Asymmetric Information Health Insurance

Are Consumer-Driven Health Plans Reducing Medical Spending?

Although the U.S. now spends about 18% of GDP on health care, rate of growth of healthcare spending fell every year between 2002 and 2009.  Why is this?  One reason is the economy.  A worse economy means that less people have health insurance coverage and thus the utilization of medical services decreases.  Another answer is that private health insurance plans have increased levels of cost sharing.  “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 tripled.”

Another possibility is consumer-driven health plans.  These health plans not only have higher deductibles, but they provide their beneficiaries with information on the price of services across different providers.  Although federal and state laws not require hospitals to list standard prices each year, price information available to consumers is still fairly limited.

The Economist reports that this is changing.

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 and clinics.

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 department.

Some insurers are resistant to price transparency.  “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. “

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