TRANSPARENCY IN THE HEALTH INSURANCE MARKET

September 14, 2009

There is a remedy for shaking up the private health insurance market: increased transparency.  And unlike the public option, this is actually favored by voters.  Americans overwhelmingly want the government to require that performance ratings on hospitals and doctors be publicly available, say Regina Herzlinger, a senior fellow at the Manhattan Institute, and Peter Pronovost, a professor of anesthesiology and critical-care medicine and health policy and management at Johns Hopkins University.

Transparency could stimulate competition by revealing which insurance companies and policies provide the most medical-care benefits and best outcomes per dollar, which ones offer the best doctors and hospitals, and which ones hassle sick people the least, say Herzlinger and Pronovost.  Armed with answers to these questions, consumers could reward best value.  If insurers with lackluster scores do not improve, competitors would enter this surprisingly entrepreneurial market.  (The leading providers of high-deductible insurance, for example, were formed only nine years ago.)

The benefits of transparency extend to insurers who could control costs by offering narrow networks consisting of the doctors and hospitals that provide the best values. In health care, as elsewhere in the economy, the best providers are frequently the lower-cost ones, say Herzlinger and Pronovost:

  • The U.S. Congressional Budget Office (CBO), for example, estimated Medicare savings of $140 billion, from 2010 to 2014, from the utilization of regional centers of excellence for surgical procedures.
  • Insurers typically do not offer these narrow networks because Americans suspect that insurers favor providers who are low cost, rather than high quality.
  • The availability of data through which enrollees could independently verify the quality of doctors and hospitals would alleviate such concerns.

Further, the mere act of providing data motivates providers to effect changes, a phenomenon known as "the audit effect," say Herzlinger and Pronovost:

  • The CBO estimated that sharing peer-profile scorecards with physicians would save Medicare $350 billion from 2010 to 2014.
  • Some evidence suggests that hospitals respond to publicly reported data with efforts to improve patient care and their standing in reports.

Transparency can also spur the adoption of important innovations, say Herzlinger and Pronovost:

  • For example, although Johns Hopkins researchers virtually eliminated one type of hospital infection in Michigan intensive-care units, this intervention disseminated slowly, probably because infection rates are invisible.
  • This life-saving program would have spread much faster were the public aware of infection rates.

Source: Regina Herzlinger and Peter Pronovost, "We Don't Need a Public Option; Transparency can keep health care competitive," National Review, September 10, 2009.

 

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