Is Price Transparency Something You Can See Through?

A new report by economist Jon Gabel and his colleagues at NORC, a research center affiliated with the University of Chicago, looked at the use of transparency tools in an employer health plan. The analysis found the use of price transparency tools to be spotty. For instance, 75% of households either did not log into the transparency tool or did so only one time in the 18-month period of study. Fifteen percent did so twice; but only 1% logged in six times or more. 

According to the study's authors, it could very well be that we are asking too much of a single tool, no matter how well-designed. Consumer information for other goods and services on price and quality are seldom dependent upon information gained mainly, if not solely, through a digital tool. Rather, information on relative value is spread far and wide through advertising and other kinds of promotion using conventional, digital, and social media communication channels.

An earlier Harvard University study on transparency tools, published in JAMA, found patients do not tend to use the tools to comparison shop for lower prices (in fact, spending rose slightly). An NBER study concluded that when transparency tools do lower spending, it is because consumers used to tools to identify prices and use the information to decide whether they can afford the service and skip it if they cannot.

The NORC study authors noted it was also possible that a “ways to save” e-mail sent to households turned them off. While the emails did highlight opportunities to save a specific amount of money, a vast majority of the savings were for the employer and a much smaller amount of savings applied to the employee. It is possible that this was viewed as helping their employers and not them.

Encouraging workers to reduce unnecessary spending is all about creating the appropriate incentives. Before they will take the time to comparison shop, consumers must benefit from their efforts. They must also become accustomed to comparison shopping. In this analysis, the firm studied had a deductible for individuals of $1,400 and $2,800 for a family of four. The out-of-pocket limit was $2,800 per individual and $4,800 per family. The employer provided an additional $400 in healthcare benefits per year in the form of a health reimbursement arrangement (HRA) deposit. 

A healthy, single person with a $400 HRA and only a $1,400 deductible is not likely to worry about the cost of a physician visit. The most they can be out before their health coverage begins to pay significant benefits is $1000. Moreover, they may not need a service that is easily shopped. An MRI is a commodity procedure whose price could be compared. But a physician visit or a routine blood test ordered during a physician visit is unlikely to be shopped.

Another thing I noticed about the study was one of the cost-saving features was selecting a provider. Although I might choose a provider partly based on cost if I have advanced knowledge, I’m less likely to change providers once I have one unless I am likely to save significant amounts. California-based Castlight Health discovered convincing patients to change their behaviors when selecting providers was more difficult than they anticipated.

One impediment to comparison shopping is that many consumers are not regular consumers of healthcare. They may see their doctor once a year, take a generic drug, or occasionally be referred to a specialist. Many do not need enough regular services sufficient to learn the process. Maybe that is a good thing. If 20% of patients consume 80% of all healthcare dollars, maybe it makes sense to concentrate efforts on them.

I wonder if the results would be different if performed today on people with a health plan coupled with a $5,000 deductible? It’s been my experience that patients are quite willing to save $1,000 on an MRI or switch to generic drugs with nominal copays when they can save a buck.

 

Devon Herrick is a fellow at the National Center For Public Analysis.A version of this article originally appeared at The Health Care Blog.