Paying Less … Without Health Insurance

(Photo: Zdenko Zivkovic)

(Photo: Zdenko Zivkovic)

Writing for the Wall Street Journal, Jeffrey Singer describes a patient who came in for a “simple outpatient surgical procedure” and discovered it was cheaper to just ignore his “low-cost ‘indemnity’ type of health insurance policy.”  The patient’s estimated costs had he used his health insurance plan: approximately $20,000 (out of the estimated hospital charge of $23,000).  After speaking to the patient, Singer realized that he wasn’t bound by a “preferred provider” contractual arrangement and offered the patient a solution that saved him $17,000:

I explained that just because he had health insurance didn’t mean he had to use it in every situation. After all, when people have a minor fender-bender, they often settle it privately rather than file an insurance claim. Because of the nature of this man’s policy, he could do the same thing for his medical procedure. However, had I been bound by a preferred-provider contract or by Medicare, I wouldn’t have been able to enlighten him….

Most people are unaware that if they don’t use insurance, they can negotiate upfront cash prices with hospitals and providers substantially below the “list” price. Doctors are happy to do this. We get paid promptly, without paying office staff to wade through the insurance-payment morass.

So we canceled the surgery and started the scheduling process all over again, this time classifying my patient as a “self-pay” (or uninsured) patient. I quoted him a reasonable upfront cash price, as did the anesthesiologist. We contacted a different hospital and they quoted him a reasonable upfront cash price for the outpatient surgical/nursing services. He underwent his operation the very next day, with a total bill of just a little over $3,000, including doctor and hospital fees. He ended up saving $17,000 by not using insurance.

(HT: Jason Hirschhorn)


The big question is how common this situation is. If you're talking a tenth of a percent of situations, then it's not worth much effort on anyone's part, except possibly patients.

If, however, this is something that could be happening in 10%, 20%, or more of the time, then it's a major opportunity/problem to be addressed.

At the very least, it it would suggest that the structure of the insurance system is wildly bloated if a doctor comes out more or less even when he receives $3000 for a procedure being self-paid compared to receiving $20,000 with insurance.

J.B. Farrell

As a self-insured person, I understand this very well. Including prenatal, delivery, hospital charges (two night and meals), plus pediatrician bill. All in was less than $5,000!!!

If only we could get rid of insurance coverage for routine procedures and visits... I suspect our healthcare costs would be drastically reduced!!!


To me, the situation looks very similar to the situation with car insurance. Insurance semantically means protection against risk/loss. Health insurance is being used to pay for anything related to health care, not to protect against accidents or sudden illness. It's like the situation mentioned here with minor fender benders. If you bump into someone coming out of the parking lot, it will save both people time and money to settle it privately. Similarly, if you need a checkup, it will save you money, and save the doctor's office time in billing, to settle it privately.


This is sometimes true even of not-so-minor fender-benders. Some years ago I was rear-ended, causing quite a bit of cosmetic damage to my newish hybrid. This resulted in a year-long squabble with the other party's insurance company, which wanted me to scrap a perfectly driveable car because it would be too expensive to restore the aluminum bodywork to as-new condition. After who know how much expense on their part, and no little aggravation on mine, they finally paid me cash - which I promptly banked, and have been driving the unrestored car ever since.


I remember John Stossel had a bit on this a while ago when he was still with ABC on how health insurance inflates the cost of health care. Basically, rising health care costs correspond to the rise of insurance as a method to pay for health care. Without consumers deciding the cost of health care, there are no cost controls. The insurance companies can charge what they want and pass that cost on to people paying for health insurance. The only way to get cost controls in this system is for the government to step in and decide the prices. How exactly the government should step in continues to be a matter of debate.

Here is an example of a patient shopping around for health care and receiving a substantial discount from list price. Accounts like this are anecdotal, of course, but if you can find 85% savings without using health insurance, I think that dropping health insurance should be explored as an option to control health care costs.



I think you’ve got it a bit backwards. In a healthcare market where patients have insurance, the prices are negotiated between the providers (hospitals, doctors, clinics) and the insurance company. In almost all cases, the insurance company will be a better negotiator than the individual, mostly because the insurance company represents a large number of patients and it’s a lot better at saying “no.” This is why increased competition between insurance companies often leads to Higher healthcare prices rather than lower. If it was left to the individual, health care costs would almost certainly increase even more.


What exactly did I say here that attracted such universal dislike? Is the idea that insurance companies try hard to pay less for medical procedures such a controversial claim? Seriously, I made a totally apolitical point about the way insurance pays hospitals and I was immediately voted off the island with no explanation.


Sure, that worked out great for him, but only after he was A) explicitly told that the price was negotiable B) dealing with doctors and hospitals willing and eager to negotiate in good faith, to the point of actually wanting to help him out and get him quotes from competing hospitals.
My guess is that if this kind of negotiation became commonplace hospitals would not be so generous and a lot of people would get screwed over particularly those who are bad at negotiating and those with pressing medical needs. Imagine buying a used car if the dealer knew you couldn’t leave the lot without buying a car with certain features!

