Specifically I am asking why someone hasn't made that a law yet and what unintended consequences it could have.
A related question would be why insurers are apparently currently incapable of putting downward pricing pressure on hospitals so that they become more efficient.
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It's the opposite of what you're asking, but here's an article teaching price segmentation to entrepreneurs:
It seems like price segmentation in the medical industry would lead to higher profits for hospitals and not very much benefit to anyone else. Would there be a good reason not to mandate that everyone pays the same price?
If you mandate that everyone pays the same price, how do you allow hospitals to recoup the losses they will incur when they give emergency treatment to people who cannot pay, as they are required to do by law?
Hospitals basically have to gouge most people in order to counteract the fact that they get legally gouged by anyone who gets into a car crash (and so forth) and can't pay for the treatment needed to save their lives.
You bring up a very good point, thank you.
I suppose for hospitals to be able to compete on price you need to take charity care out of the price of other people's health care. Otherwise hospitals that do more charity care would be disadvantaged regardless if they were more or less efficient than other hospitals.
One way to solve this is to have universal insurance, but this would be difficult to achieve.
That was a good read. Thanks.
Most industrialized countries have implemented government price controls to accomplish what you're suggesting. Here is a good blog post on the subject, though I would encourage you to look into more rigorous sources.
It seems like rather than consolidating every insurer into a single payer system run by the government to increase negotiating leverage, a more market based solution would be for every individual insurer to put pressure on the same price point by mandating that everyone pays the same price.
I don't think any single insurance company has the purchasing power to do such a thing. And what incentive do they have to keep costs down? Hospitals charging more is an excuse to raise premiums, and opaque prices make it harder for consumers to comparison shop and/or complain about costs.
Medical biller here. Hospitals and other providers do have one fee schedule. Legally, they have to. When you have insurance (if your provider is contracted or "in-network" with your insurance), they bill their standard rates to the insurer, with whom they have an agreement.
Let's say you have Blue Cross and your provider is contracted. You get a service that your provider bills your insurance $300 for. Blue Cross has an allowed amount of $150 for that service. You have a $50 co-pay. So, Blue Cross pays your provider $100, your provider bills you $50 (for your co-pay), and the other $150 they have to write off, as their agreement with Blue Cross mandates the provider to accept the allowed amount in full and not bill you for that other $150.
For cash, they bill you for that $300, but often offer hardship agreements, payment plans, or discounts if you can pay a majority of the charge up-front (so, say you can pay $250 right away, they may waive that extra $50).
I'm not an economist, but suffice to say that insurers are making money by trying to take in more in premiums than they pay out in claims and they have a myriad of ways of doing that. Meanwhile, providers have their own ways of maximizing reimbursement from insurers through certain billing tricks. It's pretty complicated, IMHO, but feel free to ask any questions that come to mind.
Ah this seems to get to the heart of it. It seems that the standard rates would have no pricing pressure because the only ones who can negotiate for lower prices - the insurers - aren't affected at all by that standard rate but only the discount they get off of it.
I wonder if by mandating that insurers can't negotiate lower rates than the standard that insurers would work harder to steer their members to hospitals with lower overall rates and possibly get more downward pressure on pricing overall.
What JohnnyBsGirl says about fee schedules is correct. There is always one schedule, and everyone negotiates down from there, such that it is meaningless.
The short answer to your second question is that it is politically unthinkable that anyone would legislate "best price" availability, where hospitals and doctors have to offer everyone the lowest price they offer anyone. But, in geographic markets where an insurance company has very large market power, they almost always demand this kind of agreement from providers. It's a point of great contention between hospitals and insurers, with both sides arguing the other is being anticompetitive and harming consumers.
The insurance companies don't need to keep healthcare costs low; even at what they pay out, they are making huge profits from people that pay thousands in premiums and don't use many medical services. The insurance companies also have negotiated discounts with providers. A hospital or doctor charges different rates based on just what insurance the patients have. The highest rates are for the uninsured, to make up for the discounts they've given to insured patients.
To answer your question specifically, healthcare in the US is really big business, with the major players generating revenues in the billions of dollars per year. It isn't in their best interest to make pricing competitive for patients, so don't expect it to happen any time soon.
Insurance companies actually have incentive to keep costs high. They generally take a percentage of costs as profit. (Obamacare legislates this, but it was already the law in many places, and it's good for PR regardless.)
High costs == higher profit.
What? How does that work? They are making money by paying more?
IIRC Obamacare requires them to spend 80% of revenue on healthcare. The rest goes to administrative overhead and profit.
Lets say an insurance company spends $80 on services (just to imagine a nice round number). That means that they can charge their customers $100 in premiums.
If they spend $100 on services, then they can charge their customers $125 in premiums. Assuming overhead remains the same, profit increases by $5.
(I mentioned that Obamacare doesn't really change this, because most or all states limit the services/profit ratio, and if they were making too high a profit, it would really look bad.)
What's being said about the Affordable Care Act's effects are arguably correct, but only hypothetical at this point. The reform says that insurance plans cannot spend more than a fixed percent of the money they collect on overhead; the rest must either be spent on actual care or refunded to policyholders.
