NCPA - National Center for Policy Analysis

What Happens When Consumers Shop for Health Care?

October 23, 2014

Price transparency is hardly a novel concept -- if someone wants to purchase a new car or hire a yard service, he would typically explore the different available options to find a good price. And providers' cost information is readily available; what consumer wants to blindly purchase something only to find out the cost later?

In health care, however, price transparency is quite uncommon. Finding out the cost of even the most basic of procedures, writes Jason Millman at the Washington Post, can be a challenge. NCPA researchers have written extensively on the lack of clear pricing within the health care sector. With the exception of cosmetic surgery, where consumers know their costs and pay out of pocket (and where prices have dropped over the last two decades as a result), health care is largely lacking in transparency.

That state of affairs, writes Millman, is beginning to change; as health care costs rise and more consumers are being asked to pay their own costs out of pocket (rather than those costs being covered by a third party), consumers are becoming more aware of the prices associated with medical procedures.

Castlight Health is a business that provides health price information to employers. It recently conducted a study on the impact of price transparency on consumer behavior. Studying 500,000 people enrolled in employer health care plans, Castlight determined that those consumers who used the company's price transparency system and were able to see the precise cost of any procedure had lower payments for all of the services studied: imaging services, CT scans and clinician office visits. According to Castlight:

  • Advanced imaging tests were 13 percent lower for those who used the transparency tool, with an average savings of $124.74.
  • Lab tests cost 14 percent less for those who checked the prices before agreeing to the services.
  • Clinician office visits were 1 percent cheaper for those checking prices.

In the current market, health care providers do not compete on price, because the majority of a patient's health care costs are paid for by a third party, not for the consumer himself. As NCPA Senior Fellow Devon Herrick has explained, in the health care markets in which consumers shoulder the cost of their care, costs are more stable.

Source: Jason Millman, "The incredible cost savings that are possible when patients can actually shop around," Washington Post, October 21, 2014; Christopher Whaley et al., "Association Between Availability of Health Service Prices and Payments for These Services," Journal of the American Medical Association, October 22, 2014. 

 

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