Fear of surprise medical bills is significant for many Americans. A 2018 poll by the Kaiser Family Foundation found that 67 percent of Americans live in fear of a medical bill they will not be able to afford, and many Americans forgo care because of the cost.
But while solutions from Democratic presidential candidates appear to be entirely focused on more government intervention, the Trump Administration announced a broad rule that is aimed at bringing more market forces to bare on the healthcare industry.
The new rule would require insurance companies and healthcare providers to disclose the final, out-the-door prices that they are likely to pay to patients. This would represent a sea-change in the health insurance industry where the negotiated rates between providers and insurers are treated as something close to state secrets. The only information made public, often known as “chargemasters,” bear little resemblance to what healthcare consumers actually pay. Consumers are often the in the dark until the dreaded day that bills start to arrive.
Having this information is important because, as Nobel Prize-winning free market economist Milton Friedman noted, price information is perhaps the most central component of a free market system. Allowing consumers to view the total bill they are likely to pay before agreeing to a procedure at a certain provider would empower consumers to “shop around” for the best combination of quality and price.
Such a process would probably not be useful for emergency care. But for other procedures where there is time to look at alternatives—such as a knee replacement or long term cancer treatment—there is the potential for significant savings.
Fortunately, we don’t have to rely on economic theory to make these claims. Two studies have taken advantage of variation between states in the extent to which they already enforce price transparency to see if it has, in fact, had a meaningful impact on consumers. A 2019 study by a University of Michigan scholar found that price transparency laws in New Hampshire—which has been at the forefront of this movement—lowered patient spending by about 4.3% from 2007 to 2011, resulting in $7.9 million in savings to patients. A first-of-its-kind national study by WILL found that states with better transparency laws reduced the number of people who could not access healthcare due to cost by about 7%.
By moving forward with price transparency nationwide, the Trump administration is working towards a day when all Americans can enjoy these potential savings.
Price transparency changes are by no means a silver bullet. The problems with America’s healthcare system are far-reaching and longstanding. But it does represent an alternative vision for the future of American healthcare that is a movement back towards the free market and away from the wholesale government takeover that is being proposed by Democratic candidates like Elizabeth Warren and Bernie Sanders.
America has not had a true free market in healthcare in more than fifty years, and it seems worthwhile to try it before throwing the baby out with the bathwater.
Dr. Will Flanders is the Research Director for the Wisconsin Institute for Law & Liberty.