Economic Perspective: Can Price Searching Reduce Health Care Costs?

NC State College of Agriculture and Life Sciences professor Dr. Mike Walden working in a recording studio.

MARY WALDEN:

“Today’s program asks if price searching reduces health care costs. Mike, economists believe consumers benefit from competition in the marketplace. One requirement for this competition is that consumers search for better prices of products or services they are purchasing. However, this is often difficult to do in the health care market. If price comparisons were possible in health care, would it lower costs?”

MIKE WALDEN:

“Very interesting question, and one in which I think we’re having a debate about on the national level. Fortunately we’ve got some new research that tries to address it. This new research, based on a study of consumer behavior when they had availability of health care prices found that consumers who were able to able to compare prices of health care, both products and procedures (hospital procedures), prices they paid did indeed drop. In fact they dropped an average of between 10 and 17 percent.”

“The study also found, however, that health insurance policies that are more generous, that cover more things, that have lower deductibles or copays, that actually reduce the motivation, as you might expect, of consumers to price compare. And so they didn’t see that drop in consumer prices.”

“So this makes sense to economists. It makes sense that if we shop around we’re going to get a better deal. Now of course there are big challenges to this in the health care area. Medical care is extremely complicated. I mean, probably the most complicated type of service that we can buy as consumers. So even if consumers can have access to data that allows them to compare prices of different procedures and services it’s still hard to do that.”

“Also another challenge here is if you are going to motivate consumers and allow them, give them more ability to compare health care prices, you’ve got to coordinate that with the insurance coverage. So, although on the surface we think that price comparisons would be good in the health care area, just like in any area, implementing that will be a big, big challenge in the future.”      

Walden is a William Neal Reynolds Distinguished Professor and Extension Economist in the Department of Agricultural and Resource Economics at North Carolina State University who teaches and writes on personal finance, economic outlook, and public policy.

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