My name is Robert Emmet Moffit. I am Senior Fellow in Health and Welfare Studies at The Heritage Foundation. The views I express in this testimony are my own and should not be construed as representing any official position of The Heritage Foundation.

Chairman Smith, Ranking Member Neal, and distinguished Members of the House Ways and Means Committee. I thank the Committee for the opportunity to submit testimony on health care price transparency and to suggest ways to increase patient knowledge, engagement, and personal health savings.

A Bipartisan Opportunity. Rendering health care prices transparent and broadly accessible should be neither controversial nor partisan. Several state-level hospital-price-transparency policies, such as those adopted in 2017 in my home state of Maryland, have enjoyed strong bipartisan and popular support.REF At the federal level, the Trump Administration’s groundbreaking hospital and health insurance transparency rules unveiled in 2019 were embraced by the Biden Administration in 2021; and, despite some early problems with hospital compliance, the process of implementation is well underway. The federal health insurance rules are scheduled to enter the third phase of implementation in 2024.

The appropriate legislation is now in order. The details of implementation and enforcement will require careful consideration in the crafting of such measures. Happily, recent congressional proposals reflect a continuation of the bipartisan spirit that has characterized earlier efforts to improve health care price transparency. Representative Cathy McMorris Rogers (R-WA) and Representative Frank Pallone (D-NJ), for example, are sponsoring the Transparent PRICE Act (H.R. 3561), a major bill to promote, among other things, hospital and insurance price transparency by codifying federal transparency rules.REF

The true test of success, however, will come when the real prices of medical services are fully transparent, easily accessible, and easy for ordinary Americans to understand, compare, and act upon in hospital and health insurance markets.

A Major Challenge. Today, accessing health care pricing data, acting on it, and securing personal savings, constitutes a major set of challenges for patients. The reason: Price opacity in health care is structural. Major health care decisions about health plans, financing, and benefits are not made by individuals, seeking the best value for their dollars, but by government bodies and large private-sector organizations. American health care financing itself mostly consists of a series of negotiated agreements between third-party players—a mix of large managed care corporations, insurers (public and private), employers, and large hospital systems and provider organizations—in state, local, and regional areas around the country. Individuals and families, as health care consumers, exercise little economic power. As the Congressional Budget Office (CBO) has observed,

The prices that commercial insurers pay are determined through negotiations with providers. Those negotiations often lead to higher prices because of providers’ market power (the ability to command higher prices than would prevail in a perfectly competitive market) and because of the lack of price sensitivity among insurers, which reflects insensitivity to prices among consumers and employers who select their plans.REF

Not surprisingly, health insurers and medical professionals and hospitals have routinely tried to keep the substance of these price negotiations confidential.REF

During the crafting of legislative provisions, various analysts will doubtless suggest a wide range of technical improvements to existing federal rules, such as stronger enforcement of transparency requirements, standardization of reporting, measures to ease and improve provider compliance, or the best way to include quality metrics with pricing information. Congress should not neglect the valuable work of several states in their efforts to improve pricing transparency, it should learn valuable lessons from those state experiences. Congress should ensure that any federal legislation complements those state accomplishments and does not undermine them. The same is true for the development of health care quality metrics; good work is already being done in the states and by private-sector organizations.

Patient Engagement. Of all the goals of an improved price-transparency policy, securing active patient engagement and personal decision-making is, or should be, the most important objective. Knowing the price of a medical service or procedure offered by a hospital, clinic, or medical professional, is pointless if the individual patient cannot act on that knowledge. Within the private sector most Americans are enrolled in employment-cased health insurance. When confronted by a variety of medical specialists, or a range of care delivery options, if a group insurance enrollee chooses the most cost-efficient option, the savings of that decision will not directly return to the patient, but to the patient’s employer.

While full patient empowerment in the health care markets would require some substantial market reforms, including a robust liberalization of the health insurance market, Congress can nonetheless take certain steps to incentivize patients to make cost-efficient choices in their medical care and reap the financial rewards of doing so. In this connection, I suggest two changes to improve current policy in our health insurance markets, as well as the existing policy governing health savings accounts. Congress should:

1. Create Incentives to Use Price Information by Encouraging a “Shared Savings” Model. Making data on the different prices charged for medical services transparent and accessible is a necessary precondition, but not the complete solution. Patients also need to have incentives to act on that information and health plans need to have incentives to encourage enrollees to incorporate price information into their decisions. Put simply, the availability of actionable information will make little difference absent incentives to act on the information.

   Congress can help to create the right incentives by enacting targeted reforms that enable health plans to implement “shared savings” programs. The basic concept is that a health plan would offer to share with an enrollee the savings that accrue to the plan due to the enrollee choosing a more cost-effective treatment or provider option. Operationally, a health plan would offer its enrollees user-friendly tools for comparing provider price information—and potentially quality information—on “shoppable” medical services. The plan would tell its enrollees that when they choose a better-value provider, it will share the resulting savings directly with the enrollee.

   Congress could encourage the adoption of such private-sector shared-savings arrangements by making three modest changes. First, Congress should make shared-savings payments from health plans tax free to enrollees. Second, for those with health savings accounts (HSAs) Congress should specify that any shared-savings payments they receive and deposited in such accounts will not count against the annual limit on tax-free contributions to an HSA. Third, Congress should clarify that under the medical loss ratio (MLR) requirement, imposed on insurers by the Affordable Care Act (ACA), shared-savings payments made by plans to enrollees would count as “payments for medical care,” not as “administrative costs.” These three, modest changes would incentivize health plans and enrollees to partner in using the growing amount of transparent price information to optimize savings from consumers shopping for “shoppable” medical services and procedures.

