Know What You Are Buying: Why Price Transparency Is Essential
In most market environments, the payer and the user is the same person. The person who buys a car is usually the one who drives it and the person who buys a container of yogurt in the grocery store is usually the one who will be eating it. Imagine having to pay a fixed price for that yogurt without being able to see it, check the expiration date, or decide which size is right for you. Without knowing what you are buying, you can only rely on others to make decisions and hope that they know your needs as well as you know your needs.
There is very little cost transparency in the U.S. healthcare market. Often, the payer and the end user are not the same. The end-user (the patient), typically purchases healthcare services for discounted cost in the form of co-payments and monthly premiums. The insurance company and employers act as the payers – paying for the bulk of the hospital, doctor, or pharmacy bill. Patients consume goods, services and care with limited information on the cost and quality and with no thought to the effect their choices will have on the price or the marketplace. This leads to an over-utilization of healthcare services. The American Institute for Preventive Medicine estimates that more than 55% of all emergency room visits are unnecessary, as are 25% of all visits to doctor’s office.
Over-utilization and lack of cost transparency have driven up the cost of health insurance. Employee premiums have increased five times faster than a worker’s earnings since 2000, according to a report by The Henry J. Kaiser Family Foundation. Many are losing coverage as healthcare becomes unaffordable. One-third of American businesses do not offer health coverage and more than 44 million Americans are uninsured due to the increasing high cost of healthcare, according to The Henry J. Kaiser Family Foundation. Proposed solutions do not address the lack of cost transparency for the end-user.
Traditionally, managed care plans promised affordable health insurance to patients who dealt exclusively with a network of doctors and hospitals. However, HMO’s are often no longer the least expensive option. Furthermore, many patients and their physicians have rebelled against HMO’s for their perceived lack of humanity. The doctor/patient relationship has been fractured and many patients believe they are not receiving the care they need.
A health insurance plan that is trying to reduce cost can limit doctors who are trying to provide individualized quality care. Many doctors believe that the managed care system is one of limitation and denial. Horror stories have surfaced about health plans denying claims for heart patients, children with cancer, and others in desperate need even though doctors recommended immediate treatment.
A government-based, universal healthcare system has been proposed as a possible solution to much of the nation’s healthcare woes. However, it would only shift the bill to taxpayers: it would not alleviate or decrease spending or address any of the underlying problems with the current system. In fact, many of the highs utilizations areas in healthcare are with government programs.
Health savings accounts (HSA’s) can address over-utilization concerns. This solution will drive greater need for price and quality transparency in healthcare. An HSA is a tax-advantaged account which is paired with a high deductible health plan. When switching from a traditional health plan to a high deductible plan, the money saved on premiums is deposited into the HSA. The money in the HSA is used to pay for all medical expenses under the deductible. There are no co-payments and the prices have become transparent. The patient pays for the entire cost of their care under the deductible from the savings in their HSA. Patients can make informed decisions since they are exposed to the true costs.
Health savings account holders have an incentive to spend wisely because they can keep what they don’t spend. Early research shoes that people with HSA plans have a growing interest in generic drugs and treatment cost. However, it is not enough to give people an incentive to spend wisely. They must get the support they need to become smart healthcare consumers. Since healthcare consumerism is new, it can be confusing and intimidating. Healthcare consumers may be aware of the cost of their bills without knowing their options. Most people are not aware of how healthcare cost can vary or the availability of low cost substitutions.
Most consumer marketplaces have a consumer support system in place. In the automobile industry, buyers have access to numerous consumer reports as well as standard pricing information. Even the grocery industry lets shoppers compare prices with weekly ads.
Healthcare financial services must develop along with the move toward price transparency. Now that healthcare consumers are absorbing much of the initial cost of their care, they need to be aware of pricing and treatment options. This can be accomplished by giving HSA users access to medical libraries, treatment cost estimators, prescription price comparison tools, nursing lines, self-diagnostic tools, and 24-hour customer service. It should be the responsibility of the HSA provider or the health plan to offer these healthcare financial services. Without them, consumers will not be able to navigate the confusing and previously shielded world of healthcare cost.
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