NCPA - National Center for Policy Analysis

Shopping around for Surgery

February 16, 2012

Americans spend an enormous portion of their income on health care, making the system the largest in the world.  However, the rate at which consumers make purchases in the industry has gradually slowed down over the past decade, due in no small part to changes in the way in which Americans buy health care, says The Economist.

  • One of the fastest-growing means of consumption in the health care sector is the "consumer-driven health plan" in which the individual is charged with overseeing costs and expenditures from a private spending account.
  • In 2006 only 10 percent of workers had to pay at least $1,000 before their insurer picked up the rest of the bill, but this figure had more than tripled by 2010.
  • The gradual shift has been supported by the participation of large firms, including GE, which shifted its salaried employees into the new plans in 2010.

The new system, which empowers individuals and encourages them to take greater responsibility for their spending, brings to the forefront the need for transparency in the industry.  Consumers often find themselves confused by terms, unable to determine costs, and bewildered by complicated policies.  This limits their ability to make informed choices about their health care consumption.

However, the private sector is attempting to fill this void.  Intermediary firms are attempting to offer more information to consumers that, in tandem with a consumer-driven market, will increase efficiency.

  • Thomson Reuters analyzes, for example, prices from prior purchases to show consumers the cost of a given procedure at different hospitals and clinics.
  • Castlight Health of California posts information online so that consumers can shop for physicians and see previously posted reviews by other patients.
  • These efforts are supplemented by government policies -- the Government Accountability Office has found that more than 30 states have either proposed or passed laws to promote price transparency.

This is not to say that proponents of transparency will not face obstacles.  Health care is a complicated industry, and even those who specialize in disentangling it will face issue.  Furthermore, some market participants are incentivized not to share information, such as insurance companies that have brokered contracts with individual providers.

Source: "Shopping around for Surgery," The Economist, February 4, 2012.

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