If everyone has health coverage, then the list prices don’t matter since no one would ever see them. The market clearing prices would be those negotiated between hospitals and insurance companies and would be a lot lower than those between hospitals and patients.


Why? Because insurance companies and hospitals are philanthropic organizations? Hardly. If a car dealer could set a price that the consumer would never see but had to deal with in order to drive, they would set prices that met whatever profit margin they want. So it is with insurance premiums and hospital costs today. And government regulation as a solution? Try again. Name one program where adding an inefficient bureaucracy has helped control costs. There aren't any. Because a dollar spent by an individual for the product or service of another individual will ALWAYS be more effective than one spent with agencies in the middle. No, not every person will have such a rosy story but if we are truly concerned with making the system as a whole better for the people as a whole, then we should do what is best for the entire population. Then figure out how to help out our neighbors, friends, and family from falling through the cracks when they end up in the statistically less likely scenario. Government assistance isn't needed. Personal and community responsibility is. Just a thought.



“Name one program where adding an inefficient bureaucracy has helped control costs.”


They pay far less for healthcare than almost any insurance or savvy individual negotiator. And their administrative costs are something like 4% of total expenditures.

Also Medicaid, also Canada’s “Medicare” and Britain’s NHS and France’s health system, and Germany’s, and Australia’s, and Sweden’s, and Finland’s, and Italy’s, and Japan’s, and every other country that has some kind of national healthcare system pays lower prices for healthcare than the US.

Peter Drier

The problem is obviously Medicare's preferred-provider contract.. Not in any way shape or form that the "list" prices are ridiculous starting points designed to game the Medicare & other insurance systems...

Sean Parnell

The experience of Dr. Singer's patient isn't uncommon for self-pay patients who know how to find real prices for the healthcare they need, instead of simply taking the wildly inflated 'chargemaster' prices the hospitals often give out. The patient in this case appears to have had a fixed-benefit policy (described in the article as an indemnity policy) that would give a fixed amount for a given procedure, with any balance left to the patient. These policies can be a great option for people as they are typically much, much less than 'comprehensive' health insurance (it should be noted that these policies are not compliant with Obamacare and that while they will continue to be sold after 2014, people holding them will likely be considered 'uninsured' and thus subject to the penalty tax), but if you don't understand how health care pricing works (or doesn't work, really) then you could be in trouble. Fortunately there are sources of information on how self-pay 'uninsured' patients or those with high deductibles can get real prices and quality, affordable care, I've actually launched a blog (The Self-Pay Patient,, to be a source of this sort of information. I actually blogged about Dr. Singer's patient yesterday, here:


Shane Finn

Not enough details in this article. What insurance plan? What procedure? How many more cases are there like this? I`ve been quoted for cash and insurance for many procedures and never had the cash price be less. More research is needed! Thanks for the thought.


Or the hospital could have said so sad to bad you can't afford it you can die on the corner.

Mike B

This whole system breaks down if the Patient is unable to negotiate and shop around. If you're bleeding to death how can you possibly be in a position to negotiate on price? What if you need a specific treatment that only one hospital in your area can offer? Only a very small % of healthcare needs are those where patients are in a position to bargain and price compare. Usually the choice is pay what we demand or die.


There are so many things wrong with this piece, I'm sad to see it on freakonomics blog. First, even some of the lowest-premium-highest-deductible plans don't mesh with this fact scenario. I'd love to know what non-insurance this guy had that he'd end up $20k out of pocket (or even $3k out of pocket).

Second, based solely on the facts, if he had USED his insurance, it would have been fully covered under the amounts that they set out: up to $5,000. So, in reality, the guy just got really screwed -- he paid for insurance AND the doctor. The docs probably got screwed too and didn't even realize it since they accepted LESS than what they should have recieved (the insurance was willing to cover $5k and the patient $3k.

Third, for all the griping about the chargemaster, nowhere did this doctor walk away and say, "you know what these prices don't make sense. Let's make them make sense."


Dr. Dave

You are ignoring or choose to not believe the facts as presented in the article. He was charged less than what his deductible would have been had he used his insurance. This is not a unique case. Look up "Oklahoma Surgery Center cash only" on Google. You'll find plenty of anecdotes just like this one.


I'm not ignoring anything. There are 3 things weird here:
1. The amount he was charged ultimately was less than the amount the article stated his insurance would cover. Thus, patient shouldn't have paid anything out of pocket if the doctors had just billed the insurance what they charged the patient.

2. The patient had some form of fixed-fee insurance (an indemnity plan), which is the inverse of how most insured people discuss their out-of-pocket expenses since most people have a deductible you pay first BEFORE the insurance company pays (note that this used to be the case for people exceeding their coverage amounts too). If you have an indemnity plan, the incentive for the insured is to find the cheapest provider of care. So, to the extent that this article is remarkable, it's that the guy has a silly insurance plan.

3. The other minorly weird thing going on is that the providers hadn't previously negotiated with the insurance provider to structure the services to meet the coverages, and that the patient with this form of insurance got all the way to appointment time without understanding his own out of pocket.



Then there are those of us who live in states that prohibit by state law all direct negotiations between a patient and healthcare provider!


Which state?

