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Price transparency is sound health-care policy | TheHill

Americans agree on one thing: health care costs too much, both individually and to our nation. In 1960, the average U.S. health care cost per person was $146. As a nation, we expended $27.2 billion, which represented 5 percent of GDP. Fast forward to 2016 when average per capita spending on health care was $10,348, an increase of more than 7000 percent in fifty-six years. In 2016, the U.S. expended $3.4 trillion on health care, note the “tr” instead of “b,” or 18 percent of GDP.

While there is consensus that we are spending more than we can afford, people disagree about what to do about it. Some tout price transparency as a method to encourage consumer shopping and thereby lower costs. The idea is gaining traction, but is it a sound concept or merely a sound bite?

Both state-generated and private websites have sprung up to provide price information intended to make individuals more informed shoppers. However, “price” in health care is not what consumers think it is. In all other commercial activities of daily life, the consumer pays the price listed on the item. But in health care, no one pays the list price or maximum charge.

The actual payment for a medical good or service is generally a lot less than the list price. Insurance companies negotiate downward starting at Medicare rates. They pay some fraction of what the government pays for a medical service or good. Medicaid rates are much lower than Medicare rates so that average reimbursement is typically a very small fraction of the charge.

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Price transparency is sound health-care policy | TheHill.