This article explains how companies are attempting to make health care costs transparent for their employees. The
full article, Companies Try to Make Health-care Costs Transparent, was published in The Economist on February 4, 2012.
If you receive health insurance from your
employer, you may already have access to useful tools that help you understand health
care costs, enable you to comparison shop for prices, and assist you with
finding the best value ----before you visit a provider. If this does not describe how you shop for
health care services, you will know what I am talking about after you read this
AMERICANS spent $2.6 trillion on health care in 2010, a
staggering 18% of GDP. Yet few of them have the faintest idea what any
treatment costs or how it compares with any other treatment. Prices vary wildly
and seemingly without reason. Insurance terms require a dictionary. For most
Americans, buying a procedure is akin to choosing a house blindfolded, signing
a mortgage in Aramaic, then discovering the price later. Slowly, however, this
The past decade has seen a shift in how people pay for medicine.
Americans’ health spending is growing at a slower pace. This is partly because
of the downturn, but not entirely. The rate of growth fell every year between
2002 and 2009, note David Knott and Rodney Zemmel of McKinsey & Company, a
consultancy. There are many reasons for this—for example, many costly drugs
have lost their patents. But spending habits also seem to be changing.
Most American workers receive health insurance through their
employers. They typically shoulder the costs without realizing it. The more a
company spends on health insurance, the less is left over to pay wages. Now
employers are trying to give staff an incentive to think hard about costs.
Under “consumer-driven health plans”, workers must cough up
part of the price of any treatment before their insurance coverage kicks in.
Most have an untaxed account to spend on health; they think twice before
depleting it. In 2006 only 10% of workers had to pay at least $1,000 before
their insurer picked up the rest of the bill. By 2010 that share had more than
General Electric (GE) shifted its salaried employees into
consumer-driven plans in 2010. It urged them to shop around for bargains, but
they found this nearly impossible due to a lack of information. “People started
saying: ‘If you want me to be an active consumer, I need to know prices,’”
explains Virginia Proestakes, the head of GE’s benefits program. When employees
asked doctors for prices, the doctors were baffled. They had no clue how much
different insurers paid for the same procedure, or what share a patient would
pay. A recent study by the Government Accountability Office (GAO), a public
watchdog, reported similar problems.
Barack Obama’s health reform requires hospitals to list
standard prices each year, and more than 30 states have either proposed or
passed laws to promote price transparency, according to the GAO. None of these
measures has come close to solving the problem. Few provide enough data to
allow people to shop around.
So private firms are having a go. GE, for example, hired
Thomson Reuters, an information firm, to show employees the cost of different
services. Thomson Reuters analyses prices from prior purchases—by workers at GE
and other firms—to show the cost of a given procedure at different hospitals
Another company, Castlight Health of California, has made
transparency its sole mission. Working with big firms, Castlight assembles data
from past transactions so that employees can shop for doctors online and read
reviews posted by patients. Castlight wants to do for health what Travelocity
did for air travel, explains Giovanni Colella, the founder. Mr Colella’s
co-founder is now the chief technology officer for Mr. Obama’s health
These plans face several obstacles. Health care is more
complicated than flying. A traveler knows she wants to get from A to B, and
that more or less any airline will get her there in one piece. So it is easy to
rank air tickets by price. By contrast, someone with a heart problem may be
unsure whether to pop pills, operate, change his diet or do nothing. Informed medical
decisions require a ton of information.
To make matters worse, health insurers are reluctant to
share data about costs, says Bobbi Coluni, who leads Thomson Reuters’s
consumer-health unit. If an insurer has a contract to pay one hospital $7,000
for a caesarean and a contract to pay another hospital $10,000 for the same
service, and this information leaks, the first hospital will lobby for a higher
price. GE’s contracts with insurers stipulate that GE owns the data from
workers’ past health purchases. But such agreements are rare.
Despite this, greater transparency seems inevitable. Smart
insurers are hawking their own tools. Cigna uses Thomson Reuters’s technology
to support its “cost of care estimator”. Aetna, another insurer, offers a
sophisticated web tool that patients use more than 67,000 times a month. Meg
McCabe of Aetna hopes that consumers will soon be able to use their smartphones
to enter symptoms, find doctors, compare prices and schedule an appointment.
Such experiments will serve insurers well. If Mr. Obama’s
health law stands, millions will soon shop for insurance on new exchanges. The
easier the plan is to understand, the more people may pick it. A fully
transparent market is years away. But a bit of sunlight is creeping in.