Reminder on Third-Party Payments: No One Should Be Surprised About Americans’ Views on Health Care Costs

By at 7 February, 2024, 2:09 pm

by Raymond J. Keating – 

If someone else is footing the bill, then what incentive do you, as a consumer, have to find out how much something costs?

Third-party payments are the reality of much of health care funding in the U.S., and it’s reflected regarding cost awareness, of lack thereof, among Americans according to a Gallup poll.

Gallup found that 79 percent of American adults do not know the costs of health care products and services before receiving those products and services. Meanwhile, 17 percent said that they did know.

As for requiring transparency – i.e., that healthcare organizations should be required to tell you how much a product or service will cost before you receive it – 95 percent of Americans agreed.

Consider that, based on 2022 data from the Center for Medicare and Medicaid Services, only 11 percent of national health consumption expenditures were paid for out of pocket. That means third-party payments covered the other 89 percent of these expenditures. That included 30 percent from private health insurance, and another 5 percent from other private sources. That leaves approximately 53 percent covered by government, such as via Medicare, Medicaid, CHIP, and other programs.

Price transparency in any market is vital. However, given that over half of health care services are covered by government, and another 30 percent by health insurance, for example, the power of price transparency is limited. Add in the fact that when government is the third-party payer, there’s little incentives in government to care about costs – after all, those in government are spending other people’s (i.e., the taxpayers’) money.

Eventually, when someone in government does get focused on costs, as we’ve seen, their solutions usually make matters even worse, such as resorting to price controls. Price controls, such as on prescription drugs, mean diminished investment and innovation, and therefore, fewer life-enhancing and life-saving treatments. In general, price controls mean diminished quality – not exactly what anyone should be shooting for in health care.

There has been movement in a positive direction with the expansion of health savings accounts (HSAs) coupled with high-deductible health plans (HDHP). According to KFF’s “Employer Health Benefits: 2023 Annual Survey,” among covered workers, the share with HSA-qualified HDHP have increased from 3 percent in 2007 to 24 percent in 2023. For HSAs and other out-of-pocket payments, price transparency is, in fact, essential.

Now, we just need an expansion of private HSA plans coupled with a rolling back of government involvement in health care to rein in the portion of higher costs that has nothing to do with innovation in and the quality of care.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His latest books on the economy are The Weekly Economist: 52 Quick Reads to Help You Think Like an Economist and The Weekly Economist II: 52 More Quick Reads to Help You Think Like an Economist.


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