceejayoz
    Commented Dec 23, 2016 at 20:00
  • @ceejayoz: Many uninsured people are (or were, prior to Obamacare) healthy people (for decades my only real expense was an annual FAA medical) with sufficient assets to cover any needed treatment.
    – jamesqf
    Commented Dec 25, 2016 at 20:49
  • Another unlikely assertion. People with enough assets to pay for a heart attack out of pocket aren't generally stupid enough to go without $1k/month of health insurance. Given that Obamacare saw 20 million of America's 44 million uninsured jumping onboard, I'm very dubious of that claim.
    – ceejayoz
    Commented Dec 25, 2016 at 21:02
  • kff.org/uninsured/fact-sheet/… "In 2015, 46% of uninsured adults said that they tried to get coverage but did not because it was too expensive. Many people do not have access to coverage through a job, and some people, particularly poor adults in states that did not expand Medicaid, remain ineligible for financial assistance for coverage. Some people who are eligible for financial assistance under the ACA may not know they can get help, and others may still find the cost of coverage prohibitive."
    – ceejayoz
    Commented Dec 25, 2016 at 21:04
  • and "In 2015, nonelderly uninsured adults were over two and a half times as likely as those with insurance to have problems paying medical bills (53% vs. 20%)... In 2015, nearly half (45%) of uninsured adults said they owed money on at least one medical bill."
    – ceejayoz
    Commented Dec 25, 2016 at 21:05

The amount covered by the insurance takes into account the amount of money healthcare providers charge, according to this Quora post by Amy Chai (MD). For example, Medicare pays about 20 cents on the dollar for what a health provider bills. As a result, health providers have to artificially increase the amount of money they charge. Health providers cannot charge uninsured patients differently from insured patients, otherwise health insurances may complain to the feds, which in turn may charge the health providers with fraud for artificially inflating the medical bills.

  • Do you have evidence to support this? Are you suggesting that if my doctor charged $50 for the visit, that medicare would still pay 20% and send $10? My understanding is there's a 'reasonable and customary' which somehow doctor offices simply ignore and charge what they will. Commented Dec 23, 2016 at 17:14
  • @JoeTaxpayer: Aside from the linked post, I do not. I would be very interested if someone could confirm or infirm the claim. Commented Dec 23, 2016 at 17:16
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    "Health providers cannot charge uninsured patients differently from insured patients" sure they can.
    – quid
    Commented Dec 24, 2016 at 0:04
  • @quid Even if the patient doesn't negotiate? Commented Dec 24, 2016 at 0:17
  • For every billable event there is a corresponding ICD10 code. When a provider agrees to an insurer's contract there will be a very very large table of reimbursements based on the provider's zip code and date of service for each code. The same sort of table exists for medicare. The allowed amounts can, and do, vary by insurer including medicare, they will also vary by provider. No insurer, including medicare, pays a flat percentage of whatever the billed amount is. The fraud complaint issue arises when a provider attempts to balance bill insured patients, not when retail prices fluctuate.
    – quid
    Commented Dec 24, 2016 at 0:40

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