Alan Kroeper

What we are discovering all too slowly and all too lately is that we have an industry that soaks up 2.7% of GDP without adding a cent of value to the system... It's the healthcare insurance system. They don't actually treat anyone, but they skim nearly 30% off the top.

Single payer is the only way to go. There's a reason why the US pays more than any other country on the planet, and gets way, way less...

Healthcare insurance companies are about as legit as any mafia enterprise. They should be treated as such.


As Churchill said about democracy, maybe the US health system is the worst, except for all the others. My personal experience with national health systems is of watching family members health deteriorate month after month as they wait for even the most urgent surgeries, reading the twisted pretzel logic used to restrict expensive treatments. Seeing staff who are overworked make careless, sloppy decisions that would be instant lawsuit fodder in the US.

If you haven't read recent articles about the number of excess deaths in the UK due to poor hospital care over the weekends, go look it up. I've seen the results up close and believe me I wouldn't take my dog to be treated there on a Saturday or Sunday. Major hospitals that don't even have someone competent to cast a simple fracture; discharging patients with uncontrolled post-surgical bleeding knowing the patient would have no access to follow-up care for the next 48 hours.


Mike B

I can Cherry Pick a whole slate of bad outcomes from US Hospitals as well...the only difference is that after an American hospital kills your family member you get sent a bill for $300,000.


Oklahoma City has a surgery center that operates like this. All prices are upfront and fees are not hidden. Lots of money being saved. E

ven so, I'm surprised at how many comments focus on insurance and deductibles. To me, this article sounded somewhat like how we shop for veterinarian care. Frankly, I'm still hopeful Freakonomics will study veterinarian care vs hospital & doctor care: costs, mortality, administration, health, patient management, used of experts, and affordability. And of course, also look at the number of graduates entering the professions each year and whether or not their associations think they are over or under supplied, and how they behave as providers of trained professionals.

Abhay Padgaonkar

That’s like saying, “I saved $17,000 by not buying a Rolex I didn't need.” It is a wrong-headed cure for reducing healthcare costs. If the hospitals and providers accepted and published what Medicare pays as the “standard” price, instead of marking it up 5-7 times, it would automatically diminish the role of third-party payers. The payers will no longer have to play the game of chicken with the hospitals. And the unsuspecting patients—insured, underinsured, or uninsured—will no longer be caught in the crossfire. Read more...

Dr. Dave

I'm a young physician recently beginning practice. People must understand that it takes more time to prove to the payers (Medicare/private insurer) that I provided a medical service than it actually takes to provide the service. Hence overhead expenses are ridiculous.

Steve Nations

The last paragraph of the article:

"Sadly, we are heading in the exact opposite direction. ObamaCare expands the role of the third party and practically eliminates the role—and the say—of the patient in the delivery of health care. Will they ever learn?"

I have no strong feelings either way about ObamaCare, but I do have strong feelings about large committees creating solutions to complex problems. It rarely works out well.


Does anyone else notice the similarity to paying college tuition? No one pays the sticker price, but you are charged according to your perceived ability to pay. Have good insurance - your insurance company will be charged more so that you are subsidizing other patients.

If you want another example of the unexpected consequences of our US health system talk to any doctor who prescribes biologic drugs. Let's say you want to use Humira to treat a patient with rheumatoid arthritis. If your patient has Medicare or Medicaid then this will be fairly straightforward. Try to prescribe it for a patient with private insurance and you will be in a nightmare of page after page of forms and documentation to show that you have met the strict rules about other treatment options before finally it will be allowed. I'm sure that this ultimately discourages physicians from prescribing the best treatment options to many patients with private health insurance.



Medicare A and B doesn't cover prescriptions; D is actually private insurance.


You're right. When I wrote Medicare I was really referring to the Medicaid supplementary coverage received by Medicare patients. About 4 million Medicare patients have their prescriptions covered under Medicaid not part D. Obviously this is because they have low incomes, but I'm just pointing out the irony that they actually have better access to expensive drugs than those that are paying for private insurance. Hardly an incentive to buy insurance.


This worked out well for this patient, but what if there had been complications during the surgery? What if he had found himself hospitalized for several days, or needing additional care or more expensive procedures? When things go south medically, they go south very quickly. How would a health insurance company treat a claim for complications from a surgery that they did not cover in the first place? Even if something could be worked out, it probably be far more complicated than submitting the initial claim for the entire procedure.


We might learn a lot about which medical expenses are really necessary, and which not, by doing a cost comparison to similar large-animal veterinary medicine.


That whole story is a sign of an entirely idiotic health system. There should be no need for someone who requires an operation to have to go around and negotiate prices with the various caregivers who are the components of his operation. What if he had needed a more urgent operation and had no opportunity to go around and shop for the best price? This just tells me you really need a single-payer system.


Hardly so, as a single payer system pretty much guarantees that no one can ever shop around to get the best price, and therefore everyone will be paying much more than necessary. (Even if it is often not the sick person paying, but millions of perfectly healthy taxpayers.)

Perhaps it would work if someone could invent a way to incentivize the single payer to reduce costs, but unfortunately all the incentives seem to work the other way in practice.