The Market for Medical Care: Why You Don't Know the Price; Why ...

Using the Internet to Integrate HealthInsurance and Consumer-Driven Health CareThe Market for Medical Care 17The Dallas-based insurer HealthMarkets offers innovative health plans that integrate third-partyinsurance with the financial incentives of individual self-insurance. The company provides Web-baseddata on physicians and hospitals, allowing enrollees to compare out-of-pocket costs and quality indicatorswhen choosing physicians and hospitals. 1Health Insurance. HealthMarkets provides its enrollees access to a nationwide network covering400,000 doctors providing 20,000 procedures. For each doctor and each procedure, there is anegotiated price. However, the insurer does not necessarily cover any particular negotiated fee. Instead,HealthMarkets pays a flat rate, similar to fee schedules that were once very common in healthinsurance. Typically, the fee the insurers will pay is at the 70th percentile — high enough to cover thenegotiated amount charged by 70 percent of the doctors in a geographical area. Almost always, the feecovers the 50th percentile.This means the out-of-pocket costs to the patient can vary widely depending on the choice ofprovider. If a patient chooses a physician whose negotiated fees are less than HealthMarkets will pay,there is no out-of-pocket cost, whereas seeing a doctor with fees higher than what HealthMarkets paysmeans the enrollee must pay the difference out of pocket. Thus, enrollees have a strong financial incentiveto check on prospective out-of-pocket costs before obtaining medical services.Transparency on the Internet. An important component of HealthMarkets’ plans are decision-support tools that enrollees can access on a personalized Web site. Specifically, they can look up participatingdoctors and hospitals and compare their out-of-pocket costs for a variety of procedures. An enrolleecan search by specialty and geographic area for a physician to perform a specific medical service.A list of physicians in the network is displayed, with a color-coded “thermometer” which indicates theout-of-pocket cost to the enrollee of the service from each provider. Low-cost physicians appear firston the list in green, while higher-cost physicians appear farther down the list in red. A second screen