Editor's Note: This piece was co-authored by Thomas A. Thomas.
A new rule issued Thursday that will require insurance companies to show what their health plans actually pay for medical services on our behalf - prices previously shrouded in secrecy - marks a huge win for consumers.
The Transparency in Coverage final rule, released by the Dept. of Health and Human Services, requires insurance companies to disclose their secret negotiated prices in an easy-to-access online format by Jan. 1. As a result, consumers will soon know exactly what their premiums are buying them, and whether they would be better off paying for their health care in cash. Such information could be a big financial boon to many households.
In 2020, the average annual premium for a family health plan rose to nearly $22,000, 4 percent higher than last year, according to the Kaiser Health Foundation. Consumers pay that in addition to high deductibles, often as much as $6,000 per family. That means the typical working family pays over $28,000 a year to insurance companies before they get their first coverage dollar. And for what?
A recent economic study out of Vanderbilt University found that the contracted rates that insurance companies negotiate “on our behalf” were 40 percent higher on average than hospitals’ cash prices. We can’t see that our insurance coverage may not be such a good deal because we must make these financial decisions in the dark. Thankfully, that’s about to change.
Though hospitals have been the primary focus this year in the push for health-care price transparency, insurance companies are equally to blame for our opaque, over-priced health-care system. Hospitals and insurance companies are two sides of the same coin. Both keep patients blinded to price so they can profit at our expense. For the price-gouging and surprise billing to stop, and for consumers to be truly empowered, we need both hospitals and insurers to reveal their cash and “secret” contracted rates. This coverage rule gets us halfway there.
One verdict away
Last year, after President Trump issued an executive order for health-care price transparency, HHS followed with two proposed rules: the hospital price transparency rule, and the transparency in coverage rule for insurers. HHS issued the hospital rule last November, requiring hospitals to post their prices online by Jan. 1, 2021. Predictably, the American Hospital Association and its cohort sued the government, challenging the rule. In June, the hospitals lost their case in federal district court. The AHA appealed the decision, and the U.S. Court of Appeals for the DC Circuit is currently reviewing arguments in the case.
If the appellate court upholds the lower court’s decision, then both rules can start to work together to give us systemwide price transparency and transform our health system as we know it.
Once we have the whole price picture, consumers will be free to shop for both care and coverage that provides the best value. Price competition will drive down the cost of both care and coverage, the rampant grab for market control will stop, and patients will be in charge of their health-care spending.
Once consumers can see what one health plan pays for a service, like a knee replacement, compared to another health plan, or what rate a plan pays one hospital compared to another, the pressure will be on insurers to level the rates.
As it is now, neither hospitals nor insurance companies have any incentive to keep health-care prices down. The faux fighting you hear about when a hospital and insurance company are haggling over their contracts is just for optics. Both want to charge as much as they can.
The Affordable Care Act, which ushered in the Medical Loss Rule, actually fueled higher premiums. The rule said that health insurers had to spend at least 80 percent of premiums on patient claims, and no more than 20 percent on profit and overhead. Insurance companies quickly realized that 20 percent of more is more. No surprise, since Obamacare passed in 2010, health premiums have gone up 55 percent. This new coverage rule will reverse the incentives for insurers, by rewarding them for driving down prices for their customers.
Moreover, once these rules and data are unleashed, our dysfunctional health-care market will heal fast. High-tech innovators are standing by, ready to aggregate the health-care prices and create apps that will put useful comparative pricing information at our fingertips. These apps, which are just a mouse click away, would make finding the most reasonably priced place to have a baby, or a colonoscopy, or cataract surgery as easy as calling an Uber, getting plane tickets on Travelocity, or finding the market value of a home on Zillow.
We saw a similar transformation when the airline industry was deregulated in 1978. Price transparency reduced airfares by 50 percent while improving quality, access and safety. That can happen in health care. And we are close.
With this new rule in place and if Americans win their case in court, Americans could begin to heal from a lot more than this pandemic. Then, the current Administration, win or lose in November, would have done what it promised: Fix our broken health-care system by ushering in price transparency, lowering health-care costs, and putting Americans ? not hospitals or insurance companies ? in control of their health and their health-care dollars.
Thomas A. Thomas, CPA, is the co-founder of the Association of Independent Doctors, a national, nonprofit, nonpartisan trade association that works to support independent doctors.
Cynthia A. Fisher is a life sciences entrepreneur, and founder and chairman of PatientRightsAdvocate.org.