Why Hospitals Overcharge the Uninsured

Rose Shaffer is a homecare nurse and grandmother of seven who lives on Chicago's south side. Though she spends all day caring for the health of others, her job doesn't provide her with health insurance.

Advocate is one of the largest chains of hospitals in Illinois, with 10 hospitals in the Cook County area and profits of $108 million in 2001.

But Shaffer -- and millions like her around the country -- are actually subsidizing Advocate and other major hospitals, according to a report recently released by the Service Employees International Union (SEIU). That's because the approximately 41.2 million Americans who don't have health insurance today not only have to pay astronomically high healthcare bills out of their own pockets, but they actually pay around 50 to 70 percent more than insurance companies do for health coverage.

When an insurance carrier foots a hospital bill, the company "negotiates" a price with the hospital that is usually about half the original billing price. Yet when an individual without insurance is forced to pay for healthcare, they don't have this bargaining power. So they end up paying the "full" rates, making up the slack for the deals the insurance companies have gotten (as well as the uninsured individuals who never pay their bills).

"If you look at it from the insurance company's perspective, they are a big group who can make a deal with the hospital," said Marianne McMullen, communications director of the Service Employees International Union (SEIU) Hospital Accountability Project, a relatively new initiative aimed at linking workers' and patients' rights. "But from the perspective of the uninsured, it's really gross. The hospitals are making their biggest profit off them."

The full rates uninsured people end up paying are usually vastly inflated from the actual cost of providing service. For the past 20 years healthcare bills have risen at twice the inflation rate. In 1993 the U.S. General Accounting Office reported that 99 percent of hospital bills have overcharges, which can include "phantom charges" for services that weren't actually given, markups, duplicate billings and charges for unnecessarily long hospital stays or unneeded services.

Hospital administrators argue that many uninsured individuals never pay their bills, so hospitals have to keep costs high to avoid losing money. But that doesn't make it any easier for those who do pay. And most hospitals don't just write off the unpaid bills. It is common practice for hospitals to sue patients for tens of thousands of dollars, money they often just don't have. After Shaffer had a major heart attack in October 2000, she couldn't pay the bills. She noted that even though she told her doctors she didn't have insurance, she was never given available financial aid forms to fill out for her treatment.

So Advocate South Suburban Hospital where she was treated sued her for the amount of her bill -- $17,760. Never mind that if Shaffer had had health insurance, the company would only have been billed about $8,500. Shaffer said she could have handled the $8,500. But coming up with over $17,000 was impossible. So she put her house in foreclosure and declared bankruptcy. Meanwhile the stress this has caused isn't helping her health any.

"I'm grateful to the hospital for the care I received -- they saved my life," Shaffer said. "But now they are trying to take it away from me again."

A study by the SEIU project found that at Advocate hospitals in Cook County, Illinois, uninsured residents like Shaffer were charged an average 139 percent more than the charge insurance companies ended up paying for the same services. That equals out to $13,854 compared to $5,805 on average for inpatient services -- funds an average uninsured person can hardly spare. This amounted to a total gap of $58 million between charges for the insured and uninsured at Advocate hospitals in 2001, the SEIU said.