Price Transparency in Healthcare Will Save Trillions

In this third article on transparency former Senator calls for "price transparency" as a way to save hundreds of billions annually, but doesn't mention that one of the root causes of the lack of transparency is the design of the Medicare fee schedule which Congress controls and has declined to fix. - Sanders DiPiero

Last year, healthcare spending grew to around 18% of the American economy, further impeding the competitiveness of businesses and driving up costs for patients. Today, the average worker pays approximately $5,700 a year towards their coverage, while the average family pays $7,900. Unfortunately, this growth in spending does not correlate to improvement in outcomes, as nearly 30% of what is spent on healthcare has no impact whatsoever.

Some blame this waste and inefficiency on America’s “private healthcare system,” and argue that the solution to these problems is to increase government control of healthcare. This couldn’t be further from the truth: the blame should be laid on both the private and public players in America’s hybrid healthcare system, who realized long ago how to profit excessively off the misaligned incentives of central planning. Government directly accounts for 45% of total spending on healthcare, while government tax policy shapes and distorts the 20% spent by private businesses.

While care is largely delivered by private insurers, hospitals, and physicians, each of those groups is influenced by price controls and regulations that stymie their entrepreneurial spirit. Too often, consumers experience “the system” as unresponsive behemoths. What’s more, health insurance obscures the true cost of care from patients, removing any incentive to shop for value, and allowing insurance companies and other middlemen to turn a profit by raising prices. Let’s be clear: there’s no real market in American healthcare. That’s the real problem

Enabling price transparency is an important step towards injecting market incentives into healthcare, and restoring the economic discipline of a truly competitive market.  Research by McKinsey and Company suggests that improving both market incentives and healthcare productivity could lower annual national health expenditures anywhere from $284-532 billion, bringing healthcare cost growth in line with the rest of the American economy. These gains could be supplemented by improving the demand-side market incentives as well: once patients can shop for quality, high prices will tend to be associated with better outcomes, as is the case in the rest of the economy.


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