Price transparency is key to reducing health care costs

Health care has emerged as a fault line in this year's election campaign. Vice President Kamala Harris supports expanding the Affordable Care Act, while former President Donald Trump wants to scale it back. Yet there's one health care policy that the Biden-Harris and Trump administrations both supported and can coalesce around again: price transparency.

This bipartisan health care fix is supported by 92 percent of Americans, according to a new poll by Echelon Insights and SocialSphere. Thirty-two economists, including me, recently sent a letter to U.S. senators, urging them to pass the Health Care PRICE Transparency Act 2.0, co-sponsored by Sens. Mike Braun (R-Ind.) and Bernie Sanders (I-Vt.).

This bill requires providers and insurers to publish their actual prices, including their cash and negotiated insurance rates, empowering consumers with choice and competition. Such systemwide price transparency can substantially reduce health care costs while boosting the economy and worker paychecks.

Prices are a necessary component of functioning markets, and their absence in American health care is a major reason for runaway costs that burden patients, employers and workers. According to the Kaiser Family Foundation, the average annual employer-sponsored family health insurance premium is $24,000, a 50 percent increase over the last decade.

Hidden health care prices cause an information asymmetry that gives hospitals and health insurers unfair pricing power over consumers who are forced to pay with the equivalent of a blank check. It's no surprise that health care costs are a top concern for voters.

The Baker Institute for Public Policy at Rice University recently analyzed hospital and health insurance charges in Houston and found wide price variations for the same care — a sign of market failure.

For example, among patients covered by Blue Cross Blue Shield of Texas, the average price of a hospital stay for 25 common diagnoses was $18,858 in the Houston Methodist hospital system, more than twice as much as at several independent hospitals in Harris County.

The average price for 32 outpatient services negotiated by Blue Cross Blue Shield of Texas in Harris County varied from $1,500 to $3,000, depending on the hospital. The average price for 19 outpatient services negotiated by Aetna in Harris County ranged from less than $2,000 to more than $6,000, again depending on the hospital.

Our analysis was only able to compare prices for a limited number of diagnoses and services because the data was non-standardized and incomplete. The Health Care PRICE Transparency Act 2.0 would finally unleash all prices throughout the health care system in a standard format, allowing consumers to spot price variations and choose high-value care.

Armed with this price information, employers could steer employees to less expensive care and share savings through lower premiums. Employers would also finally get access to their complete claims receipt data, which they could compare with health plan spending and posted prices to avoid overbilling, errors and fraud.

Prices foster competition, greatly reducing pervasive waste and unproductive middle players that proliferate in the dark and drive-up costs. According to a 2019 JAMA study, 25 percent of U.S. health expenditures, which reached $4.5 trillion in 2022, is administrative waste and unnecessary overcharging. This study implies an annual economic stimulus of around $1 trillion from an efficient and transparent system.

Economists of all backgrounds support price transparency as a fundamental solution to the American health care cost crisis. But you don't need to be an economist to understand the importance of upfront prices. Ordinary Americans already price shop for all other goods and services and would do so for non-emergency health care if given the chance. With the help of tech innovators and consumer-friendly apps, health care price disclosures would empower patients and businesses to choose affordable care.

This Congress should conclude its term by passing the bipartisan Health Care PRICE Transparency Act 2.0. It would bring Republicans and Democrats together during this contentious campaign season. More importantly, it would take a big step toward a pro-consumer health care system that reduces costs, raises worker pay and stimulates the economy at this time when it's needed most.

Vivian Ho, Ph.D., is the James A. Baker III Institute Chair in Health Economics at Rice University.