As consumers suffer sticker shock over rising health insurance premiums, insurers increasingly are responding with policies that aim to hold down premiums with narrower provider networks or much higher co-pays and/or deductibles. According to the National Business Group on Health, 32 percent of American companies intended to offer only high-deductible plans to their employees last year.
As out-of pocket costs rise, so does consumer interest in the cost of the procedures they undergo. Legislation pending in Maine would add it to the list of states requiring hospitals and other providers to share price information with prospective patients upon request. But the legislation goes further. It would make Maine the first state to allow consumers and insurance companies to split savings of more then $50 if the consumer can find a provider that offers the service at a cost that is lower than the regional average. A similar shared-savings model is in place for state employees in neighboring New Hampshire.
Few Maine legislators oppose price transparency, but there are concerns about the shared-savings provision. Opponents argue that the full cost of most medical procedures is hard to determine in advance and that the financial incentives won't change consumer behavior.
You are indeed unlikely to be able to get a cost estimate for a procedure as complex as open-heart surgery, but one forthcoming study suggests that the savings that could be achieved from shopping around, at least for routine procedures, are far greater than expected. The Pioneer Institute asked more than 40 hospitals in six metropolitan areas for the price of an MRI on the left knee without contrast. The prices ranged from $400 at a Los Angeles hospital to $4,544 at one in New York City. (I am affiliated with Pioneer as a senior fellow but had no involvement with the survey.)
It's hard to believe that consumers won't shop around for routine or elective procedures if they're paying a significant portion of the cost and the potential savings are that large. Indeed, the main point of the Pioneer survey is that it was very difficult for callers to get a complete price for the procedure despite state and federal health care price transparency laws. The authors argue that it is the lack of access to price information that keeps consumers from shopping.
The benefits from cost comparisons go beyond consumers' out-of-pocket savings. Medical loss-ratio laws require health insurers to pay out at least 80 percent of the money they receive in benefits, meaning that any savings the insurers realize from consumers shopping for lower prices will translate into premium relief.
That relief is sorely needed. The average annual premium and out-of-pocket costs for the nearly 60 percent of Americans covered by employer-sponsored health plans is more than $8,500. That number is expected to rise to between $13,000 and $18,000 by 2025 and could top $36,000, or about 45 percent of average household income, by 2035.
Price transparency and providing incentives for consumers to shop for better prices won't by themselves get health care costs under control. But faced with the prospect of families spending nearly half their income on health care just two decades hence, states should take action now to start bending the cost curve down. The kind of legislation Maine is considering now could be an important first step.