Showing consumers health care pricing could lower costs

The Democratic candidates for president in 2020 have various plans to alter America’s health care landscape, but they all share one core tenant: a massive expansion of government-run health care. From Sen. Bernie Sanders’ “Medicare for All” to former vice president Joe Biden’s “public option,” there appears to be consensus that the failings of America’s current health care system represent a market failure, and that the solution comes from a move in the opposite direction.  

Yet against this backdrop of support for massive increases in federal spending in health care, some health care reformers are making a real effort to move in the opposite direction. Rather than too little government, these reforms suggest that we ought to get government out of the way.  For example, direct primary care legislation has been proposed in several states to permit providers to cover the vast majority of an individual’s regular health care needs for a flat monthly fee that is often cheaper than traditional insurance.

At the national level, Reps. Mike Gallagher (R-Wis.) and Ed Perlmutter (D-Colo.) have put forth another reform that could make the process of determining where to get a particular procedure much easier. Their proposal would require the creation of a database where consumers could put in their insurance information and the procedure they are looking for. The average price paid by consumers for that procedure, with the provided insurance information, is then provided for all nearby health care options.  

President Donald Trump has signaled support for similar ideas. “We believe the American people have the right to know the price of services before they go to visit the doctor,” Trump has said. He has outlined an executive order to direct his health agency to improve quality and transparency. 

Gallagher’s legislation represents an important policy change because the inability for people to find out what a particular procedure is going to cost is one of the larger impediments to bringing market forces to bear in health care. Although one can go to the grocery store or gas station and readily see the “out the door” price, such a thing is not possible for health care in many states.  This is problematic because, as Nobel Prize-winning economist Friedrich von Hayek noted, prices distill myriad information about products into a simple figure on which people can make decisions. They are a necessary component of a free market. Gallagher echoes these sentiments in his statement on the bill: “Clear and easy-to-understand pricing will increase competition, and competition will bring down health care costs for everyone.” 

But do we have evidence that this happens?

Fortunately, several states have implemented reforms similar to those proposed by the bill in question. Among the best examples is New Hampshire’s NH Health Cost website, where one can enter the information as described above and evaluate the cost of available providers. In our new study, we use the variation between states in the extent of their transparency laws as a natural experiment to determine if the cost of health care is impacted by the presence of such laws. We find that the presence of a high-quality transparency law such as that in New Hampshire significantly reduces the number of people who say they are unable to afford medical care in a Centers for Disease Control and Prevention poll.  

This finding is supported by an additional study of the impact of New Hampshire’s price transparency website by a University of Michigan professor. In his study, Zach Y. Brown found that consumers saved approximately $7.9 million and insurers saved $36 million on a number of common scans over five years.

Price transparency should not be thought of as a silver bullet. The problems with health care costs and access in the United States are far too complex for a single policy to solve. Yet reforms such as this represent an alternative path forward from the big-government proposals being voiced in the Democratic primary.   

Consumers have too little access to information to make informed choices. Price transparency could bring consumers peace of mind, and arm them with much better information when making important health care decisions. Congress has a chance to make this possible. 

Will Flanders, Ph.D., is research director at the Wisconsin Institute for Law & Liberty, a nonprofit public interest law and policy center in Milwaukee. Follow him on Twitter @WillFlandersWI.

CJ Szafir is executive vice president at Wisconsin Institute for Law & Liberty. He was appointed by former Gov. Scott Walker to the Wisconsin Council on Mental Health. Follow him on Twitter @CJSzafir.