Wednesday marked the sixth anniversary of the Patient Protection and Affordable Care Act — commonly known as Obamacare — being signed into law, and the battle over its various elements continues to be waged as vigorously as ever.

Perhaps one of the biggest points of contention is the so-called individual mandate, which stipulates that most Americans have qualifying healthcare coverage in place or pay a fee for the period they are uninsured.

Some view the mandate as a yet another example of a meddlesome federal government interfering in a personal decision. Others are grateful for coverage they would otherwise be unable to afford. And while the individual mandate is viewed by many as the motivating reason for obtaining this insurance in the first place, there is another important consideration to take into account.

Healthcare is like any other business: After all is said and done, providers need to collect enough revenues to make it possible to continue doing what they’re doing.

Healthcare is also complicated in that there is surfeit of procedures with costs that require quantifying and prices that are often individually negotiated between providers and payers.

Therein lies the rub: The extent to which a payer—you, me, insurance companies, employers, the government—is able to bargain down that price to an acceptable level.

As you might expect, providers don’t always readily share that information among patients and their intermediaries. Nevertheless, the fact that these discounts—which are known as contractual allowances (the difference between what a provider bills and the sum it’s willing to accept in full payment)—is as important a reason as any to have insurance, as the following personal experience will illustrate.

A little more than a month ago, my wife underwent some testing on an outpatient basis in a hospital setting. Although the medical center typically charges $3,700 for the procedure, its billing department applied a $1,700 “insurance adjustment” against that amount—presumably in keeping with the pricing agreement the institution and our insurer have in place for the current year—and billed us for the difference (because we hadn’t yet met our plan’s annual deductible).

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Mitchell D. Weiss

Mitchell D. Weiss is an experienced financial services industry executive and entrepreneur. He is an Executive-in-Residence at the University of Hartford, co-founder of the university’s Center for Personal Financial Responsibility and adjunct faculty at Rutgers University as well. His books include Life Happens: A Practical Course on Personal Finance from College to Career, Business Happens: A Practical Guide to Entrepreneurial Finance for Small Businesses and Professional Practices and Practical Finance: A Straightforward Guide to Personal and Entrepreneurial Finance, all of which are undergraduate courses that he teaches at the aforementioned schools and elsewhere.
Mitchell D. Weiss
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