Why Price Transparency Matters More than Ever
Healthcare price transparency should be a core topic of any financial wellness platform. Consumers with health savings accounts (HSA) are often not even aware of their investment option. In many cases, they can invest their savings in stock and bond funds once a minimum balance is reached. HSAs can help consumers face healthcare costs in retirement by investing surplus balances in an HSA. Well, it turns out that investment option may be needed: A recent Fidelity Investments study revealed that a couple retiring today will need $245,000 for medical expenses along during their retirement years http://bit.ly/1mVy5jU. That is only the average amount!
Today consumers are facing rising cost sharing burdens. Employers are picking up a lower percentage of the tab by shifting more of the costs to the employee. High deductible health plans are more affordable…until you actually need to see a doctor and are hit with sticker shock once the bill arrives in the mail. It’s a sea of alphabet soup out there. “Deductible”, “co-pay”, “coinsurance”, “HSA”, “HMO”, “PPO”, the list goes on.
Proactive consumers that “take more ownership” of their healthcare spending will be empowered even if health savings accounts are the only option based on affordability. The math is pretty simple. If a consumer saves $1,000 a year for 20 years in a health savings account returning 5% per year, she will have over $35,700 at retirement. If the money is spent on qualified healthcare expenses it is not taxed when it leaves the HSA.
In reality, on a tax-adjusted basis (25% bracket), one would need $47,625 in a conventional IRA to match the $35,719.25 HSA value. That 25% tax shield just saved you 33%…Still not sold? Perhaps it is easier to think of it as “your dental spending money in retirement”. If you and your spouse do the same you will be well on your ways toward funding that future healthcare liability.
Once you spend some time educating yourself about healthcare cost savings opportunities you will discover the best kept dirty secret: an annual $1,000 savings may be just the tip of the iceberg…
How we are Trying to Help
The good news is there are solutions and tools starting to emerge to help expose these dirty secrets. Our approach is not too glamorous yet borderline provocative. We send off for a zip drive packed with millions of raw claims data and make our best efforts to empower consumers to improve their financial wellness profiles. The best news is we can take the data we extract from private claims data in NH and tell stories with it. Costs vary widely everywhere – so any NH examples can easily apply to other geographies.
Show me the Money
No one wants to spend money on unexpected healthcare services. But if it happens, would you rather spend $1,800 or $2,800 assuming there was no difference in quality or outcome? An example will illustrate this point. Let’s assume you are a female between 20-30 years old and you are curious to learn about medical services where you may can face large out-of-pocket costs (at least $1,500 in out of pocket costs in this example). Let’s then assume you’d like to examine the differences in the procedure’s cost across local providers to understand the potential savings. Below is a sample output from our demographic planning tool:
27 poor souls needed a MRI scan of the brain. They paid over $2,120 in out-of-pocket costs on average.
Drilling a little deeper, let’s assess the cost differences in our example. We chose 3 random hospitals proximate to zip code 03301.
There is a lot of info on this screen shot, so let’s just look at “Avg. Total Paid” or the far right column. The variation between the high cost provider and the low cost provider is almost $1,200.
What is the primary lesson? If you have a high deductible plan you have essentially two options. First, you can go through the motions and let your physician refer you to the affiliated radiologist with no inquiry about price transparency and what your options may be. Second, while it may feel odd and foreign at first, you can ask questions. You can research price transparency services. You can express a concern about knowing how much a service will cost. How about asking your doctor? The reality is, your doctor will probably not even know how much you will pay. This goes to show how dysfunctional the healthcare system is. You are better off inquiring with your insurance carrier to demand cost estimates for at least 3 providers.
It will take some time to become accustomed to acting like a normal consumer in healthcare. But let’s not forget the successes of Amazon.com, Uber, etc. We need change in healthcare. It is no secret. Consumers will gain more confidence upon understanding the types of questions they should be asking. Confidence will breed more engagement. More engagement will breed more demand for price transparency. More price transparency will breed more competition. What happens when we experience more competition? Ask a local taxi medallion holder how he feels about competition.