Why price transparency is such a big deal in the healthcare industry


If you’ve been watching the news lately, and you’ve been paying attention, you may have heard some buzz around price transparency in the healthcare industry. Now that this idea is finally getting some attention, you might be wondering: “Should I care about this at all?”

The answer is that you should care a lot, because it’s having a profound effect on your life. In fact, you might be hard-pressed to find another issue that affects such a huge percentage of Americans in such a significant way.

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A number of recent studies show health insurance premiums growing between two and four times the growth rate of workers’ earnings over the first part of the 21st century (referenced in this article by the Wall Street Journal, or this one published by the Economic Policy Institute). This means healthcare costs are eating larger and larger portions of our overall income, leaving our businesses with less money to spend on growth or employee wages, and leaving us all with significantly less disposable income. Actually, it’s worth discussing how the healthcare industry might bear some responsibility for the snail-like pace of our economic recovery, but that’s a conversation for another day.

So what does price transparency have to do with the ever-increasing high cost of healthcare? Well, a lot, actually.

You might not be aware, but by law, your health insurance premiums are directly related to the cost of medical claims. Your insurance carrier is only allowed to mark up the actual cost of their claims by 25% (this is one regulation outlined by the Affordable Care Act). So, if a carrier’s policyholders spend on average $10,000 per year in total medical costs, the carrier is permitted to charge each policyholder no more than $12,500 per year in total health insurance premiums. In a nutshell, health insurance is expensive because medical care is expensive.

The obvious follow-up question is this: “Why is medical care so expensive?”

This is a question that has a lot of answers—American healthcare is an incredibly complex system with a lot of moving parts—but experts from all corners of the industry are coming to the consensus that a lack of price transparency is perhaps the biggest culprit. A study we recently conducted at MMS Analytics, Inc. found that NH residents could have saved 74% on the top 100 most common medical procedures in 2013, if they had the opportunity to shop for their care based on price. Instead of the $466 million actually spent last year, the cost of these 100 routine procedures would have been only about $120 million if consumers had the information necessary to choose a high-quality, low-cost provider instead.

This is why price transparency is so critical. Most of us have received a bill for some kind of medical care and been totally surprised by the price. The healthcare industry norm is not to price products and services competitively, but instead to simply send consumers an arbitrary bill after the fact (often weeks later). In our current system, patients have very little or no access to pricing when they make the decision to receive medical care, which means they have no consumer power to drive down the cost of their care. Industries that lack price transparency feature high rates of price gouging, and very few of us even realize it’s happening (if you have time to read a 42-page exposé on this subject, check out Steven Brill’s “Bitter Pill”). Without price transparency, there is no economic force working to drive down the cost of our medical care, and the result is that we’re all paying way too much.

By arming medical consumers with the ability to consider price when they’re making decisions about where to receive their care, we can introduce a powerful new economic force into the market—one that can dramatically reduce what we’re spending on healthcare individually, and as a nation overall.


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Ensuring Compliance with the No Surprises Act and Transparency in Coverage Rule