Why Not Medical Pricing Transparency?

by Josh Barro

Recently, my employer switched to a high-deductible health insurance plan, which means I’m paying at the margin for most of my health care. As a result, I have become more aware of the true cost of the care I receive—and more aware of how difficult it is to figure out that cost.

As it happens, I need to get a new primary care doctor, because my old doctor doesn’t take my new insurance. Since I’ll be paying for my own office visits, I’d like to find a doctor who is inexpensive. But there is no good way to figure this out. I know that my old doctor was charging just over $80 for an office visit, but I can’t easily find out what other doctors charge.

I have also found that, if you ask doctors how much a service costs, they tend not to know. I once had an argument with my doctor, who did not want to give me a blood test for fear that my insurer would deny the claim for the expensive test. I later found out that this test costs all of $9.48 at my insurer’s negotiated rates, despite a list price of $169. When I got orthotics, my podiatrist told me they would cost nearly $600. But that was the list price; the actual insured price was less than $250.

The extreme opacity of medical pricing undermines the high-deductible plan model. High-deductible plans are supposed to help control medical costs, because consumers, with “skin in the game,” will make frugal medical choices. But how can we exercise frugality if we have to make the choice to buy medical services before we know what they cost? How can we comparison shop if we can’t easily find out competitors’ prices?

It doesn’t have to be this way. We could legally obligate hospitals and medical practices to disclose their full price lists—both the inflated list prices and the rates negotiated with each insurer that the practice accepts. This would enhance price competition between medical providers and significantly strengthen the Health Savings Account model. HSAs and high-deductible plans give health care consumers an incentive to impose price discipline. Pricing transparency would give them the tools they need to do so.