A few months ago, I received the bill from the nonprofit hospital where my daugher was born this summer. The bill was over $20,000, and that was for a routine procedure with no complications!

Thanks to Harvard, we were fully insured, so our total expense out-of-pocket was only $100. What may not be obvious to everyone, however, is that the insurer didn't pay the difference. In this case, most of the charges were simply wiped away. The insurer only paid a special, negotiated rate of a few thousand dollars.

I call this a "funny money" game because almost nobody really pays what the hospitals charge. The private insurers negotiate a big cut for their patients' bills and the government gets an even larger cut for Medicare and Medicaid patients. (That's part of the game for the hospitals -- first inflate the charges, then give the illusions of discounts.)

And then there are the working poor who aren't destitute enough to get Medicaid but who do not have a job good enough to provide health insurance. They are the ones who get trapped in this absurd game. For them, the exorbitant charges are quite real -- real enough to ruin their credit and to prevent them from seeking additonal medical care in the future. Many eventually end up losing their homes to foreclosure or even resort to bankruptcy.

There are two noteworthy developments on this front...

In a huge settlement approved this week, one hospital system admitted that they "never expected to collect most of these charges" in the first place. By way of this comment, they were trying to minimize the significance of the settlement. But in my eyes, this comment just reveals the pointless cruelty of the game they have been playing all these years.

This week, nonprofit hospitals in Washington State announced a new set of charity care protocols that will give discounts to patients, depending on their assets and income. This sort of change definitely takes the edge off, but the fundamental funny money strategy continues as long as hospitals are free to set the chargemaster rate in lalaland.

Rather than negotiating down from an invented number, why not simply require that the uninsured pay the same rate as insured patients? This would eliminate the contrived chargemaster rates, and instead, insurers can use the medicare and medicaid rates (and their own research as to the costs of care) in their negotiations with the hospitals.