What Price Transparency Means… and Doesn’t

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Earlier this week, President Trump signed an executive order to bring more price transparency to medical care. Most consumers would agree this sounds like a good thing, but the details still need to be worked out and it’s not clear how helpful the new rules will prove in the end.

The trouble is that when it comes to medical care, the price you see isn’t always the price you get.

Doctors and hospitals accept different prices as “payment in full” for the same procedure, depending on your health insurance plan, or whether you have no health insurance coverage at all. Few patients pay a standard full price. Most pay a discounted rate that’s been pre-negotiated between the medical provider and the insurance company.

An illustration of how this works may be helpful.

Say three patients get the same kind of x-ray from the same hospital. The hospital’s standard full price for the x-ray is $150. Patient 1 has coverage through Insurer A. Patient 2 has coverage through Insurer B. Patient 3 is uninsured. Here’s how costs may break down:

  • Patient 1 is charged $100, the rate negotiated between the hospital and Insurer A.
  • Patient 2 is charged $75, the rate negotiated between the hospital and Insurer B.
  • Patient 3, who is uninsured, is charged the full price of $150.

This is simplified, of course. A fuller picture would have to take into account whether Patients 1 and 2 need to fulfill annual deductibles under their health plans, as well as any co-pays or co-insurance associated with the care they receive.

If new price transparency rules only require that health care providers make public the $150 list price from our example, Patient 3 could theoretically use this information to shop around for the lowest list price. But price transparency of this sort wouldn’t really help Patients 1 or 2.

The only costs that matter in the end are the actual personal out-of-pocket costs people are required to pay, which are based on their health insurer’s negotiated rate,the status of their annual deductible and any co-pay or coinsurance they’re required to pay at the time they receive care. In addition, people need access to quality-related information to avoid making inappropriate and costly medical decisions.

“You don’t want to make an important and potentially life altering decision based on price alone,” said Paul Rooney, vice president with eHealth.

Unfortunately, getting accurate quality and out-of-pocket cost information up-front can be difficult. A recent Kaiser Family Foundation survey found that two-thirds (67 percent) of respondents said it was somewhat or very difficult to find out what their medical care will cost them beforehand.

While some medical providers and insurers try to help patients understand their likely out-of-pocket costs, most consumers don’t learn what their personal responsibility for a medical bill will be until they receive the “statement of benefits” form from their insurer, after a claim is processed.

As price transparency regulations are drawn up to implement the new executive order in the coming months, it remains to be seen whether meaningful up-front insight into medical costs will result for insured consumers.