Price Variance and Transparency in Healthcare: Impact on Self-funded Health Plans and Employees

For many years, patients did not know how much medical services cost until they received the bill. This lack of transparency left many, including self-funded employers and their employees, in the dark about what they were being charged, which led to overspending.

To add to the confusion, the prices of procedures and medical services vary greatly, even within one city or region. Without a clear understanding of the cost, employees struggle to make well-informed healthcare decisions. 

Laws and Regulations Around Healthcare Prices

Recognizing the need for greater transparency, the U.S. Department of Health and Human Services (HHS) introduced new rules aimed at making healthcare pricing more accessible to consumers. Initially, the price transparency targeted only hospitals, requiring them to publish rates for at least 300 common medical services in an easy-to-understand manner. It also required hospitals to provide rate information on their website in a machine-readable format. This went into effect January 1, 2021.

The transparency rule now goes beyond hospitals to include insurers. By January 1, 2023, all insurers were required to disclose rates and provide cost-sharing estimates for certain services, eventually expanding to all services by 2024.

While many insurers and hospitals oppose the new rules, price transparency regulations are designed to empower consumers and employers by giving them access to real-time cost information. With this data, they can make better decisions about where to receive care, potentially save money on out-of-pocket expenses, and better manage high-cost claims.

How Will Price Transparency Impact the Market?

A major argument in favor of price transparency is that health systems will be forced to lower prices to compete in a market where consumers have a more clear choice. 

In the U.S., people spend more on healthcare than any other high-income country in the world, and price transparency can be a tool to help combat continually rising costs. One study published in The Review of Economics and Statistics found that price transparency decreased the total cost of medical imaging procedures by 3% over a five-year period, with insurers and consumers experiencing notable savings. 

At the same time, transparency could increase prices. This has happened in other industries and can result from several factors:

• Providers see what others are charging and raise their prices to match the higher rates of competitors. This is particularly likely if some providers were previously charging less and now realize they can increase their rates without losing patients.
• Transparency can reduce the negotiating power of insurers. If providers know that their competitors have agreed to higher rates with certain insurers, they may resist negotiating lower rates themselves.
• Providers may set higher baseline prices if they know their discounted or negotiated rates will be publicly visible to create the appearance of a larger discount while actually charging more overall.
• Implementing transparency measures often involves significant administrative costs for compliance, data management, and reporting. Providers might pass these costs onto consumers, leading to higher prices.

What is Price Variance?

What do the cost of an ultrasound, X-ray, and blood test have in common? They all vary widely. 

Such common procedures can range from a few hundred dollars to several thousand. This variance is primarily due to the negotiated rates between healthcare providers and insurers. Historically, these rates have been kept confidential, which makes it difficult for employees to make informed decisions about where they receive care.

Without transparency, individuals are not aware of this discrepancy until it is too late.

How Will Price Transparency Impact Self-Funded Employers and Employees? 

When an employer assumes the financial risk of providing healthcare benefits to employees through a self-funded plan, they are particularly affected by price variances. Unlike fully insured plans, where insurers bear the risk, self-funded plans pay directly for employee healthcare claims. The wide range in prices for the same service means that self-funded employers could be overpaying for healthcare without knowing it.

Ultimately, price transparency rules are only effective and beneficial if consumers are aware of them and understand how to use the tools at their disposal. In a survey, two-thirds (64%) of more than 2,000 Americans surveyed said they have never tried to find the price of a healthcare service. 

Price transparency will only benefit self-insured employers and their employees if it’s coupled with proactive support and user-friendly tools. With this, employees are adequately supported to:

• Navigate in-network and out-of-network provider options 
• Research fair-cost facility options 
• Become smarter healthcare consumers 

Healthgram supports self-funded employers with inhouse member advocacy and end-to-end clinical assistance to help employees navigate the healthcare system more efficiently. This leads to increased cost control for them – and their employers. 

While the conversation around price transparency and variance continues to evolve, it’s important to keep employees informed so that they can make better, more cost-effective decisions.

To learn more about Healthgram’s approach to price transparency, reach out to a member of our team.