Price Transparency in the Private Health Insurance Market

Price Transparency in the Private Health Insurance Market

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August 19, 2015
Price Transparency in the Private Health Insurance Market
Do Consumers Know How Much Health Care
The amount insured individuals pay for health care services
Services Cost?
differs from what uninsured individuals pay (see Table 1).
Unlike virtually all other services, consumers typically
It is often assumed that uninsured individuals would pay
receive health care without knowing its price. Providers
full charges because they would not receive the discount
often do not disclose how much they charge, and consumers
that is negotiated by health plans. This may not always be
often receive pricing information only after the bill arrives.
the case. The charge may be adjusted for an uninsured
Even if a consumer seeks out information to make price
individual’s income and financial status, resulting in a
comparisons, geographic variations and differences in
lower cost for the consumer. For example, the individual
quality of service make comparisons challenging. Prices
may qualify for financial assistance or charity care.
may even vary based on who is paying the bill (health plans
Additionally, consumers themselves may negotiate a
or consumers). Given the uncertainty around health care
discount from the charge and thus lower their costs.
prices, there has been a push toward filling the price
information gap through price transparency.
Key Terms
What Is Price Transparency?
Cost: The term’s meaning can vary depending on the
Price transparency is the practice of making information on
party incurring the expense—the consumer, provider, or
the price of health care services readily available. That
health plan. For the consumer, cost is the amount payable
information should be clear, relevant, and accessible to help
out of pocket for health care services (i.e., cost sharing).
consumers make informed decisions.
For the provider, cost is the expense incurred to deliver
services to consumers. For the health plan, cost is the
Why Is There Uncertainty Around Health Care
amount payable to the provider for services rendered.
Prices?
Charge: The dollar amount a provider sets for services
The mystery surrounding health care prices stems partly
rendered before negotiating any discounts.
from the multiple payers in the health care system
(provider, health plan, and consumer). Each party has its
Negotiated Payment: The maximum amount on which
own costs associated with health care services, and thus it is
payment is based for covered health care services. The
difficult to determine the dollar amount for health care
payment may be negotiated by the health plan or the
services. Additionally, the price or costs (particularly to the
consumer.
consumer) of health care services may vary depending on
who is paying as well as the consumer’s insurance status
In-Network: The facilities, providers, and suppliers a
(see Table 1).
health plan has contracted with to provide health care
services.
When a consumer obtains a health care service, the provider
Out-of-Network: The facilities, providers, and suppliers
charges a certain dollar amount for services rendered. The
a health plan has not contracted with to provide
applicable charges are then recorded on the claim that is
healthcare services.
submitted to the health insurance plan or the consumer. The
charge is like the sticker price on a car; an amount that
Cost Sharing: Also referred to as out-of-pocket costs
serves as a starting point for negotiation. Charges do not
for the consumer. The amount an insured consumer pays
reflect the actual amount paid for health care services and
for health care services according to the terms indicated
are irrelevant for many consumers.
in the health plan. A plan’s cost-sharing requirements may
include deductibles, coinsurance, and co-payments.
The amount providers generally receive in payment is
Deductible: The amount an insured individual pays
discounted from the charge. Health insurance plans contract
before his or her health insurance plan begins to pay for
with a wide range of providers. These providers accept the
services.
plan’s negotiated payment in full for services to the plan’s
consumers; this group of providers is in-network. For
Coinsurance: The share of costs, figured in percentage
insured consumers, the price is then divided into a portion
form, an insured consumer pays for a health service.
paid by the health plan and a portion paid by the consumer.
Co-payment: A fixed amount an insured consumer pays
for a health service.
Insured consumers are often required to pay an amount for
the health care services (i.e., cost sharing) via coinsurance

or a co-payment. Because this is the amount insured
consumers are required to pay out of pocket for health care
services, it could be considered the most relevant dollar
amount to the insured consumer.
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Price Transparency in the Private Health Insurance Market
Table 1. Illustrative Example of a Health Care Bill for an
states with laws and regulations that address multiple
Insured and Uninsured Consumer
components of price transparency.
Insured
For example, states may require health care providers to
(In-network service
provide consumers with a price estimate of the treatment
with 25%
and the costs that must be paid by the consumer. Some

