Tags: Healthcare Reform

Full Price and Cost Disclosure Means Affordable Healthcare

Friday, 12 June 2015 04:40 PM Current | Bio | Archive

The Washington Post headlined an alarming story that accused hospitals of trying to make a profit: “Fifty hospitals in the United States are charging uninsured consumers more than 10 times the actual cost of patient care . . . ”

Displaying an almost total lack of understanding of how any market works, reporters were outraged uninsured paid more than the insured. How they arrived at the 10 times figure is harder to understand. The Health Affairs study used the term “markup.” In business this is the difference between what it costs to manufacture an item or provide a service and the total billed the client.

But that’s not how the study calculates “markup.” It compares the arbitrary amount Medicare pays with the price the hospital lists on the “chargemaster,” a name dripping with menace.

Wikipedia says chargemaster "is a comprehensive listing of items billable to a patient or a health insurance provider,” but not necessarily what is finally paid by anyone. The study definition is like comparing a car’s sticker price with the fleet price Uncle Sam negotiates for buying hundreds of autos and then accusing the dealer of cheating everyone who isn’t a government employee.

Gerard Anderson, one of the study’s authors, comments, “ . . . consumers are paying for this when hospitals charge 10 times what they should. What other industry can you think of that marks up the price of their product by 1,000 percent and remains in business?"

Bottled water comes to mind along with women’s shoes, illegal drugs, cosmetics, and Comcast. Doubling down on marketing illiteracy, Anderson cranks up the outrage, “it makes little economic sense to ‘mark something up 10 times what It actually costs and then give a discount. Clearly they expect someone to pay these inflated prices.’”

Which only proves the good doctor has never tried to buy a garden gnome at a yard sale.

For comparison purposes there is great similarity between buying a car and health care costs. My father bought me a car when I was in college. This was a tremendous relief because he did the negotiation and paid the bill.

In those pre–Elizabeth Warren days buying a car was torture. Price information was nonexistent. Customers had only the sticker price and the newspaper ad. Usually the ad price was irrelevant: Either that car wasn’t in stock or your car might resemble the car in the ad, but yours also has fuzzy dice hanging from the rearview so the ad price doesn’t apply.

Negotiation was always lengthy and with the rubber hoses and good–salesman–bad–manager routine it took hours. Dad, like health insurance, short-circuited all that.

But in the end, again like health insurance, I wasn’t really the client. The dealer then, and hospitals now, tend to brush off the person not paying the bill when there’s a problem.

The car–buying process was so distasteful GM invented the Saturn with fixed prices and no negotiation. This was successful — who knows, Anderson may have been an owner!  — until consumers figured out accepting GM’s take–it–or–leave–it price only saved negotiation. All customers remained equally ignorant about the value of the deal.

Today government interference drives up car costs and health costs by thousands of dollars, but access to pricing information has completely changed the car buying process.

Thanks to Consumer Reports and Costco I know the dealer price for the car and options. Even better, I know what other buyers have paid for their model. This let’s me evaluate my deal in comparison to the market and increases competition between dealers.

None of this is true in health care. There is no cost information from hospitals, other than what it costs to park. Consumers don’t even have access to the dreaded “chargemaster,” the government controls that.

Established hospitals, using government–required “certificates of need,” can even block construction of new medical facilities, which eliminates competition and increases prices.

Anderson implies that government price–fixing would solve the problem. But it would only make the problem worse. The Medicare price schedule that Anderson admires so much is arbitrarily set by federal bureaucrats and has served to limit medical care as doctors increasingly refuse to accept Medicare patients, because they lose money.

The solution to the problem is information. If the feds can require Domino’s to post calorie counts on the menu, they can encourage hospitals to post turnkey prices for medical procedures. Second, end the crony–capitalism “certificate of need” monopoly and let competition reign.

Third, allow consumers to go out of state for health insurance if the price is better.
Finally, unbundle Obamacare health insurance coverage mandates and let consumers purchase only the coverage they want. Buying a car and buying health insurance are both financially risky. Information has solved the auto problem and it can solve the healthcare problem, too.

Michael R. Shannon is a commentator, researcher (for the League of American Voters), and an award-winning political and advertising consultant with nationwide and international experience. He is author of "Conservative Christian’s Guidebook for Living in Secular Times (Now with added humor!)." Read more of Michael Shannon's reports — Go Here Now.

© Copyright 2015 Michael Shannon.


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Buying a car and buying health insurance are both financially risky. Information has solved the auto problem and it can solve the healthcare problem, too.
Healthcare Reform
Friday, 12 June 2015 04:40 PM
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