Where Is the Price Transparency in Healthcare?

Healthcare costs are high, but we don’t know that until we see the bill. Accountability and transparency would go further than socialization in fixing the cost problem in healthcare.

healthcare transparency

August 19, 2019

By: Bobby Casey, Mangeing Director GWP

Part of what makes the free market the best solution to meeting the needs of others is the freedom to succeed or fail.

Success and failure don’t have to be all or nothing. It could just be a tick in either direction in the bottom line. Sales are down. That’s a small fail. Sales are up. That’s a small win.

Success and failure are the indicators for whether a practice is good or bad. Businesses that pay attention to these indicators optimize their practices accordingly.

When regulations or government policies muffle or even mute this correspondence between consumers and businesses, you get major distortions.

All government programs are this way. They are not at all accountable to market forces, so they run into deficits all the time. And people left displeased with the service and product.

Several charts and studies have shown that with less government interference, relative pricing and costs have gone down on various goods and services. In fact, despite the government, vast economic improvements can be seen.

Where we see the most egregious deviation from this norm is in healthcare and education.

These two industries have an obscene amount of government interference, which subsequently has lead to higher out-of-pocket prices.

How, then, can we free the market to make those things which are important to us, more affordable?

A while back, Gordon Haave did a contribution piece that discussed “price discrimination“. It’s a pricing scheme that tries to charge each individual based on how much they are willing to pay (which is based on how much they want or need the product/service).

One of the more benign and generally accepted forms of price discrimination he describes is the senior menu at restaurants. Having a senior menu that is discounted draws a crowd of people that predictably are willing to pay a certain amount based on the fact that they are on fixed incomes. The restaurant takes a hit in margin per customer, but makes up for it in volume.

The rest of their patrons pay a higher price.

Two other industries that get away with this are airlines and universities. While people might tolerate it with restaurants and airlines, eyebrows are rising when it comes to universities. The price-tags meander around based on someone’s financial profile and the eagerness of the applicant to attend that school.

The universities throw out some asinine tuition cost, then look at the savings and 529 plans of the applicants. Unsurprisingly, the cost is always whatever is in savings plus what they think they are willing to pay beyond that.

Another industry not mentioned in the article, but where I suspect this is happening, is in healthcare. It’s hard to say definitively because healthcare lacks something these other industries don’t: transparency in cost.

Universities have their wild price-tag buried somewhere on their websites. Airlines are very transparent with their pricing as are restaurants. Hospitals and medical service providers, however, are not.

Let me caveat all this with a small distinction: high healthcare costs have a few primary culprits. Tort, patents, and administrative costs. Unto themselves, these add quite a bit to the cost of American healthcare.

The issue isn’t what is factored into the cost of healthcare. The mystery is what should healthcare actually cost in the first place?

Much like our federal tax obligations, people don’t get an itemization of what the money goes toward or their costs. They just get a tab every April that needs to be reconciled.

People get an explanation of benefits from either the insurance company or hospital that shows some outrageous price, what the insurance company paid, and then your obligation. Juxtaposing these three items, the patient’s share looks reasonable, right?

But how would you know what reasonable is? When you shop for a car, you look at Edmund’s or Kelley for a general assessment of whether a car is priced fairly. When you shop for furniture, you can compare prices between stores. In fact, when it comes for furniture, most stores offer price match guarantees!

What can you do for healthcare to hold their pricing accountable to true market value? Not much. People could look at the pricing offered by institutions that do not accept insurance, but people tend not to look there when they have insurance.

Worse still, how do we even know if people are being charged the same amount for the same procedure? The institution that doesn’t accept insurance has a fixed price for everyone who gets knee surgery. What about the institution that does accept insurance?

Is a patient with Blue Cross/Blue Shield getting charged $40,000 while a patient with Aetna is getting charged $30,000 for the same thing?

Insurance has created a sort of market complacency when it comes to healthcare costs. Yes, when the out-of-pocket is high, then people balk. But no one actually asks for the price of knee surgery or child birth.

People tend to abuse coverage when they have it as well. More unnecessary visits to the doctor. The US leads in elective C-sections, for example. A C-section is much more expensive than a natural birth. But if insurance will cover it, then why not?

…[W]hen Oregon randomized 10,000 previously uninsured people into single-payer health insurance starting in 2008, the recipients’ annual health-care spending jumped 36% without any statistically significant improvements in health outcomes.

Insurance will take care of it… until insurance doesn’t take care of it.

For procedures where insurance typically doesn’t offer coverage, you see a lot of price competition. We see this in LASIK eye surgery or cosmetic surgery. These are highly competitive areas because they have no insurance to buffer the blow of an absurd price tag.

That’s why the price of LASIK eye surgery, as just one example, has fallen so dramatically even as quality has soared. Adjusted for inflation, LASIK cost nearly $4,000 per eye when it made its debut in the 1990s. These days, the average price is around $2,000 per eye and you can get it done for as little as $1,000 on sale.

You see a lot more efficiency in veterinary care too because, while there are insurance policies, people generally pay out-of-pocket for their pets’ procedures.

Free market mechanisms are needed to right the course of such an important industry as healthcare. During the 2008 election, interstate portability and tort reform were two ideas introduced (ironically) by the John McCain camp.

I say ironically, because he wound up being the holdout that prevented the overturning of the Affordable Care Act. But his two ideas were not wrong.

The patenting laws certainly need to be revisited as well.

Portability, tort, and patents all play some part in the cost of healthcare services, but we won’t ever know what that is until we can get an honest look at the real price-tags associated with these services. Price transparency is essential.

If people want accountability from the provider and insurance side, then it’s more than fair to ask the same from the consumers and patients. Universal healthcare or Medicare for All removes all accountability from those who use these services.

Obscuring the responsibility along with the costs will only lead to further deterioration of the healthcare system. That means higher costs, higher premiums, higher taxes, or some combination thereof.

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