What if there were a policy reform to break the congressional impasse on the latest COVID-19 legislation, provide a tremendous economic stimulus, and fix American health care in a bipartisan way?
This unicorn solution exists in the form of health care price transparency.
This summer, Sen. Mike Braun, R-Indiana, introduced the Healthcare Price Transparency Act. The bill requires hospitals and health insurers to publish their discounted cash prices and secret negotiated rates so that health care consumers can shop around for less expensive care.
Senate Majority Leader Mitch McConnell can overcome his colleagues’ fiscal objections to another multi-trillion-dollar legislative package by incorporating this bill into the Republican COVID-19 stimulus proposal or the next legislative action when the Senate reconvenes after the summer recess. Health care price transparency costs taxpayers nothing, yet it can turbocharge the nation’s economic recovery. It can break the Washington stalemate.
Health care price transparency can stop and put into reverse runaway health care costs, which invoke untold misery on ordinary Americans and are (in the words of Warren Buffett) a tapeworm on the U.S. economy. Employer-sponsored health coverage for the typical family of four costs more than $28,000 annually — about 45% of the national median household income.
Under the status quo, patients are blinded from health care prices until they receive their bills in the mail weeks and months later. By this time, they have no recourse to seek out less expensive options. No wonder prices are so high. Without price discovery, providers and insurers can charge essentially whatever they want. Bill $6,400 for COVID-19 testing? Charge $60 for ibuprofen? Sure, why not?
Nowhere else in the economy does this stranglehold over consumers exist, where the opacity blindfold enables after-the-fact price gouging. The healthcare industry, with its hidden and secret prices, deems the patient consumer powerless and commits everyday highway robbery. The hospitals, insurers and many middle players focus on profiting and capitalizing on the misfortune of patients.
Armed with real prices, health consumers can identify providers and insurers that offer value and steer clear of those that price gouge. Price transparency can empower patients with cost certainty in return for clear outcomes. Research by economists Arthur Laffer and Larry Van Horn finds that cash prices for care are, on average, 39% lower than insurers’ secret negotiated rates. Patients and employers across the country have saved 30% to 50% on their health care costs by forgoing opaque hospital systems and health insurance in favor of paying cash.
Transparent prices will also create a competitive market that will reduce rates because hospitals and insurers will lower them to attract more customers. Functional markets put downward pressure on prices, whether in technology, airfare or health care.
According to a 2019 JAMA analysis, one-quarter of U.S. health care spending is waste. The researchers identify administrative complexity and pricing failure as the biggest components, each representing about $250 billion in annual expenditures. Price transparency can dramatically reduce this waste and return it to the private economy, stimulating consumption, investment and economic growth.
Employers, who provide health coverage for most Americans, can enjoy higher net earnings as their health care burden falls. They can use these new funds to expand, hire and raise wages. As health economist Brian Blase points out, a shift in compensation from untaxed health care benefits to taxable wages has the added advantage of reducing skyrocketing government deficits.
Why can this health care reform effort succeed where others have failed? Because price disclosure is a nonpolitical, bipartisan and common sense issue that voters can understand. The policy has no provisions to reform subsidies or coverage mandates. It merely calls for hospitals and insurers to disclose their real prices.
According to multiple polls, this reform receives the bipartisan support of about 90% of Americans, with 71% of respondents saying it will affect their vote this November. A remarkable 98% of women under the age of 40, a demographic that has been hard hit by the COVID-19 crisis, support this measure.
Unfortunately, the healthcare industry is fiercely lobbying to keep this transparency provision out of relief legislation to maintain its enormous profits made by keeping patients in the dark. For instance, the Greater New York Hospital Association, which celebrated the exclusion of price transparency from previous stimulus bills, has donated more than $8.5 million to a super PAC aligned with Senate Democratic leadership since 2016. Yet strong public opinion can overcome these political payoffs.
Republicans can take back the mantle of the party of health care and lay the groundwork for a lasting economic recovery by including this popular price transparency solution in the forthcoming COVID-19 legislation. McConnell must recognize that now is the time to deliver on what Americans want and need in this time of crisis.