coinsurance)
Uninsured
states may require providers to give average or median
prices for the most common procedures. Yet, the
Provider Charge
$1,000
$1,000
applicability of such a mandate may vary by state—that is,
it may apply to certain types of providers (e.g., hospitals,
Plan’s Negotiated
$600
N/A
ambulatory surgical centers, or physicians) or to certain
Payment
procedures (e.g., inpatient or outpatient).
Consumer’s
N/A
$1,000
States may also mandate the creation of an all-payer claims
Negotiated
database (APCD), which is a large-scale database that
Payment
collects health care claims from a variety of providers and
Plan Pays
$450
N/A
payers. An APCD has information about negotiated
(75% of plan’s
payments for health care services. However, not all states
negotiated payment)
have strategies on how to translate this data. In addition, the
data may not be in a format easily understandable to
Consumer Pays
$150
$1,000
consumers.
(25% of plan’s
negotiated payment)
How Does Federal Law Address Price
Transparency?
Source: CRS illustrative example.
The Patient Protection and Affordable Care Act (ACA; P.L.
What Are the Limitations of Price Transparency?
111-148, as amended) requires providers (particularly
A number of health care and legal factors make price
hospitals) and insurers to provide certain information
transparency difficult. For example, it may be difficult for a
related to price transparency to consumers. Hospitals are
provider to predict which services a consumer may need in
required to establish and update a set of standard charges
advance and thus to give an accurate price estimate. Also,
for health care items and services provided by the hospital
while price transparency information may allow consumers
and to make the information public. Guidelines from the
to be more knowledgeable in making medical decisions,
Department of Health and Human Services state that
price information may not necessarily be the primary or
hospitals “either make public a list of their standard charges
only issue a consumer considers. A consumer may rely
... or their policies for allowing the public to view a list of
heavily on the recommendations of a physician whose
those charges in response to an inquiry.”
medical advice may not align with the consumer’s price
The ACA requires tax-exempt hospitals to (1) regularly
preferences. Legal factors affecting price transparency
perform a “community health needs assessment”; (2) create
include contractual obligations between health plans and
and publicize a “financial assistance policy” (FAP); (3)
providers that prohibit the disclosure of a plan’s negotiated
limit charges for FAP-eligible individuals; and (4) adopt
payment. Plans may also consider their negotiated payment
certain policies related to bill-collection efforts. Although
to be proprietary information.
price transparency relates to all of these ACA requirements,
In addition to price transparency, quality is a significant
it is most closely related to the second requirement, which
component of making meaningful health care decisions.
makes price information available to consumers: the tax-
The relationship between price and quality of care is
exempt hospital must widely publicize the FAP to the
nuanced, and thus price alone does not provide the full
community it serves.
picture. Accordingly, there is a push to provide both price
Health plans are mandated to provide a summary of
and quality information side by side to assist consumers in
benefits and coverage (SBC) to individuals at the time of
making an informed decision.
application, prior to the time of enrollment or reenrollment,
Who Has Jurisdiction over Price Transparency?
and when the health insurance plan is issued. The SBC
Private health insurance and providers are regulated
provides information related to cost sharing; exceptions,
primarily at the state level. Individual states have
reductions, and limitations on coverage; and other coverage
established standards and regulations overseeing the
features. The ACA also requires health plans seeking
business of insurance and providers. Despite the states’ role
certification to participate in exchanges (marketplaces
as the primary regulators, federal requirements may
where individuals can shop for coverage) to disclose
overlap. However, federal laws often establish federal
information on out-of-network costs, among other health
minimum requirements while generally giving states the
plan features, to consumers. Moreover, selected cost-
authority to enforce and expand those requirements.
sharing information for exchange plans is available through
public websites designed for consumers (HealthCare.gov)
What Are Some State Approaches to Price
and researchers (Data.HealthCare.gov).
Transparency?
State laws and regulations that address price transparency
Bernadette Fernandez, Specialist in Health Care
vary considerably. The variation ranges from states with no
Financing
laws and regulations that address price transparency to
IF10282
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Price Transparency in the Private Health Insurance Market

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