The High Cost of ‘Free’ Covid Testing

I didn’t pay for these tests, but it’s not free. The cost will be charged to my health insurance. A few days ago, I received a regular letter from the insurance company summarizing the amount I paid. $ 1,140 per month for my daughter’s weekly PCR test. That’s about $ 285 per test, 20 times more expensive than a quick test at home.

Both state and federal policy makers have chosen to fund Covid testing through private health insurance. California law, enacted in November, requires insurance companies to pay for Covid testing at no out-of-pocket cost from patients. Insurers are required to make refunds to test providers, even if they are off-network providers, and the state does not limit the amount of refunds.

This gives providers unchecked power to set prices and inflate the social cost of testing as a tool for controlling pandemics. Insurers will inevitably pass on costs to policyholders through either higher premiums or lower benefits.

Let’s take another look at $ 1,140 per month for my daughter’s kindergarten test. On an annual basis, the total is $ 13,860. That’s close to the average annual spending of $ 14,974 per student in a public school in California.

At the heart of the problem is that Covid testing is more than just a medical service. Regular testing is primarily for the benefit of the community. Policy makers encouraged testing by allowing individuals to test for free, but having an insurance company pick up a tab is likely to bother us for years to come. Established an inefficient system with hidden costs.

A much better approach was for the government to submit a bill for testing. Larger organizations were able to negotiate lower prices. Last fall, the Los Angeles Unified School District provided students and staff with an estimated 9 million Covid tests. The price tag was high: $ 350 million. But that’s $ 39 on test, about one-seventh of what my insurance company pays to my daughter.

Like other aspects of health care, the current system is unfair. As private insurance companies pay more for testing, pop-up tents on the corner are likely to be in wealthier areas and remain difficult to access in low-income areas.

Another option is to set the maximum permissible price for the Covid test. Medicare pays up to $ 100. This is significantly lower than what some providers charge private insurance companies. Given the way our system was developed, it may be easiest to apply this limitation more broadly. Economists usually don’t advocate price controls, but if the market is already distorted, they can be a viable alternative.

Our kindergarten, government, and perhaps even those who manage the tests are trying to do the right thing. However, forcing insurance companies to pay up to 20 times the retail price of the test causes significant moral hazard issues and misallocation of resources that should not be ignored.

Economist Kaplan is an assistant professor at the Keck School of Medicine at the University of Southern California.