The Quiet Revolution in Health Insurance, Part II The Dirty Secret of Charge Masters

John Owens | 11-14-2017

This is the second of a three-part series highlighting alternatives to the traditional fully-insured healthcare insurance model. 

How many small businesses are faced with the prospect of consistent health insurance premium increases – year after painful year? How long will it be before the cost of your health insurance becomes not just unaffordable for your company, but your employees as well? Is that five years from now? Three years? Now?

When I say costs, I also mean costs related to your benefit design. Not only are premiums going up, but in an effort to keep premiums even remotely affordable, employers are shifting more of the benefit costs to employees through higher deductibles and copays.

Basically, greater cost equals less value, year after year. I can’t imagine an economic model that is in more need of disruption.

Allow me to point to an important culprit in this whole process. The offender is ever-present and is usually embedded in traditional health plans.  I’m referring to “The Managed Care Preferred Provider Network,” or, more commonly known by the acronym PPO.

Most of us think of the PPO like a vigilant guard dog; protecting us from the outrageous overpricing of our providers at the doctor’s office, clinic and hospital. That PPO guard dog protects us with their 20%, 30%, or even 50% discounts.

 But no one is asking an important question: 
“Discounts on what exactly”?

In February of 2013, Time magazine published a cover story entitled Bitter Pill, Why Medical Bills Are Killing Us.” The article was groundbreaking and shocking. Unfortunately, no one in legislative power has paid much attention—then or now.

The essence of the 11-page article was an indictment of the outrageous costs incurred by provider “Charge Masters,” which is the underlying “price guide” for every procedure, every service, and every charge that is incurred while under treatment at a hospital or other medical facility.

Some of us, who have been an inpatient at a hospital, can relate to the bill received by the Recchi family in the Time article which indicated that a simple chest x-ray cost $283 (which under Medicare would have been $20). The markups on some of the other medical treatments and items were as much as 400 percent. 

The Charge Masters are not restricted to ANY aggregating cost database established across hospitals, clinics or doctors. There is no reasonable and customary basis for what the Charge Master decides should be the cost of a procedure or service. As the Time article author Steven Brill wrote, “No hospital’s charge master prices are consistent with those of any other hospital, nor do they seem to be based on anything objective — like cost…The only constant is the sticker shock for the patients who are asked to pay.”

This is where that guard dog PPO network starts the “shell game” of discounting their fees. There’s no transparent data to demonstrate the credibility of these discounts. 

 This is the “Dirty Secret.”

The employer who selects the traditional health care plan believes that the PPO network is there to protect their company’s plan against outrageous costs.

However, the PPO plan doesn’t represent your plan. Let me repeat that. The PPO network doesn’t represent your plan. The PPO contractually represents the Providers – and their Charge Master. The PPO’s primary customer is not the health care consumer, it is not the employer who selected the plan, and it is not even the insurance company paying the claims. The PPO’s primary customer is the health care provider – the same organizations developing these arbitrary Charge Masters, which are designed to augment their bottom lines.

That’s a vitally important distinction as the employer is expected to bear the costs not just of the claims, but if your employees use the plan in any meaningful way, the cost of your premium increases. And, as a small employer, there is often no transparency in providing claims information to  justify the higher premiums. The provider and the insurance company Charge Master negotiate to provide a “reduced” rate for services, but you and your broker do not see the details of this negotiated rate. 

In my next blog, we’ll talk about Reference Based Pricing, a possible alternative to large health insurance providers and their Charge Masters.

Up Next: Part 3 of the series, Reference Based Pricing 


Need help in deciding what health care insurance is best for you and your employees? Contact John Owens, Vice President of Lewer Benefits Group for a personalized consultation. Reach him at  1+(800) 821-7715, ext. 109 or by email at

Author: John Owens

John Owens is Vice President of Lewer Benefits Group. He is a renowned medical insurance consultant with more than 36 years of employee benefit experience. He assists small business clients in designing affordable and sustainable health and benefit programs.