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Prices Prices Prices
Price Transparency’s Untapped Potential

Price transparency might work even better than anyone knew. The Journal of the American Medical Association recently published a study on Castlight Health, which provides information on health care prices and quality to users. The study had divided more than 500,000 individuals across different states and insurers into two groups: those who used Castlight (study group) and those who didn’t (control group). In situations where the study group had to pay co-pays or deductibles, members spent less on health care when they knew the prices than when they didn’t. That’s a pretty obvious and straightforward finding, in line with just about every study we’ve seen so far on price transparency. But the researchers uncovered something even more interesting, via the Real Health Reform blog (h/t Ben Domenech):

Importantly, the search for value seems to continue even when the financial incentive is taken away. The authors write—

“We also demonstrated that payments for claims, even without cost sharing, were lower for those who searched than for those who did not. This result may be in part due to inertia because clinician choices when employees must pay a deductible might persist even after they have reached the deductible and have little or no cost sharing.”

In other words, economizing behaviors continue even after the cost sharing is ended.

Fixing price opacity is an incredibly low-hanging fruit and each new study confirms its positive effects could be wide and deep. Yet the majority of U.S. states are failing to pursue it. A few states, including, perhaps surprisingly, Massachusetts, have taken very good first steps. But overall the nation isn’t, and that seems like a policy failure of the highest magnitude.

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  • Andrew Allison

    States, I hope, lack the power to compel anybody to post their prices. The repositories of the needed information in the case of healthcare are the insurance companies, some of whom already direct their customers to lower-cost providers. Providers bill the insurance companies (including Medicare) their inflated charges and the insurance companies pay what the providers have agreed to accept. In the case of private insurance, that’s it. In the case of Medicare, because reimbursement rates are so low that providers are refusing to accept new Medicare/Medicaid patients, some providers decline to accept the Medicare reimbursement as payment in full and bill the patient for the difference. The most effective way to address this issue is for patients to find a provider who does.

    • FriendlyGoat

      Yeah, it’s a sweeter idea to have frail elderly people shopping all over the place to find out which health care stores are selling a $3.00 gallon of milk instead of a $10.00 gallon than it is to have the stores actually embarrassed (via government-run publicity) into sensibly competing with each other in the first place.

      • Andrew Allison

        Your reply is irrelevant to my comment. Providers of healthcare have the option of accepting insurance reimbursement, which establishes both the amount billed and what the provider has agreed to accept. Provider participation is entirely voluntary. As a libertarian (not a so-called “liberal”) I would be opposed to the States requiring non-participants to publish price lists (in the same way that I am opposed to individuals being required to have insurance or pay a penalty). If they choose, which they very-well might if the insurance data were available to the public, to do so for competitive reasons all well and good, but compulsion is a step too far. Similarly, as should be clear from my original comment and this follow-up, insurance companies should be encouraged, but not required, to make available the amounts billed and paid.

        • FriendlyGoat

          Actually, my reply precisely addresses your comment. You believe that patients (perhaps ESPECIALLY Medicare patients, who all are eventually old, frail, sick and confused) should bear the sole responsibility of making the incorporated providers actually compete on price. I believe all citizens have the responsibility to get this done collectively, through government, just as surely as we attempt to enforce anti-trust laws.

          • Boritz

            No luck required. “encouraging” = industry favorable tax laws and regulatory ‘streamlining’ , not saying ‘pretty please with sugar on top it’s for the children’.

  • FriendlyGoat

    The “low-hanging fruit” on this subject has been hanging low for about 30 years now.

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