Are private health insurance prices the best prices?

No, private health insurance prices are not the best prices on medical care. In fact, private health insurance prices are generally normal market prices. If you want the best prices you must be part of a non-insurance network.

You may have heard that insurance companies negotiate big discounts on healthcare prices. That's true, but it's not as impressive as it sounds. In fact, insurance companies are simply negotiating down to normal market prices. That's because of the strange game they play with healthcare providers.

Around 90% of healthcare is paid by third-party payers, primarily health insurers. These third-party payers demand discounted prices, so they can advertise "we get you discounts".  Obviously healthcare providers can't discount 90% of their work, so they've found a way both sides can win.  Specifically, healthcare providers deliberately inflate their "chargemaster" prices by around double. This allows third-party payers to get "discounts" of around half. The result is that it looks like the third-party payer got a huge discount, when the healthcare provider is still getting paid what is effectively the market price.

In other words, third-party prices aren't really discounted. They're just normal prices – mediocre prices. So who gets the best prices?

There are two categories of patient who get the best prices:

• Patients with Medicare or Medicaid, because the federal government can throw enough weight around to get real discounts.
• Patients in a non-insurance network, because they are leveraging the full power of paying directly.

In fact, these two categories of patients usually get the same prices – the lowest that healthcare providers are willing to offer. Where most healthcare prices are exorbitant, these rock-bottom prices are far more reasonable and are probably the only prices that are affordable when paying out of pocket.

Which of these two categories could you be part of?  If you aren't in your old age, you aren't eligible for Medicare. If you aren't in poverty, you aren't eligible for Medicaid. That leaves you with only one option for getting the best prices, which is a non-insurance network.

Currently there is only one non-insurance network for patients who pay out of pocket, it's called Pocketero. It only costs $10/month, so very affordable. In fact, many people with health insurance also join Pocketero to get the best prices when they pay out of pocket before reaching their deductible.

How much better are rock-bottom prices than insurance prices? They're around half. Yes, you understood that correctly – the truly discounted prices are around half of the prices "negotiated" by health insurance companies.

• Kaiser Family Foundation says: "Private insurers paid nearly double Medicare rates for all hospital services."
• Rand Corporation says: "Large price discrepancies".

Basically, private health insurance prices are generally mediocre at best. If you want real discounts, you need Medicare, Medicaid, or membership in a non-insurance network like Pocketero.