Recently, the New York Times highlighted a booming trend toward greater price transparency in medicine thanks to up-and-comers such as Castlight, a new company aiming to create a search engine of health care prices.  Others sharing in this endeavor include both public and private entities in Tennessee and New Hampshire, as well as several insurance companies.

Lack of transparency regarding pricing of medical services has often been attributed as one of the factors contributing to skyrocketing spending in the health care system, a concern which drew considerable attention during the recent debate over health care reform.

According to the Times, “The lack of price information in health care has been a big driver of ballooning health care costs, analysts say, because costs are opaque to patients and heavily subsidized by employers. The patient has no incentive or responsibility to keep costs down. But many employers are switching to health plans that require patients to pay more out of their own pockets.”

But lack of transparency in pricing is only part of the problem driving soaring health care spending.  The bigger problem is that patients are completely disconnected from the cost of their medical bills because of the growing role of third party payers.

Heritage expert Robert Book, Ph.D, and Jason Fodeman, M.D., write:

A major source of these spending increases is a third-party payment system that often leaves the physician and patient insulated from and even unaware of the costs of the various treatment options. Often, the patient faces the same co-payment regardless of which treatment is chosen, and the extra costs are passed along to the insurance company, Medicare, or Medicaid. These payers may appear to have an incentive to encourage efficient use of resources, but ultimately they do not pay the price for inefficiency. Insurance companies offer “generous” benefits and pass on the increased spending to patients (and often their co-workers) through increased insurance premiums, and government programs pass on the spending increases to taxpayers.

Since price transparency is only part of the reason for the broken link between patients and the spending on their medical care, it can only be part of the solution.  To be effective, transparent prices must be accompanied by allowing consumers to own and control their health care choices, including type of plan.

Consumer-driven care is the key to making transparent pricing work.  This is currently available to a growing number of Americans through the combination of high-deductible health plans with health savings accounts, giving individuals greater control over the flow of their health dollars. As the Times reports, “A study published last month by Mercer, a human resources consulting firm, found that people on high-deductible health plans, with more exposure to the prices of doctor visits, spent less.” Unfortunately, the recent passage of Obamacare severely threatens the future of consumer driven health care through its tangled web of new rules and regulations, creating a situation where high-deductible plans may not able to comply with the new law.  If this is indeed the case, price transparency will have little effect on growth in health spending.