One reason we have Medicaid is because most Americans believe insurance coverage is necessary to obtain health care. The ACA reinforces this bias by penalizing employers who do not offer insurance and fining individuals who do not obtain insurance. While there is a place for third-party insurance in health care, employer-based insurance, in particular, has almost completely undermined the U.S. health care market by training Americans not to approach health care with a consumer mentality that balances price against quality.
Hospital pricing is nontransparent. Health care pricing, in general, is nontransparent because insurance companies (along with Medicaid and Medicare) are the largest purchasers of health care. Most individual consumers simply do not care how much their health care costs because their insurance provider is paying the bill. Those few who do pay out-of-pocket are often charged exorbitant prices, with one recent study finding charges more than 10 times the amount allowed by Medicare, with “a markup of more than 1,000 percent for the same medical services.” “Because it is difficult for patients to compare prices, market forces fail to constrain hospital charges,” conclude the authors.
Fixing health care will require creating a market that incentivizes quality care at a lower price. Lawmakers should promote policies that encourage consumers to pay cash for health care, or to at least begin to ask about price. Three policy reforms, in particular, can unleash the power of pricing in health care: Large Health Care Savings Accounts (HSAs); direct primary and surgical care; and comparative shopping incentives.
An HSA is a tax-advantaged medical savings account that, under federal law, must be paired with a high-deductible health insurance policy. Because HSA holders have high deductibles, they tend to pay cash for minor services. If HSA contribution limits were higher, more consumers could use their HSA to pay for major medical procedures. While Mississippi can’t increase the federal limit, it can increase its own. Much like Singapore, federal policymakers could also create subsidized HSAs as an alternative to Medicaid.
State lawmakers should also incentivize direct surgical care. In 2015, Mississippi became one of the first states to protect the contractual right of physicians to provide direct primary care, also known as “concierge care.” Concierge care patients pay a monthly fee to a physician in exchange for a predefined set of benefits, such as unlimited doctor visits. The next step is to expand the direct payment model to surgical care, as is being done at the Surgery Center of Oklahoma. At least one public health plan (Oklahoma County) and numerous private employers are bypassing the traditional insurance model and partnering with the center, which bills itself as a “free-market loving, price displaying, state-of-the-art facility.” The center lists on its website all-inclusive prices for hundreds of procedures, attracting customers from around the world. It does not accept insurance. The center’s prices are about 1/6 that charged for comparable procedures at local nonprofit hospitals and lower than what Medicare or Medicaid would pay.
Finally, even people with traditional insurance can be encouraged to comparison shop. Some states have experimented with mandatory pricing transparency without much success. The missing element is to provide an incentive for consumers to actually shop around. New Hampshire is seeing success by using an app that enables state employees to compare health care pricing. If an employee elects to use a less expensive provider, he gets to keep some of the savings. The rest accrues to the state. In three years, the New Hampshire State Employee Health Plan has saved $12 million, with $1 million going back to shoppers. In 2017, Maine also instituted incentivized shopping for small-group health plans.
The reforms described above would benefit all consumers by using the power of pricing to deliver affordable, quality care.
This is an excerpt from Medicaid: A Government Monopoly That Hurts the Poor by Jameson Taylor. It was published in Promoting Prosperity in Mississippi.