Why Some Health Insurers Are Paying Policyholders to Shop Around
One of greatest obstacles to lowering health care costs for consumers is the lack of pricing information for medical procedures. Because almost 90 percent of the U.S. population is insured, most people choose medical service providers based on non-pricing factors like in-network participation, word-of-mouth recommendation or convenience. Since most people only pay a fraction of the total cost up front, the expense plays a much smaller role in choosing a provider.
It is understandable why consumers are less concerned about the amount that a physician or hospital may charge, but you should understand that eventually, those higher costs do come back to you. If you see a provider that charges more, your insurer will probably pay the bulk of the claim, but those expenses are transferred to the entire pool of policyholders. Ultimately, higher medical costs translate into higher premiums and out-of-pocket expenses.Remove featured image
That is why more insurers are offering financial incentives to policyholders who do some price shopping before choosing a provider. Some insurers are willing to pay you to check around using industry or consumer sponsored pricing indices so that you can choose a lower-cost option. Some states are even considering laws that force insurers to incentivize price shopping.
Why Everyone is Concerned about Health Care Costs
In 2016, the amount that the entire United States spent on health care was $3.3 trillion or almost 18 percent of the country’s total economic output. That translates into more than $10,300 per American. This extraordinary amount is only expected to grow in the coming years. By 2026, the total health care expenditure is expected to reach $5.7 trillion.
This large cost presents many problems with the most important being that health insurance costs are also expected to rise. In just the past year, health plan premiums jumped up 5.5 percent, a sharp increase over the 4.4 percent rise last year. As health care costs climb, the premiums and annual deductibles of most health plans are likely to follow suit.
This is a mounting problem for consumers as well as employers. This is causing more employers to shift to lower premium-higher deductible plans that place more of the financial responsibility upon employees. More workers are realizing that they are on the hook for more of their medical bills which has led to more adoption of supplemental health plans.
These rising costs may affect your family in other ways as well. Because almost one-fifth of the economy is devoted to health care, there are fewer financial resources for new companies, product innovation and job creation. This is often a hidden factor in why there is job scarcity at times and why fewer new companies are being created.
How Price Transparency Helps
There are many reasons health care costs continue to climb, but one of the major reasons is that health care is one of the few industries that does not disclose its prices to consumers. This is primarily because most providers use a very complicated system that charges uninsured patients, insurers or government agencies different prices. That means that a relatively common procedure like a knee replacement can range in price from $33,000 to more than $100,000 with little difference in care quality.
If more medical providers were willing to publish their prices so that the public could know how much it is really costing them, more consumers would make their purchase decision based on the cost. This would create more pressure on hospitals and physicians to act like other businesses and rein in costs to appeal to more of the market.
A medical industry that operated like other industries under the influence of price-driven competition would ultimately have to put more focus on cost-cutting. This would not only help individual consumers who are looking for a good deal, but it would help the nation as a whole.
One of the most difficult challenges in making prices available to consumers is the lack of pricing resources. Of course, providers share their prices with insurers and other payors, but they don’t often disseminate those prices to the public. Dedicated consumers may contact their insurer to obtain pricing information but this is an arduous process—although more insurers are publishing prices from some local providers.
There are a growing number of state-sponsored and consumer pricing resources that collect pricing information from providers in a region. These all-payer claims databases may or may not provide accurate pricing information depending on what sources they use. Some states now have laws that require insurers or providers to provide price estimates.
More states are adopting laws and programs that reward policyholders who shop medical providers before obtaining a service. For example, Maine passed a law in 2017 that will make it mandatory for insurers who insure small business workforces to provide financial incentives like premium discounts, cash back or gift cards for shopping providers. This encourages policyholders to get a good deal, ultimately saving them and their insurer money.
There are some obstacles to effective price shopping, however. One key problem is in-network providers. Hospitals, pharmacies and physicians often contract with insurers, offering a discounted rate in return for more patients. These network providers may undercut competitors, making shopping outside the network pointless.
Another challenge is that almost half of all medical services are delivered on an emergency basis and are, therefore, not shoppable. Many emergency services must be provided in a time-sensitive environment and is not vulnerable to market competition.
Finally, price transparency is also contingent upon major variations in price in a regional market. If all of the prices for a local service are essentially the same, then that negates the necessity for price transparency. In that case, consumers can choose any provider and get a reasonable price. However, pricing availability may encourage more providers to make their prices more competitive in order to lure more clientele. In any case, more market research is showing that there are significant price differences in almost every region in the U.S.
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