Kyle Wingfield: Transparency is healthcare pricing is a must

Kyle Wingfield

Healthcare is again a central election-year campaign issue, and not only because of the pandemic. Twenty-six years after “Hillarycare” didn’t pass, and 10 years after Obamacare did, we’re still arguing about whether to give government more or less control of our healthcare.

One refrain from the “more control” proponents is that the market has “failed” on healthcare. But that statement isn’t true, because we don’t have a real market in healthcare.

The most glaring reason for that is the lack of price transparency.

The price signal is an essential element of any market. Yet as most Americans can attest, it’s very hard to know the price of a healthcare service before the bill arrives. We might know what our co-pay will be, but the total, actual price of a service? How much money will really change hands? Whether the dollar figures on an “explanation of benefits” report represent anything real? Fuhgeddaboudit.

Price transparency would help us know if we’re getting the best value for our money.

“The benefits of shopping accrue on products where people spend a large part of their income, and there is widespread price variation. And that’s what we have in healthcare,” says Brian Blase, a health economist and former special assistant to the president at the White House’s National Economic Council.

Consumers have shown they’ll shop around and save money if they are aware of prices and have an incentive to control their spending. (Despite what you may have heard, the vast majority of healthcare spending doesn’t involve a true emergency, in which the patient can’t take the time to survey hospital prices.) But they aren’t always given that incentive, especially if they have employer-sponsored insurance.

“Employers want the lowest possible cost for quality care,” Blase explains. “Insurers often make more profits the higher healthcare spending is. So over time, insurers seem to be going along with high hospital prices, and I think they play this ‘discount’ game with employers where the hospitals and other providers set really high charge-master prices. The insurer then says, ‘We’re getting you a discount off of this really outrageous price ... look at how much we saved you.’”

Some employers, from the Safeway supermarket chain to California’s public pension system, have adopted something called reference-based pricing. This model sets a benchmark rate for what the employer plan will pay for a procedure; employees can shell out their own money for a higher-priced provider or, in some cases, share in the savings if they choose a lower-priced provider. While some may worry lower prices will mean lower quality, there’s evidence to suggest that’s not true.

In areas where only some employers adopt such a model, there’s also evidence of falling prices even for other consumers: by as much as 20% on average, Blase says. A 2019 study found three-quarters of the benefits of these lower prices accrued to people who were outside the reference-based pricing model.

“So just by having a relatively few additional shoppers,” he says, “the high-priced providers had to lower their prices for everyone.”

As the California pension example indicates, a public employer can lead the way. And there’s no larger purchaser in the state of Georgia than the State of Georgia — that is, the state government, which insures state workers and teachers in local districts.

Imagine if Georgia’s State Health Benefit Plan were to adopt this model. A similar but broader reform in Montana, according to former plan head Marilyn Bartlett, allowed state employees to go five years without a premium increase; instead, they received two pay raises. The plan’s reserves nearly doubled, and the state’s non-pension liabilities for retirees fell sharply.

Those are the kinds of changes that ripple across an entire state, lowering prices for all and thereby making care and insurance more affordable. They’re the kind of changes possible, if we’ll do what it takes to have an actual market in healthcare.

Dalton native Kyle Wingfield is president and CEO of the Georgia Public Policy Foundation (www.georgiapolicy.org).

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