The idea behind this was that it would limit insurance company profits, which seems fair since the government is going to compel everyone to buy their products. But, lots of economists worry that such a pricing scheme gives the insurers incentive to drive up costs. If they are allowed to keep 10% of whatever they spend on care, it's better they spend $10 million (and keep $1mm) than to spend $5 million (and only keep $500k).
The counter argument is that this ignores the fact that insurance companies will largely still need to compete on price in order to sell their product to companies in the market for employer-provided insurance. If a plan's costs are too high, they aren't going to be able to sell plans to companies, and they'll go out of business.
Relevant video from today: http://www.reddit.com/r/videos/comments/139tqj/this_is_how_healthcare_should_be_done_everyone/
Some answers given by various parties in the video:
Edit: this is what I see in the video, no science backing.
It's breath-takingly complicated. Let's start by pinpointing a few issues with current healthcare:
market economics in health care & information assymetrty
For a market to function, a buyer needs to know what he's buying to determine which price he'd be willing to pay for it. In current healthcare, the person who buys care, the patient, has no overview of the two most basic things: what do I need to buy, and is what i'm buying of decent quality?
A doctor can tell the average person anything he wants, as the person will assume the doctor's authority on the subject. If he says you need surgery, you'll have surgery. And, you have no idea if the procedure will cure your complaint.
What healthcare would need is a system where the entire care process is evaluated from the first complaint to being completely cured. Different care providers should be evaluated on the entire process and ranked. A patient would consult the ranking, possibly with the aid of an agent from the insurer, and choose the one that suits them best on price/quality ratio. The insurer needs to have an incentive to pick the best, too, of course. This leads to a second point:
higher quality healthcare is cheaper
Unlike any other market, the higher the quality of provided care, the cheaper care becomes. Sure, one procedure may be more expensive, but if it cures you at once, and does not give complications, it will always be cheaper than having the problem reoccur.
insurers have all the wrong incentives
I think this has been covered in other posts.
In short, it is mostly due to a problem in evaluation of treatment and what we consider treatment. Treatment is not one intervention, treatment is solving a person's complaint. This person is not capable of judging this from the start, so that needs to be tackled, in some way.
WELL...not all treatments are equal...they can be different everytime. at the ER in the ghetto where i work, when they come around to collect, if you tell them you dont have insurance they instantly say "we'll give you a 75% discount" in the hopes that they will eventually pay something.
There are some laws. The question I would ask is: Who can benefit from such pricing information? Mainly people having elective surgery and non-emergency treatments. Are people in car crashes going to stop and look at the pricing sheet? If you are comparing prices, aren't you also interested in quality? How will you judge that? How will you price the quality between Specialist X at Hospital A and Specialist Z at Hospital B, even if you can get such information? What is a rational decision when it is about your future quality of life or your life itself?
What about complications? After choosing the cheaper hospital, you may still end up paying more due to complications or unforeseen/uncommon but not unimaginable issue that arise while you are having treatment. Who are you, a nonspecialist, to judge the need for a marginal $500 test?
Now let me ask you this: Pricing is a problem for most consumers when their insurance companies won't pay what hospitals are charging. So there are actually multiple layers of inscrutability:
What services and products do I, the consumer, actually need? How should I value differences in the likelihood of favorable outcome based on differences in providers track records, medical philosophies, and the kinds of patients with whom they usually work? Am I making, or am I capable of making, a rational choice in this situation? What services and products am I actually going to get if I commit to a provider? What does the provider charge? What will my insurance company pay?
My feeling is that we should do all we can to make pricing transparent, but there are possibly unsurmountable asymmetric information and principal-agent problems in this market.
http://well.blogs.nytimes.com/2012/04/23/the-confusion-of-hospital-pricing/
http://www.google.com/url?sa=t&rct=j&q=hospital%20pricing%20transparency&source=web&cd=3&ved=0CDsQFjAC&url=http%3A%2F%2Fwww.aha.org%2Fcontent%2F00-10%2F5_1_06_sb_transparency.pdf&ei=zTemUPHOBKSDyAHMyIC4CA&usg=AFQjCNHc8s3ZllNejU0zEJs9G-6M95s0dg (PDF)
rendel [OP] 1 points · Nov 2012
I think in many emergency cases you wouldn't care about which hospital is marginally cheaper but I think for most people in most cases, an extra 30 minutes of driving would be well spent if it meant thousands of dollars of difference in the price of your health care.
Presumably the insurers/consumer groups or even iphone apps could tell you all you need to know relatively quickly if everyone got the same price and insurers were not able to negotiate for their own personal discount behind the scenes.
chaim-the-eez 1 points · Nov 2012
So you want a knowable price without its being determined by a market? The insurance company is the actual customer.
rendel [OP] 1 points · Nov 2012
Presumably if insurers weren't able to lower costs at hospitals by discount agreements then they would find other ways to lower costs at hospitals such as by directing their members to hospitals with lower prices.
People with serious emergencies obviously wouldn't care but many people would care if their copay was affected.