30 sec brief
Nearly one in five dollars of U.S. GDP is related to health care spending. In 2017 we—consumers, our employers, insurers and the government– collectively spent $3.5 trillion on health care, which works out to nearly $11,000 per person. Alas, this sizable chunk of the economy operates with minimal transparency. Here are a few transparency issues that…
Nearly one in five dollars of U.S. GDP is related to health care spending. In 2017 we—consumers, our employers, insurers and the government– collectively spent $3.5 trillion on health care, which works out to nearly $11,000 per person.
Alas, this sizable chunk of the economy operates with minimal transparency. Here are a few transparency issues that individuals see today:
- Patients aren’t given price estimates before a procedure and are often hit with surprise bills for the care they weren’t told was “out-of-network.” In today’s world where many consumers have high-deductible health plans and also are on the hook for a percentage of all care—coinsurance is a common feature of many insurance plans – not having an estimate of the out-of-pocket cost can wreak havoc with one’s finances. A recently published academic study estimates that around two-thirds of household bankruptcies are due to health care expenses.
- Pricing varies widely within a city or state. A recent study found that a knee MRI in Massachusetts varied in price from $476 to $1,423 depending on where it was performed.
- Consumers lack access to “quality assessments” of a medical care provider, hospital or out-patient care facility.
- Doctors lack a quality-assessment system that could inform who they choose to refer patients to.
- Pharmaceutical costs are often a black box. Drug companies negotiate prices with insurers who then negotiate prices with retailers, and consumers are left on the receiving end of a process that is anything but uniform. Within your zip code, the price differential on the same drug could vary by 2x to 3x or more based on the provider. (You can see for yourself at the GoodRx website.) And as you may have already figured out, paying cash is sometimes cheaper than going through your insurer.
There are now initiatives afoot to increase health care transparency. A new federal rule requires hospitals to publish their “list” prices. But that’s not terribly useful, given that insured patients are billed based on prices their insurer has negotiated with the hospital.
President Trump recently signed an executive order that would require insurance companies and the hospitals they contract with to publish their negotiated prices so actual consumers who end up paying large chunks of those bills might have a clue what they are in for. (That said, there is a long road between an executive order and the implementation of any final regulations.)
Many employers offer their workforce free tools to comparison shop in-network among different providers of specific procedures. But one study reported that barely half of these price-comparison engines use the actual negotiated price an insurer and medical provider have contracted for, and instead rely on a somewhat useless list price. The American Medical Association recently suggested eight steps that would increase price transparency for consumers, ranging from physicians assuming a role in conveying procedure costs to insurers making sure online information about in-network and out-of-network providers is kept up to date.
About the author
Carla translates business and personal finance concepts into engaging content that helps individuals make more confident choices in how they manage their money. Her work appears in The New York Times, Money Magazine, Barron's and Consumer Reports.