Two years too late a senator has finally taken a tentative step toward increasing competition in the healthcare market, lowering insurance costs and removing the dead hand of Obamacare from the nation’s throat. It’s partial implementation of a plan I’ve advocated, but it repeats my mistake and unfortunately adds a new one.
It’s unfair to blame Sen. Mike Braun (R–IN) for being late since he wasn’t in the Senate when Republicans frittered away Obamacare repeal. The problem is his bill attacks cost from the wrong end.
Braun’s plan is called the True Price Act. As he told Breitbart.com, his plan “would require insurers to disclose the negotiated price for each medical service covered by a person’s insurance plan and any cost-sharing amounts (co-pays or deductibles)…The bill would require the prices to be posted on the insurer’s website and in paper form.”
That’s backwards because the insurance companies can’t predict what hospitals charge for a procedure because charges vary according to the rapacity of the facility. Braun says he wants to reverse concentration in the health insurance market by “by making it transparent and competitive, letting the best providers survive.”
His bill would only encourage concentration and limit consumer choice because the only way an insurance company can be certain of a procedure’s cost is if the insurer limits coverage to hospitals it controls or with which it has negotiated an agreement.
The People’s Republic of Maryland proves my point. The Maryland Health Care Commission has a limited program that compares turnkey prices for common procedures affecting patients who are either women, old or both. It found Sinai Hospital charges $32,500 for a knee replacement, while UMD Medical Center at Easton charges over one–third less at $22,700, with fewer readmissions from complications.
Braun would accomplish more by requiring hospitals that accept federal money to post turnkey charges and forget the insurance companies.
Then Braun repeats my initial mistake and ignores consumer motivation. Most medical shoppers, like whiskey drinkers, tend to associate high cost with high quality, when that isn’t the case. For a patient with a $3,000 deductible it makes both economic and status sense to choose the more expensive hospital. Ten percent co–pay on the costlier procedure wipes out his deductible and the rest of his health care that year is ‘free’!
A better solution is for the feds to encourage insurance companies to give the patient an incentive to be a comparison shopper by sharing the savings when he chooses a less expensive option. Instead of pocketing the $9,800 saved by paying for the knee replacement at UMD Easton, the insurance company could share by applying ten percent of the savings to the patient’s deductible for that year.
The patient would pay ten percent of the procedure ($2,270) and the insurance company would apply ten percent of the savings ($980) and his deductible for the year would be satisfied.
To ensure this wasn’t a one–time–only cost–conscious decision by the patient, the insurer could continue to apply 10 percent of procedure savings for the rest of the year to the patient’s deductible in outlying years.
This is good for the company because it reduces customer churn by giving the patient a reason not to change policies and the customer saves money on future annual deductibles.
Braun is right that cost transparency will encourage competition, but the place to start isn’t with the middlemen. It’s with the hospitals that generate the cost. Currently the consumer has severely limited options when buying insurance. It’s either the price set by the socialized premium mavens at Obamacare. Convert to Christianity and join a cost–sharing plan. Or join millions of uninsured illegals crowding the emergency room.
Sen. Braun would do better to allow insurance companies to offer coverage options and sell across state lines without crony capitalist interference from the various legislatures.
Combine that with price transparency for hospitals and incentives for procedure shopping on the part of patients and healthcare prices will finally start to go down.
The next step will be selling freedom of choice to the public and talking panicked Republicans off the ledge. But that’s another column entirely.