(File photo: Jim Bourg/Reuters)

The Trump administration takes a step toward price transparency.

The Trump administration is considering a rule that would require doctors and hospitals to disclose the rates they negotiate with insurance companies, a step toward establishing something that is sorely wanting in the U.S. health-care market: prices.

Milton Friedman famously described the four ways you can spend money. You can: 1. spend your own money on yourself; 2. spend someone else’s money on yourself; 3. spend your own money on someone else; 4. spend someone else’s money on someone else. No. 1 is usually the most efficient model, because when you spend your own money on yourself you have powerful incentives to monitor both cost and quality.


But when it comes to health care, we almost always use one of the other models, which creates different incentives, often bad ones: We love spending other people’s money on ourselves (No. 2) and don’t pay much attention to the cost when doing so, hence the difficulty of reducing Medicaid expenditures and other medical benefits. (In Finland, the Centre party government of Prime Minister Juha Sipil has just resigned after failing to pass reforms to control the rising expenditures associated with the country’s aging population — that’s our future, too.) Politicians love spending other people’s money on other people (No. 4) even when the costs are high and the quality is low. We don’t like paying taxes (that’s No. 3) and so we sometimes underfund programs for the vulnerable and the needy; the same incentive often means that employer-based insurance plans reflect the employer’s priorities more than those of the purported beneficiaries.

Ideally, our health-care policies would shift more medical spending toward No. 1 — people paying their own expenses out-of-pocket, especially for routine, predictable medical costs incurred by people who are neither poor nor elderly. But it will be nearly impossible to do that in an effective (and politically palatable) way without real prices.


There is a pretty good cash-on-the-barrelhead market for some health-care services in the United States, including “concierge” medical practices that will not so much as look at an insurance card (unless it says “American Express” on the front), cash-only dental clinics, and other fee-for-service businesses, such as cosmetic specialists, sometimes seen as being at the margins of medical care or superfluous.


These arrangements have many benefits: Consumers generally know up front what services will cost and have the ability to comparison shop, which puts downward pressure on prices. Customers paying out of pocket also get treated better: If you have insurance, you may be the patient but you are not the customer — the guy signing the check is the customer, always and everywhere. But these services tend to be limited in their scope and mostly serve relatively affluent people, though there is a quickly developing market of walk-in clinics and neighborhood providers serving lower-income consumers.

The experience in the broader, insurance-dominated health-care market is maddening. It is nearly impossible to get a straight answer in advance about the price of almost anything, including routine, standardized services such as common laboratory tests. This is not by accident: The health-care market in the United States is a perverse example of that “great fiction through which everyone endeavors to live at the expense of everyone else.” As anybody who has ever bought illegal drugs knows, one of the hallmarks of a dysfunctional market is that the sellers work to keep secret as much information as is possible, keeping their customers in the dark. In a normal market, sellers are happy — eager, even — to advertise their prices. Even the market for luxury goods, where prices once were scrupulously shielded from public view (“Call to Inquire”), sellers have begun to take a much more frank attitude toward prices, in part because Internet-powered globalization has diminished the ability of “authorized dealers” to maintain effective regional monopolies.


But the market for chemotherapy is different in important ways from the market for fancy handbags. Though there are exceptions, most health-care services are heavily location-dependent: You can order a pair of shoes from Singapore, but you probably aren’t going to go there for a check-up or a tonsillectomy. The fact that health care is largely immune from offshoring is one of the reasons why that field (along with government, education, and a few others) has seen relatively strong wage and employment growth while other sectors more vulnerable to offshoring have not. That’s great for providers — but not for consumers, who never benefit from having competition limited and their choices reduced.



Forcing the disclosure of negotiated insurer rates would be one small step toward a more functional and patient-centered market for medical services. And it is a market, moralistic rhetoric about health care as a “right” notwithstanding. It’s a market even in places where government monopolies distort it. There is no getting around scarcity.

You know that this is the right thing to do — because the hospital lobbyists are having a fit. “Disclosing negotiated rates between insurers and hospitals could undermine the choices available in the private market,” American Hospital Association executive Tom Nickels told the Wall Street Journal. “While we support transparency, this approach misses the mark.” That’s some grade-A corporate doublespeak right there: We support transparency, unless it produces transparency.

Imagine if buying a car were like paying for a medical procedure. You’d find out what that Honda Civic costs when you got the bill. It might be $20,000, or it might be $350,000. And some other guy may or may not help pay for some of it, depending on the deal your employer negotiated on your behalf seven years before you joined the company. Nobody would tolerate that — and nobody would seriously be expected to.

Republicans blew the health-care debate in 2009 with their mulish need to defend the status quo of what they insisted was “the greatest health-care system in the world,” never bothering to ask why so many people were so unhappy with such a superlative system. The answer, which is for obvious reasons less obvious to people with lots of money and good insurance, is: insecurity. Many people walk into doctors’ offices not knowing whether their insurance will cover the service they need, how much they’ll have to pay out of pocket, whether they’ll still have insurance in a week and whether it will offer the same benefits, etc. Asymmetric information means asymmetric power, and nobody likes to feel like he’s getting hosed — especially not when it comes to a life-saving procedure for his child or himself.

Prices will not solve everything that’s wrong with the U.S. health-care system, but they will do a lot of good.