Inflation Compounds Outrageous U.S. Health Care Costs

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Health spending has skyrocketed in recent decades. Price transparency rules can help, write Cynthia A. Fisher and Arthur B. Laffer.

The time of dreams

About the authors: Cynthia A.Fisher is founder and president of, and founder and former CEO of ViaCord. Arthur B.Laffer is a former professor at the University of Chicago and the University of Southern California, and an adviser to Presidents Reagan and Trump.

High and persistent consumer inflation is compounding the financial hardship caused by sky-high US health care costs. On Friday, the Bureau of Labor Statistics reported that prices rose 8.6% from a year ago. Already, nearly two-thirds of Americans avoid or delay health care each year for fear of unknown bills. As rising food, energy and housing prices pinch consumers’ pockets, even more people may be ignoring needed care. Transparency in healthcare prices can help by giving patients financial certainty, choice and competition.

The Organization for Economic Co-operation and Development estimates that the United States spends nearly twice as much of its gross domestic product on health care as the non-US OECD average. Adding insult to this financial injury: Americans have a significantly shorter life expectancy than our industrialized peers.

High costs and low returns have not always been the norm in health care in the United States. In 1975, the United States spent only 28% more as a percentage of GDP than the non-US OECD average. If the United States had maintained this 1975 relationship with other industrialized nations, the nation would currently save more than $1 trillion annually in health care costs.

What has changed in the American healthcare system since 1975? Healthcare delivery is no longer transparent in terms of pricing and has become contaminated with countless opaque middlemen who drive up costs.

According to OECD data, nearly a third of health care spending in the United States in 1975 was paid directly out of patients’ wallets, compared to just 11% today. Consumers bought the best care at the best prices for routine care. They combined this direct and transparent care with what was called “major illness” insurance to cover serious health events. In Singapore, which has a transparent, direct and competitive healthcare system, healthcare spending as a percentage of GDP is only 4.1%, less than a quarter of what the United States spends.

Since then, American hospitals and health insurers have successfully kept consumers in the dark about almost every price, then blinded them with bills they would never have accepted in the mail for weeks and months. later. This price opacity allows large hospitals to bill on average seven times the cost of care.

System-wide price transparency can usher in a functioning, competitive, and pro-consumer health market that significantly reduces overburden. Real Prices provide healthcare consumers, including employers and unions, with the information they need to avoid price gouging and identify high-value alternatives for more than 90% of elective care. Binding prices prevent overcharging, overcoding and fraud.

Consider the corners of the healthcare market where price transparency and direct payments still exist. Prices for plastic surgery and Lasik, which are competitive and up-front, have actually declined over the past few decades, adjusted for inflation. Pricing and cash transparent imaging centers offer MRIs for $225 that cost between $2,000 and $4,000 when paying with insurance at nearby hospitals.

Fortunately, system-wide healthcare price transparency is on the horizon. A federal rule enacted on January 1, 2021 requires hospitals to publish their actual prices, including their cash rebates and all negotiated rates by insurance plan. In July, another federal rule requiring health insurers to publish their historical claims data and negotiated rates goes into effect, providing consumers with pricing information wherever they receive care.

Across the country, innovative employers are contracting directly with price-transparent providers and reducing their healthcare costs by 30% to 50%, sharing those savings with employees in the form of higher pay and benefits. lower premiums. When employers spend less of the funds they spend on employee compensation for health costs, workers’ wages and take home pay will increase.

The Biden administration can help more consumers benefit from similar savings by vigorously enforcing these rules. A recent study by finds that only 14.3% of hospitals nationwide comply with the Pricing Transparency Act.

When all health care prices are known, health care spending in the United States could return to lower levels, as in other OECD countries. More importantly, consumers can get the care they need at affordable prices, protecting their health and wealth for generations to come.

Guest comments like this are written by writers outside of Barron’s and MarketWatch newsroom. They reflect the views and opinions of the authors. Submit comment proposals and other comments to [email protected].

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