We appreciate consumers’ concerns about healthcare costs, and it’s understandable that folks are alarmed when they see yet another report on hospitals’ high “charges.” But what those reports often fail to say is that charges are largely irrelevant to the vast majority of healthcare consumers. If you don’t mind, I’d like to take this space to try to add some helpful perspective for New Jersey healthcare consumers.

“Charges” are a price point listed on paper but actually are used very little in the real world. A 2009 state law caps the amount of hospital charges an uninsured individual must pay, and the vast majority of hospital payers such as insurance companies, Medicare and Medicaid all pay hospitals at rates much, much lower than these posted charges for the care they provide to you. In fact, about 62 percent of all claims for inpatient hospital care are covered by the government programs Medicare, Medicaid and charity care – and all three of those programs pay hospitals at rates that are less than it actually costs to deliver that care. Historically speaking, that’s one of the reasons charges have risen over the years – so hospitals could try to offset the losses that mount when they are underpaid by so many other programs.

Here’s why charges are increasingly irrelevant:

• A 2009 state law caps hospital charges for most uninsured patients at 115 percent of Medicare rates (and since Medicare reimburses hospitals an average of 91 percent of costs, that’s just slightly more than break-even.) These protections apply to individuals earning up to 500 percent of the federal poverty level – or up to $117,750 annually for a family of four.
• In the end, only about 4.5 percent of N.J. hospital consumers may potentially be billed at charges. These are the individuals who earn too much to qualify for a government-subsidized insurance program and who opt not to purchase insurance on their own.
• That small pool of uninsured individuals who may be billed at charges is expected to dwindle even further as more individuals are insured under the Affordable Care Act.

Yes, it’s complicated, and we admit that hospital charges don’t make much sense. No one actually designed this system; it just evolved over time as hospitals tried to adapt and survive in our broken reimbursement system.

For New Jersey healthcare consumers, the important thing to know is this: Whether you are covered by Medicare, Medicaid or private insurance, the rate paid to your hospital is much, much lower than these posted charges. And if you are uninsured, your obligation is capped by state law. N.J. hospitals also have signed on to a set of voluntary compassionate billing guidelines to work with those without insurance. Call your hospital if you are having trouble paying a medical bill to discuss the potential for discounts or a payment plan.