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Washington is gearing up to pass another multi-trillion-dollar COVID-19 relief package. However necessary these short-term stimulus measures may be to prevent a depression; the fact is that the bill for all this spending will come due eventually.
But what if there was a way for Congress to provide American families an $11,000 per year increase in their incomes without costing taxpayers a penny?
According to the Milliman Medical Index, the average family of four spends more than $28,000 per year on health care. This includes the cost of their insurance premiums (even if their employer pays a portion of the premium, that benefit is still the employees’ compensation).
Meanwhile, analysis by Larry Van Horn at Vanderbilt University has shown that cash-paying patients pay prices that are an average of 40 percent lower than health plans for the same health care services. A 40 percent reduction in the prices paid for health care services would represent a savings of $11,000 per year, per family.
The main reason cash-paying patients pay 40 percent less is because they take the time to shop around for the best value for their health dollar. In search of savings, they will seek out providers that offer the best combination of quality, convenience, and price.
Most patients do not do this, however, because prices are invisible to them. Further, their options are limited to their insurance companies’ networks. This is the major reason why health care prices – and therefore, health care premiums – keep going up much faster than the rate of inflation year after year. There is little reason for most health care providers to offer competitive prices because patients do not consider price when making decisions.
The Trump administration has taken a bold step to fix the broken health care marketplace with a new rule requiring hospitals to make all their prices public, including negotiated prices with health plans and self-pay, cash prices. This public posting must be in a machine-readable format to allow for third party apps to aggregate the data to allow for easy shopping for patients.
Unfortunately, the president’s price transparency rules may never go into effect. This is because the hospital association is suing the administration over the new rule, arguing the government does not have the authority under current law to require negotiated prices to be disclosed. Congress should formally codify the price transparency rule into law in the next COVID relief package to eliminate the threat posed by the lawsuit.
Getting these prices out in the open will be transformative. Americans with high deductible health plans are currently making decisions about how to spend their own money in the dark. Giving them access to prices in advance of care will supply much needed financial security and give them more confidence to seek out care, since they will know in advance what it will cost.
It will also be important for health plan sponsors. Most large employers – and an increasing number of mid- and small-sized businesses – self-insure. The way this usually works is that businesses pay insurance companies to process claims and for access to the insurance companies’ provider networks. However, the money for the claims comes from the businesses’ bank accounts.
While employers save a little money on administrative overhead under this model, most don’t really take advantage of the potential of self-insuring. This is because even though they are renting the insurance companies’ networks, the negotiated prices are still invisible to them in advance of care. So, there is little steering of their employers to the best value providers.
With full price transparency, however, employers will be able to easily see which health care providers in their areas are the best value. They can also set up shared savings opportunities and other incentives to encourage their employees to use preferred providers.
Once more patients start choosing better values, the increased competition will force the highest priced providers to lower their prices to be competitive. This will dramatically reduce patients’ out-of-pocket expenses for health care, as well as reduce the underlying costs behind high premiums.
The result will be more disposable income for families, as well as more resources for employers to invest in hiring more people, raising salaries, and making other investments.
Now more than ever, America needs the economic boost and financial security that price transparency in health care will provide. Instead of a short-term stimulus paid by more debt, this would be the sort of long-term, multi-trillion-dollar boost that could not only help pull us out of the current crisis but also propel the American economy for decades to come.
Joe DeSantis is chief strategy officer at Gingrich 360.
To read, hear, and watch more commentary from Newt and Joe, visit Gingrich360.com.