Recently, our friends at Think New Mexico came out with a proposal that they believe will help bring medical prices under control by making them more transparent.
We again welcome the folks at Think New Mexico for moving (again) towards the Rio Grande Foundation’s critique of government as the problem, not the solution, in many sectors of our economy. Health care is one such area.
Rather than focus on the root of the problem, Think New Mexico emphasizes “transparency.” Transparency sounds great and anything that attempts to bring health care prices under control and make them more logical is a good thing, right? It is hard to say.
The reason health care is not transparent or logical in the first place is because the consumers of health care don’t pay for their care directly. As the chart below shows, out-of-pocket expenditures are only 11% of total health care spending:
For some thoughts on how the Think New Mexico proposal would have on health care pricing in New Mexico, I contacted one of the nation’s top health care experts, Michael Cannon of the Cato Institute.
Price transparency is not a problem for the people who control the money. The government knows the prices it’s paying. Employers and insurers know the prices they’re paying. Until you return the money to the consumer – all of it, including the money that employers or Medicare are spending on their behalf – consumers will not get price transparency. And if you mandate price transparency in advance of that, consumers won’t use the prices because it’s not their money on the line. All you’re going to get is a lot of wrangling and rent-seeking over a new form of regulation. And we will have done nothing to fix the underlying problem.
Price discrimination is made worse by the same thing (third-party payment) that creates price opacity. Give consumers the money, and you’ll tame both problems.
For an even more detailed critique of what might be called “back-end” transparency in health care, check out this recent column from Dr. Deane Waldman.
Transparency is great and it is worth pursuing when it comes to health care. We strongly believe that the best way to solve the issue is to restore some semblance of market forces in health care. It’s hard to say whether the Think New Mexico proposal represents a step in the right direction or is simply a misguided effort to give meaning to meaningless prices.