New transparency rule helps keep healthcare costs under control
Over the past year, consumer prices have risen 65% faster than wages. Employers can help their employees deal with this high inflation by tackling a long-standing source: health care costs.
A new federal health insurance price transparency rule that goes into effect July 1 will allow employers and all health care consumers to identify savings. By actively managing company health plans, employers can avoid the widespread health insurance overbilling and out-of-control coverage costs that suppress employee wages.
The millions of Americans who receive health insurance through their employer faced an average annual employer-sponsored family health care premium of $22,221 in 2021, 61% more than in 2010. High deductibles and copayments added thousands of dollars in additional expenses. These exorbitant costs have caused nearly two-thirds of Americans to avoid care.
The main obstacle that prevents employers from reducing these expensive costs is the hidden price. Hospitals and health insurers who maintain the opacity of actual prices can profit by overcharging consumers for care they often would not have accepted if prices were known in advance. For example, a hospital in Grand Junction, Colorado charged Mason Kochel $15,043 for an almost expired Epi-Pen, about 100 times more than its market price at a pharmacy. (Mason’s insurer covered most of that cost but still billed him $3,846 out of pocket.) Those predatory pricing is partly to blame for the roughly 100 million Americans who have medical debt.
This price veil is finally lifting. A new federal price transparency rule requires health insurers to publish their historical claims data and negotiated rates for care, giving consumers access to real prices across the health care system. For example, employers can study this price information to identify and direct their employees to hospitals that charge $25,000 for knee replacement surgery and avoid those that charge $115,000.
Starting Jan. 1, 2023, the rule requires insurers to publish cost-sharing information so patients can know their costs and purchase more than 90% of non-emergency care.
This mandate follows a separate hospital price transparency rule that went into effect on January 1, 2021, requiring hospitals to publish their actual prices, including their discounted cash and insurance rates. The American Hospital Association has found this transparency so threatening that it filed a lawsuit in the district and appellate courts in 2020 to block the rule’s implementation. The judges sided with consumers and dismissed these legal challenges.
When the real prices are known, will employers tolerate paying ten times more than a competitor for the same care, even in the same hospital? From the outset, binding prices will give consumers recourse against overcharging, overcoding and fraud. A competitive and pro-consumer market will emerge that will keep costs affordable, as in all other economic sectors.
Private companies and state and local governments accounted for nearly a third of the $4.1 trillion in national healthcare spending in 2020. When these employers can access real prices, healthcare spending can drop significantly, which which stimulates the economy significantly.
The new system-wide price transparency will also allow all health care consumers to reduce their costs of care and coverage. This will finally allow many more employers to take control of their health care costs and share the savings with their employees in these times of high inflation when they need it most.
Cynthia A. Fisher is a life sciences entrepreneur, founder and president of PatientRightsAdvocate.org, and founder and former CEO of ViaCord. Regina E. Herzlinger, Nancy R. McPherson Professor of Business Administration at Harvard Business School, has written about healthcare transparency from her 1997 book, Market-Driven Health Care, to her 2022 article, “Transparency As A Solution for the Hospital Capacity Problem.”