The Truth Behind the Mysterious “Network Discount”

Every year as your business renews its health plan, you probably hear the term “network discount” thrown about as one of the many benefits that provider offers. Unfortunately, many insurance providers don’t take the time to explain how this mysterious discount is calculated, or how it really impacts a person’s healthcare experience.

Today we’re going to take some time to demystify what a network discount is and explain why it may not be as good a deal as people are led to think.

What is a network discount?

In short, a network discount is like a “percent off” coupon for medical services. A health insurance provider negotiates with hospitals, doctors, and medical specialists to determine what percentage of a discount that medical professional is willing to give that insurance provider’s customers. While this may seem like a good idea, it leads to a few issues.

They lead to a lack of clarity.

Insurance providers generally don’t share what this negotiated discount is, even to the people covered by their insurance policies. While some legislation is pushing for that information to be more readily available, we aren’t there yet.

Insurance providers don’t have highly accessible databases that say, “You’ll get X% off this service, and Y% off that one.” Taking it a step further, that “network discount” percentage can change drastically between different types of services. So even if you know the discount for a shoulder MRI, that discount could be very different than for a knee x-ray.

That means that even if you try to plan or budget for upcoming medical costs, you really can’t. The numbers are too nebulous and—more often than not—you won’t get a straight answer from your providers.

They keep healthcare costs high.

On the high end, network discounts can reach up to about 50%. That might seem great for some applications, but the real-world application is jarring, especially when the discount isn’t there.

When one of our clients had an employee get into a serious accident, the hospital tried charging them $579 per screw used in the surgery. Their third-party healthcare administrator was able to find the exact same medical-grade screws online for $79 each, which meant the hospital was charging over seven times the cost for each component in anticipation for a discount to restore the cost to a reasonable level.

By skipping the network discount and evaluating the employee’s hospital bill straight-on (addressing more than just the surgery screws), they were able to reduce the $760,000 bill to $114,000, a 75% savings. Even if they had the highest network discount of 50% applied to all services, they would have paid $380,000 for the same bill.

Research and demand transparency.

With healthcare costs climbing higher each year, business owners are starting to take a harder look at their company healthcare, as they should. While the healthcare industry is meant to serve patients, it often misses the mark, especially on cost because of complexity and misaligned incentives. By increasing awareness of the industry’s shortcomings we can create a better, more transparent experience for everyone.

If you’re looking to dive in and learn about how you can wrangle your company’s healthcare costs—either keeping them steady or even lowering them—we’d love to hear from you. Reach out to us to start learning how you can take back control.

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