Wednesday, March 23, 2011

A modest (radical) proposal to lower health care costs

It is fun to criticize political opponents’ policies, and we have done our fair share since the Bayley Hazen blog started.  We are going to attempt to balance criticism of policy with proposals for solutions.   So, here goes: 

The Vermont General Assembly has recently required chain restaurants to post the number of calories for each of their products.  The idea is to give consumers more information with which to make more informed and healthy choices.

The General Assembly is also trying to lower the cost of health care.  Indeed, that appears to be the main goal of the health care reform proposal before the General Assembly.

Lowering costs only comes through competition, not mandated price controls.  And an integral part of competition is informing consumers of the cost of products or services.  

At the health care freedom rally last week at the State House, an anesthesiologist said that he did not know what prices his competitors were charging.  He even said he did not know what prices he charged.  He went on to say it  would be illegal for him to find out about his competitors’ prices. That is not true.  It is not illegal to find out about other professionals’ fees.  It would is only illegal to collude with competitors to fix prices.  Indeed, in every other retail sector, retailers often check their competitors’ prices, and some even brag about undercutting their competitors’ rates.

Providers of professional services have traditionally not publicized their prices.   There are a variety reasons.  The most prominent reason is the snob factor: it has traditionally been considered beneath professionals to discuss the cost of services with their clients or patients.  Other factors include the complexity of the services, and the unpredictability of outcomes which make predicting the price difficult.  Pricing for medical services is made more complicated by the fact that reimbursement for Medicare and Medicaid services is below the cost of the services, which means private consumers pay higher prices to make up for the losses health care providers incur serving their Medicare and Medicaid patients.

So here is a proposal for the General Assembly:  require all health care providers, including physicians, hospitals, chiropractors, physical therapists, to publicize their prices for services, including the prices they charge Medicare and Medicaid. 

The requirement would be a first step in bringing competition to medical services.  It would also require health care providers to simplify and rationalize their prices. Moreover, it would also tell consumers how much they are being charged to subsidize other people’s care.  To be sure, pricing will not be easy, but it is done in other sectors of the economy where pricing for services can also be complicated.

I generally do not favor such government requirements.  A far better solution would be for professionals to inform consumers of the cost of their services.  However,  the chances of that happening are low.  And we need to change the conversation from government control of health care costs to consumer control of those costs. A requirement to post prices would begin to change the culture of health care services to begin put the consumer in charge of his or her own health care.  I hope this proposal starts that conversation.


  1. Encouraging broader use of health savings accounts (HSAs)would give more consumers a direct financial stake in their own health care. It would provide an incentive to compare prices among providers resulting in a more competitive atmosphere. Competition in the health care industry would go a long way toward lowering prices/costs.

  2. I am also a big fan of HSA. It would allow people to be in control of their own healthcare, not some bureaucratic panel.