2. Increase Personal Savings Through a Liberalization of Health Savings Accounts. Any codification of federal hospital or health insurance transparency rules should be combined with an expansion of HSAs. Today over 32 million Americans have saved over $100 billion in HSAs.REF According to a major report from the American Academy of Actuaries, “[c]onsumers with high deductible health plans (HDHPs), which have a significant up-front deductible that applies to almost all services, are very price-sensitive and may be avid users of new transparency tools.”REF

   To secure maximum personal savings, Congress should allow anyone with insurance, regardless of its benefit design, to have such an account, clarify that funds in the accounts can be used for direct primary care, and expand the level of tax-free contributions for individuals and families up to the catastrophic limits for individuals and families in the ACA health insurance exchange markets. Current law restricts tax -free employer and employee HSA contributions to $3,850 for individual coverage and $7,750 for family coverage. If, instead, the ACA out-of-pocket limits were the standard set for allowable HSA contributions, this year individuals would be able to contribute $9,100 for their coverage and families would be able to contribute up to $18,200 for family coverage.REF

Savings Potential. Controlling costs and slowing the growth of health spending is a widely shared policy goal. While there is little doubt that a highly restrictive system of price controls or payment caps will sharply curtail health care spending, there is also no doubt that such policies would also broadly reduce patient access to health care services.

Unfortunately, there have been relatively few studies that have focused on the potential of price transparency policies to reduce health care spending. Acknowledging this fact, the CBO has offered its own estimates for this policy, among others, and reports that a price transparency policy would yield only modest results, no more than 1 percent reduction in national health care spending. The CBO concedes, however, that the real impact of such a policy remains highly uncertain and would be heavily dependent upon the specific details of its scope and implementation.REF Likewise, Rand Corporation analysts estimate that price transparency would yield modest results, ranging only between $8.7 billion to $26.6 billion, with the largest savings generated by employer-driven decisions.REF

Also noting that existing research on price transparency has been relatively limited, Professor Stephen Parente, a health economist at the University of Minnesota, has undertaken a comprehensive analysis based on two large sets of all-claims databases—representing the entire commercially insured population covering more than 200 million lives. Publishing his results in Inquiry: The Journal of Health Care Organization, Provision and Financing, Parente concludes that a comprehensive price transparency policy— “assuming a robust set of tools”—could achieve “significant” system-wide savings. He estimates that the United States could experience a wide range of nationwide savings, from a low of $17.6 billion and potentially climbing to more than $80 billion in 2025. The national result would translate into a 6.9 percent reduction in medical spending for all Americans enrolled in private health insurance, including a 7.4 percent reduction in medical expenditures for persons with incomes below 100 percent of the federal poverty level (FPL).REF Echoing analysts with the American Academy of Actuaries, Parente observes: “Consumers may have strong incentives to shop with the rise in the use of high deductible health plans and health savings accounts. How the potential savings are to be shared by consumers, employers and health plans has yet to be determined.”REF

CBO analysts likewise insist that the effectiveness of any price-transparency policy would depend on the details of its implementation. They also observe that, “If more consumers started using price information to choose lower-priced providers, then, over time, those changes in price sensitivity might pressure providers to accept negotiated prices that were much lower than they would be under current law.”REF (Emphasis added.) The challenge is to secure patient engagement.

A Word of Caution. In crafting legislative provisions, various analysts will doubtless suggest a wide range of technical improvements to existing federal rules, such as stronger enforcement of transparency requirements, standardization of reporting, measures to ease and improve provider compliance, or the best way to include quality metrics with pricing information.

In crafting their legislative proposals, Members of Congress should not neglect the valuable work of several states in their efforts to improve pricing transparency in hospital and health insurance markets, learn the valuable lessons from those state experiences, and ensure that any federal legislation complements those state accomplishments, and does not undermine them. This is especially true if Congress wishes to combine price and quality information. Members should not overlook or pre-empt state or private-sector development of health care quality metrics; excellent work is already being done, especially by private-sector organizations.

Conclusion. Today, American “health care markets” are not driven by personal choices based on accessible information on price, let alone an educated understanding of the quality of medical goods and services. In contrast to other sectors of the economy—even in those sectors where services and transactions are complex (such as financial planning)—price opacity in health care is an anomaly. Moreover, individuals and families, as consumers of health care, often have little or no say over major health care decisions, such as what kind of health plan they get, which medical treatments or procedures will be available to them under that coverage, or what they will pay in terms of insurance premiums, co-payments, or deductibles. Quality is uneven and inconsistent, depending on the coverage and care available. In short, individuals and families, as a rule, control neither the dollars nor the decisions in American health care; they are controlled by employers and corporate benefits managers, by health-insurance and managed-care executives, and increasingly by government officials.

Patient-driven choices, with some notable exceptions, are limited; and medical professionals’ responses to patients’ preferences and needs is too often influenced by public-sector and private-sector third-party payment rules. Actionable information, based on sound price and quality information, coupled with incentives for both plans and consumers to act on that information, can improve economic efficiency as well as the quality of patients’ medical care. By promoting patient-friendly information on health care pricing and provider performance, and facilitating patients’ ability to act on that information, Congress can improve the financing and the quality of American health care delivery.

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