States Can Shed Light on Health Care Prices
by Patrick Gleason
June 10, 2014
As Obamacare was being debated in Congress in 2009, Peter Orzag, the Obama administration’s first Office of Management and Budget director, famously claimed that the new entitlement would “bend the cost curve.” Five years later, it’s clear that Obamacare has not and will not bring down health care costs. The Rand Corporation predicts that Americans who buy health insurance on the Obamacare exchanges will pay nearly $2,000 more annually by 2016 than they otherwise would’ve.
A major barrier to reining in health care costs is the lack of pricing information. In a free market economy like the United States, price transparency is essential. Whether it is the supermarket, car dealer, maid service, or other business, prices are clearly advertised to consumers, which allows them to make the most rational and cost effective decisions. Such price transparency does not exist in the health care industry. This price opacity is one of the most significant obstacles to bringing down health care costs. However, while Congress is doing nothing to address this problem, solutions are coming from the state level.
Health care consumers with high deductible, low cost plans already have an incentive to pay close attention to the price they pay, since it comes out of their own pocket. However, patients who have first dollar, expensive insurance often have no idea what their insurer ended up paying for their treatment. Sometimes the insurer is even billed for services not received. This lack of price transparency costs health care consumers, insurers, and Americans taxpayers a lot of money.
Lack of health care price transparency prevents the downward pressure on consumer costs typically produced by free market competition. The vacuum of cost information in the health care industry yields considerable price disparity. In 2013, The Washington Post compared two hospitals in Miami that were located on the same street, and found staggering differentation in price for the same procedure.
The Washington Post found even greater price disparity on a national level. The average charge for a lower joint replacement from the University of Maryland Medical Center was $36,000, whereas the Las Colinas Medical Center in Texas billed, on average, $160,832 for lower joint replacements.
Under current law, insured consumers often don’t even know the price paid by their insurer. In most states, hospitals do not disclose costs for procedures. This lack of transparency prevents consumers from comparison shopping to get the best deal.
Catalyst for Payment Reform (CPR), a non-profit that seeks to improve the functioning of the health care market, grades states’ health care price transparency laws. As can be seen in the following CPR chart from 2012, most of the 50 states rank poorly when it comes to health care price transparency.
Although the overall outlook is poor, state legislators can make health care costs more transparent and provide consumers with the information necessary to make the best decisions.
A prime example of this is House Bill 2045, state legislation signed into law in Arizona last year. As a result of this new law, championed by Arizona Sen. Nancy Barto (R), large medical facilities must now list out-of-pocket prices for the 50 most common medical procedures and small hospitals must provide prices for the 35 most common medical procedures. This reform is a significant improvement from the status quo and is a model for other states to follow.
The goal of Sen. Barto’s reform is to lower health care costs in Arizona. “Now that patients are aware of the huge cost disparities of health care services between one hospital and another, health care providers are being forced into a new world of transparent pricing,” said Barto. The next step, according to Sen. Barto, is “competitive transparent prices as the large deductibles in the Obamacare policies are factored in and people are spending their own money first.”
Thanks to Sen. Barto’s efforts, many Arizona hospitals now list prices online and the Arizona chapter of Americans for Prosperity Arizona has launched a website that allows Arizonans to compare procedure prices.
The need for health care price transparency will only become greater with time. As a recent National Center for Policy Analysis report noted, “over the past three years, almost all the significant features of the Patient Protection and Affordable Care Act have increased, rather than reduced, health costs by providing risk pool insurance to the uninsurable, forcing private plans to cover more benefits, and adding such extras to Medicare as free ‘wellness exams’ and closing the prescription drug ‘doughnut hole’.”
The high cost of health care in the U.S. is forcing many Americans to seek out more competitively priced procedures abroad. It is estimated that about 1 million Americans will travel outside the U.S. for medical care this year. Private clinics in countries like Brazil and Singapore attract medical tourists by not only offering quality services, but also clearly advertised prices.
In light of this and the gridlock in Washington, state lawmakers of all political stripes should do what they can to improve health care price transparency as a key step toward reducing the cost of health care. The Arizona bill serves as a model that lawmakers in other states should take up. The federal government is not addressing the problem and won’t be any time soon, certainly not before the 2014 elections. State legislators can and should fill this vacuum by empowering their constituents with the information necessary to make rational decisions when consuming health care.