When people talk about the rising costs of healthcare, they are usually referring to health insurance premiums. Whether it is a self-funded plan or traditional group insurance, consumers generally view healthcare costs through the lens of insurance costs. But such a narrow view doesn’t explain why health insurance is out of control. A recent case out of New Jersey does.

According to news reports, the state of New Jersey’s employee health plan paid a hospital more than $2 million to cover a $674,000 hospital bill. Do the math and you’ll discover the state paid more than three times what they were billed.

To say that’s insane is to state the obvious. What is more important is that the incident is not an isolated one. It perfectly illustrates what is wrong with America’s health insurance system. The case is proof that our system is not only broken, but completely out of control.

There Is No Accountability

A deep dive into the New Jersey case reveals that attempts to figure out what wrong were thwarted by the health plan administrator. Their lack of cooperation made it more difficult for investigators to get to the truth. To date, neither the state nor Horizon Blue Cross Blue Shield of New Jersey can account for the millions of dollars in overpaid funds.

Meanwhile, state employees are looking at a 20% premium hike next year. Inflation is bad, but it’s not that bad. In fact, a 20% premium increase makes expected inflation look like child’s play.

It all boils down to a lack of accountability. Healthcare providers will charge whatever they can get away with. Insurance companies will pay based on whatever they can extract from customers through premiums. Neither healthcare providers nor insurance companies are held accountable.

Patients Never See the Bills

The reasons for the lack of accountability are numerous and varied. Among them is the fact that patients never see the medical bills they incur. They pay their co-pays and deductibles and forget about the rest. If patients knew how much services actually cost, they might be a little more circumspect in how they use their health benefits.

Likewise, meaningful efforts to audit Medicare and Medicaid haven’t been pursued in decades. Fraud in both systems has been well documented. Medicare alone has a history of overpaying for services to the point of being absurd. And unfortunately, what Medicare does often steers the boat for private insurers. They simply follow suit.

The Trickle-Down Effect

It is bad enough that private insurance companies and Medicare/Medicaid are inflating healthcare costs through their negligent behaviors. But things are made worse by the trickle-down effect. For example, consider self-funded health plans often touted as a lower-cost alternative to traditional group health insurance.

Nevada-based StarMed Benefits says that many self-funded plans can be offered at substantial savings simply because employers have more control over the benefits they offer. But even premiums for self-funded plans have steadily gone up.

The reality of self-funded plans is that actual service delivery is accomplished through the same provider networks insurance companies use. Furthermore, insurance companies are directly involved in setting service rates. So as their rates go up, they charge self-funded plans higher fees. That translates into higher subscriber premiums.

The New Jersey case is disturbing on multiple levels. First and foremost is the six-figure hospital bill. Next is the willingness of the state to pay more than $2 million to cover that bill. But the case is just the tip of the iceberg. And now you know why America’s health insurance system is out of control.