Consider shopping for cereal in the grocery store. Buyers easily know how many grams of sugar and calories are in a serving, as well as how much the box costs, before they get to the checkout line. Yet in the U.S. health care market, this often isn’t the case. Prices are both high and highly variable as well as difficult to observe. I’m an economics professor. In the courses I teach, I expound on the importance of complete and accurate information about prices and quality in well-functioning markets. When buyers and sellers have access to accurate and timely information, the invisible hand can become a powerful force that causes prices to fall to the level of costs and markets to be efficient.
My own research shows that the same procedures, such as MRIs and office visits, vary greatly from one community to the next. But don’t take my word for it. Award winning hip-hop artist Fat Joe recently said, “Well, if I’m going to have a colonoscopy, I want to look up my three favorite hospitals and see what the prices are. … It’s the only thing in the world that you go to and you gotta guess how much you’re paying.”
It doesn’t take a Nobel Prize (or a Grammy) to realize that without price transparency in health care, consumers might suffer. Despite progress in the past few years, that’s precisely where we might end up. Recently adopted rules such as the hospital transparency rule (which requires hospitals to publicize prices they negotiated with insurers) and Transparency in Coverage (which requires group health plans to post prices for their covered items and services) are at risk of getting bogged down by regulatory malaise. The hospital rule suffers from penalties too small to deter facilities from widespread noncompliance. Transparency in Coverage has been described by Sabrina Corlette of Georgetown University as “a mess.” The issues arise from massive file sizes and lack of standardization, which inhibits end-users of these tools from accessing the potential benefits.
But there’s still time to treat this disease.
Many people think that price transparency is all about individuals picking the lowest cost procedure. Yes, this element of consumer choice is important. But price transparency is also about empowering employers and unions to design the best health plans by accessing and auditing claims encounter data. And that’s where our current policy falls short. The Transparency in Coverage data is difficult to analyze for researchers and firms. And firms in particular need to be able to access this data. After all, our employers are fiduciaries and ought to have total access to receipts of the health care payments they make and digital confirmation of such. We should be reimagining health care benefits from something that falls under the domain of human resources to one that falls under the domain of the chief financial officer. When our employers (who ultimately negotiate our health care costs when we get insurance through work) cannot find the lowest cost at a given level of quality, employees get stuck with the bill. Individuals appreciate having choice in their health care, but opacity often increases money spent because our employers can’t keep track of the best value for the cost.
Let me lay out an example: The Osceola school district in Florida realized they weren’t getting a fair shake from their insurer on their benefits and administration, so they took corrective action and fought on behalf of their employees, collecting a $582,000 settlement. This kind of success story is only possible if employers themselves — and the C-suite executives responsible at the end of the day for health care costs — can take power over their own data. Halting improper payments, and hunting around for low-cost options when prices can vary by a factor of 10 or more, is a key way that employers and unions can harness strong price transparency rules in the interest of employees.
I recently had the chance to watch congressional hearings on price transparency. One thing I observed was how much agreement exists between both Democrats and Republicans on the importance of transparency. The Healthcare Price Transparency Bill, led by Senate Health Education Labor and Pensions (HELP) Committee Chairman Bernie Sanders (I-Vt.) and HELP Committee member Sen. Mike Braun (R-Ind.) goes a long way toward codifying many of these pro-market, pro-consumer ideas. The Senate bill would require disclosure of all negotiated rates and cash prices between plans and providers, not estimates, and increase maximum annual penalties to $10 million, thus closing the loophole about noncompliance from the earlier rule. It would standardize the machine-readable files. And it would guarantee employers’ access to their claims data.
The principle of Occam’s Razor says when there’s a simple solution to a problem, it’s very likely to be the right solution. Getting transparent prices into the hands of consumers and their employers is that simple solution. Advancing the Senate bill seems like the logical next step.
Benjamin Chartock is assistant professor of economics at Bentley University in Waltham, Massachusetts.