BY JIM STERGIOS AND CHARLIE CHIEPPO, OPINION CONTRIBUTORS - 07/21/20
Prices for those who pay cash for health care are nearly forty percent lower than health plans pay for the same services.
There are the exceptions—too many of them as we have learned in recent years—but most Americans are sensible. They worry about our readiness to withstand another spike in COVID-19 cases and hope for some pathway to safely kickstart economic activity.
Success on both fronts will take change—and recently introduced federal legislation could provide more help than any of the stimulus bills adopted since the pandemic began in March. Unlike those bills, it would neither be temporary nor add a penny to the debt.
The PRICE Transparency Act, introduced by Sen. Mike Braun (R-Ind.), would compel hospitals and insurers to do what is done in every other industry: let the public know what their services cost before people decide whether to buy them. Polls show that nearly nine out of 10 Americans believe all health care prices should be disclosed.
That means publishing both real cash prices and the rates providers negotiate with insurers. As a result, patients would be able to shop for the best value when seeking non-emergency care.
The United States spends a whopping 18 percent of gross domestic product on health care, compared to a mean of 11.5 percent in 10 similar countries. Reducing these expenditures would dramatically cut government costs, free up money businesses currently spend on employee health plans and generate much-needed economic stimulus by putting more discretionary income in consumers’ pockets.
Prices for those who pay cash for health care are nearly 40 percent lower than health plans pay for the same services, according to economists R. Lawrence Van Horn, Arthur Laffer and Robert L. Metcalf. The reason is simple: Those using their own money are more likely to shop for the best value.
If you think that sounds crazy, think again. A 2016 Pioneer Institute survey of 40 U.S. hospitals found that the price of a simple MRI of the left knee without contrast ranged from $400 at Huntington Hospital in Los Angeles to $4,544 at New York City’s Montefiore Medical Center.
A forthcoming Pioneer study finds that consumers in a single Massachusetts county could have saved $22 million in a single year and $116.6 million over four years by switching from the most expensive providers for 16 just shoppable services (almost all but emergency procedures are considered shoppable) to those with prices that were, on average, slightly above the mean. In general, higher prices don’t correlate with better health care outcomes.
Health care price transparency has become even more critical with the rise of high-deductible health plans. Thirty percent of employees are now on such plans and the average annual deductible of $1,655 jumped 162 percent between 2009 and 2019. “Patient responsibility” is now the third largest payer at most U.S. hospitals.
According to the Milliman Medical Index, the average American family of four spends more than $28,000 a year on health care. Applying the approximately 40 percent savings cash payers experience amounts to a stunning annual savings of $11,000, without sacrificing quality.
Employers could use the health plan savings to raise wages and invest in expansion, the amount taxpayers pay for public employee health plans would be dramatically reduced and consumers would see much more of their earnings. That extra income and the resulting spending would go a long way toward reigniting an economy devastated by the pandemic.
Today, most health care providers have no reason to offer competitive pricing, because price is rarely a consideration for consumers. Sunlight – in the form of competition in this case – is indeed the best disinfectant. Competition would force high-cost providers to cut prices in order to remain competitive.
The result would be a huge win for taxpayers, employers and consumers, and would provide significant and permanent stimulus to the nation’s COVID-19-ravaged economy without adding to the already burdensome debt that will have to be repaid by future generations.
Jim Stergios is executive director and Charlie Chieppo is senior fellow at Pioneer Institute, a Boston-based think tank.
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