There are ways to stimulate the economy other than spending trillions of more taxpayer dollars.
Lowering out of control health care costs, which are an enormous drag on the nation, would boost patients’ pocketbooks, employers’ balance sheets, and governments’ budgets – all of which are under tremendous pressure due to the coronavirus-induced economic crisis.
Lawmakers can dramatically lower health care costs and stimulate the economy, at no cost to the taxpayer, by including a systemwide health care price transparency provision in the forthcoming “Phase 4” coronavirus relief legislation. Senate Leader Mitch McConnell, R-Ky., recently signaled that this next stimulus package is “not too far off.”
As a former hospital executive and a former insurance executive, respectively, we’ve seen firsthand how health care costs have grown to the point where they consume 18% of the national economy and place 16% of Americans in debt.
Waste, administrative bloat and intermediaries drive up health care costs, which are then passed on to health care consumers – namely, patients, employers and government entities. A recent JAMA study estimated that waste accounts for one-quarter of health care spending, or about $1 trillion annually.
Price gouging, overbilling and upcharges make prices far higher than anything reflecting value or cost. People generally point to inflated prices – as opposed to, say, overuse – as the main reason for stratospheric American health care costs. “It’s the Prices, Stupid” is the title of an influential 2003 paper on the topic.
Yet these cost-drivers are just symptoms of an underlying disease: the lack of clear prices in the health care sector. Under the status quo, health care consumers do not know what they’ll pay until after treatment occurs. As a result, providers can charge far more than if patients had pricing information to inform their treatment decisions before receiving care.
Most Americans have health insurance, but it offers limited financial protection. According to the Kaiser Family Foundation, the average annual premium cost for an employer-sponsored family plan is more than $20,500 – a 54 percent increase over the last decade. Insurers and providers negotiate secret reimbursement rates that are lower than hospitals’ list prices but still far higher than anything resembling a market price. According to research by economists Art Laffer and Larry Van Horn, cash prices for a market basket of services were 39% less expensive on average than the rates that insurers pay.
Requiring hospitals and insurers to post negotiated rates and cash prices can significantly reduce inflated health care costs. Passing this reform legislatively would moot a Trump administration transparency rule for hospitals that’s currently the subject of a court battle.
This price transparency would allow consumers to shop for the least expensive health care option. They could avoid wasteful and high-priced providers and insurers in favor of those that offer real value, mirroring their counterparts in the rest of the economy who ruthlessly punish bad companies. Eliminating pervasive health care waste alone could save around $1 trillion each year, amounting to a significant economic stimulus.
Price information creates a market, putting downward and convergent pressure on prices as providers and insurers lower rates to attract customers. Transparency gives patients the peace of mind that a hospital trip won’t bankrupt them and ends surprise billing. It empowers consumers who have been powerless for so long.
Some small businesses have taken matters into their own hands and partnered with price-transparent providers such as the Surgery Center of Oklahoma, cutting their health care costs in half. Montana was able to save its state health care plan from bankruptcy after one of us (Marilyn) analyzed claims data and demanded transparency and better deals from hospitals in the state.
With 40 million Americans out of work, small businesses facing significant revenue constraints and tax revenues cratering, price transparency-induced health care savings are needed now. Less expensive health care means more money for patients to spend, more earnings for small businesses to hire and larger portions of government budgets devoted to services.
This economic stimulus can do more to lead the country out of the recession than another trillion dollars from taxpayers. Systemwide health care price transparency, which can tremendously benefit all Americans, belongs in the next federal relief package.