That health insurance policy you have from Anthem or UnitedHealthcare actually makes health care services more expensive.
This sounds like a controversial statement, but it’s not. It’s agreed on by people on both the right and left.
From the left, a study published last fall in Health Affairs showed that a whopping 25 percent of all U.S. health care spending is wasted on the administrative bureaucracy of health insurers, such as Indianapolis-based Anthem Inc., and the burdens that places on doctors, hospitals, employers and individuals. That's more than $730 billion every year.
The authors of that study are longtime advocates of a single-payer health system that would essentially extend the federal Medicare program for seniors to all Americans.
From the right, conservatives have long argued that health insurance raises the cost of health care by introducing a new layer of bureaucracy, by shielding consumers from the true price of care choices, and by introducing regulations that prevent or discourage health care providers to create money-saving innovations. Those notions were summarized well in this 2006 paper by economist Linda Gorman on the history of health insurance.
But as more and more patients are covered by less insurance, via high-deductible health plans, doctors and hospitals are coming up with creative ways to package and price their services differently to appeal to these new kinds of customers. And that is leading to lower prices for patients.
I wrote about one example last week: Northwest Radiology’s flat-pricing pricing plan.
If you want to see several more fascinating examples, check out OkCopay’s prices for Indianapolis. This Washington-based service, run by former Eli Lilly and Co. pricing strategist Toure McCluskey, publishes prices for cash-paying customers looking up dental and vision exams, imaging scans and retail clinic visits, breast augmentation and Lasik surgery, in vitro fertilization and acupuncture.
Interestingly, it is the services most commonly covered by insurance—dental exams—where the prices get most out of whack. Dental exams range from $29 to more than 16 times that much.
But these also are the services where health care providers are now offering the most creative deals. Dentists and optometrists offering the lowest prices for exams are using them as a kind of loss leader to get patients in the door. The prices of their other services are pretty comparable to the prices of other providers whose exam prices are higher.
“We're seeing the emergence of loss-leader and 'at cost' pricing in categories like dental exams, retail clinic visits, and flu shots," McCluskey wrote to me in an e-mail. "We've also seen a sharp rise in providers offering health care credit cards (like CareCredit) to finance more expensive elective care procedures. These pricing strategies certainly attract new cash-paying patients, but the jury is still out as to whether these strategies actually make care more affordable.”
(As an aside, the services on OkCopay’s website that are almost never covered by insurance have far less price variation than those typically covered by insurance. While the ratio of high price to low price in dental exam prices is 16 to 1, the range for IVF and breast augmentation is just 1.7 to 1. The ratio for Lasik is just 1.3 to 1.)
Expect to see more price innovations from doctors and hospitals, said Chad Ashcraft, president of Indianapolis-based HealthPro LLC. The company, which spun out in March from Indianapolis-based employer clinic operator OurHealth, helps patients choose specialist physicians and diagnostic services based on their preferences for price, proximity and availability.
By working with roughly 50,000 patients statewide over the past 18 months, HealthPro has built a robust database of health care providers’ locations, hours, services and prices, as well as valuable insights for providers on how often and why patients chose (or didn’t choose) their facility.
Health care providers have responded by offering a bevy of innovative pricing programs. Northwest Radiology tested out its flat-rate pricing with HealthPro before rolling it out publicly. Other health care providers are reducing their prices overall or offering lower prices during slow times of day to woo in more patients.
“What we’re seeing is that, where there’s a will there’s a way,” said Ashcraft, HealthPro’s president.
HealthPro has received such an enthusiastic response from employers and health care providers that it is now looking to enter three to five markets outside Indiana in the next year.
It announced Friday morning its local workforce will rocket from nine to nearly 190 by the end of 2019.
“As they get results, and I think Northwest Radiology is a good example of this, you’ll see more people look at this pricing innovation, as you look at these services,” Ashcraft said. “They know patients are asking for this or looking for more flexibility. But it’s hard to quantify what the opportunity is, until we were able to show them that.”
Health insurers also are trying to encourage this kind of creativity from hospitals and doctors.
Anthem pushed hospitals to cut their MRI prices 27 percent by phoning patients that had received a referral for one and informing them of the lowest-cost facilities.
As I wrote last month, Anthem has created a reference lab network of health care providers that agree to lower their lab testing prices 50 percent to 80 percent.
Also, Anthem achieved remarkable changes from hospital systems in California after it instituted price ceilings on joint replacement surgeries.
However, I know of more than one hospital system that wants to do things like dynamic pricing—variable pricing based on fluctuating demand—on imaging services, but has said health insurers don’t want to play ball on that.
Goodman suspects that, if health care prices ever do come down, it won’t happen because health insurers figure out a better way to pay doctors. Rather, it will happen when doctors and hospitals are freed from the incredible restrictions placed on them by health insurers, giving them the leeway to figure out new ways to package and price their services—in a bid to bring in more customers.
“Unlike other professionals, doctors are not free to repackage and reprice their services in ways they believe will best help their patients. Instead, third-party payer bureaucracies tell them what tasks they will get paid for performing and how much they will be paid to charge,” Goodman wrote in his 2012 book Priceless.
“What we need is a system in which the provider side of the market competes to provide value because it is in their self-interest to attract patients in that way. We will never solve America’s healthcare crisis from the buyer side of the market. It can only be solved from the provider side.”
I think we’re starting to see exactly what he prescribed taking place.