A New Plan Brings Clarity To Healthcare Price Transparency–Finally

In health policy, there’s nothing quite as opaque as price transparency. Insurance companies and hospitals tend to say there’s no place for it in the healthcare sector, since medicine is more complicated than cars or groceries.

Other skeptics say that implementing transparency rules is too hard. Hospitals have largely flouted a two-year-old Trump administration directive that they post their prices online. Parsing the pricing information of those that have complied appears to be beyond the skill set of most ordinary consumers.

But the true problem is that consumers still aren’t incentivized to take advantage of the ability to shop around for the best value that price transparency can enable. Policymakers can change that by making some tweaks to the design of a standard health insurance policy—and inviting consumers to share in any savings they secure.

There’s no denying that healthcare costs are out of control. Total national health expenditures reached more than $4.1 trillion in 2020, up from $3.8 trillion in 2019. The price of hospital services has risen 200% over the past 20 years.

Health care has gotten so costly that four in 10 Americans tell Gallup they’ve foregone some kind of medical care in order to save money.

Health care is expensive because prices are severed from market forces. Insurers negotiate with providers to determine how much they will pay for a given service. Patients may be responsible for their first few thousand dollars of healthcare expenses through a deductible. But without access to transparent pricing, it’s tough to comparison-shop. And they may be limited to a specific network of covered providers, even if those providers are not the lowest-cost or best-quality.

The Cicero Institute’s Jonathan Wolfson and Josh Archambault propose fixing this with model legislation they call the Patient’s Right to Save Act. Their plan has three steps.

First, it would require hospitals to publish the cash price of their services, not inscrutable codes or what insurers pay. This would allow patients to truly compare prices and shop for what best meets their needs, as they do in every other market.

It might also encourage hospitals with low prices or higher-than-average quality to advertise their competitive advantage—a move that could inspire their competitors to lower their own prices or make quality enhancements of their own.

Second, the plan would require insurers to count payments to out-of-network providers toward a patient’s deductible if those payments are less than the lowest in-network rate. This provision would encourage patients to look beyond their provider network for the highest-value care.

Finally, the plan would direct insurers to share any savings a patient secures after hitting his or her deductible. Under this provision of the plan, patients could keep half of the difference between the cash price of care and the lowest in-network rate; their insurer would keep the other half. It’s a win-win for patient and insurer.

There are a number of follow-on benefits to a plan like this. As competition drives healthcare providers’ prices, insurers will be able to lower their own prices—and thus make coverage more affordable. Small businesses might be able to offer more generous plans to their workers without spending more on coverage.

And an army of patients shopping around for care could lead to more efficient allocation of healthcare resources, as providers and consumers balance their preferences for price, quality, and convenience.

Ideas like these could reinvigorate the free-market healthcare reform conversation. Days after the 2022 midterm elections, Axios proclaimed that Republicans were “poised to take power without a health care agenda.”

A plan that finally puts price transparency into practice, and clearly demonstrates the value of market competition, merits serious consideration by the GOP. It could also deflate progressive claims that more government—or even Medicare for All—is the only way to fix American health care.

By fostering competition, price transparency has delivered higher quality, lower prices, and better value in just about every sector of our economy. Health care has been an exception for decades—thanks largely to government policies that discourage price transparency. Ideas like the Patient’s Right to Save Act could inject some much-needed consumerism into health care—to the benefit of patients, insurers, and providers alike.