Last year, I became a member of an exclusive group – I joined the ranks of Americans who have price shopped for their health care. And it wasn’t great.
After I hurt my back while bowling, my doctor wanted a CT scan. Using my insurer’s provider directory, I found an imaging center that checked all the boxes. It was in-network, conveniently located, and best of all, it had the lowest out-of-pocket cost compared to others nearby. But when I arrived for a walk-in appointment, I found that this location did not perform the type of imaging I needed. Their other office did, an inconvenient half hour away.
Revisiting the provider directory, I found another suitable provider. But it cost a lot more than the first would have.
My experience left me asking, is price shopping worth the effort? For me, in this case it was not. Might others benefit from shopping around? Absolutely. Is the system set up for them to succeed? That is a trickier question to answer.
In a health care landscape where Americans are spending more out-of-pocket ($1,632 per capita in 2024), rising costs and unaffordability are front and center. Coupled with inflation and slow income growth, many consumers are having to make difficult tradeoffs like cutting back on groceries or utilities to afford their care. If these trends continue, consumers will need to increasingly rely on price shopping. But for price shopping to be effective, its flaws need to be addressed.
Currently, consumers’ ability to shop around for health care is undermined by a few fundamental flaws. To start, price shopping is inconvenient. It requires the consumer to invest time and energy in finding a provider, oftentimes having to navigate provider directories that are inaccurate, incomplete, or outdated. Price shopping is also hampered by the mere fact that health insurance is complicated and consumers have difficulty understanding what is covered and how much it will cost. Even with mandated price transparency, if consumers are unable to understand pricing information, how useful is it?
When taken together, consumers face an uphill battle if they want to shop around for their care. Yet, they will weather all of these challenges and more if the price is right and incentives align with their needs and desires.
At present, incentives are more aligned with insurers’ needs. Traditional approaches to guiding consumers towards less expensive care options have focused on capturing savings for insurers, often by forcing a restrictive or punitive measure (i.e., narrow provider networks, higher out-of-pocket costs for seeing an out-of-network provider). In theory, these savings should eventually trickle down, but the reality is consumers are too far removed to perceive any benefit.
If the aim is to encourage consumers to approach health care spending like they would approach any other kind, incentives should be reoriented so the consumer can directly share in the cost savings. This ‘savings sharing’ model would reward the consumer with an obvious, immediate, and tangible benefit when choosing a low-cost provider. Consumer psychology offers a roadmap as to how this might be done.
Consumer psychology explores how consumers behave and how to guide choice. Insights from the field have resulted in practices that are ubiquitous today such as loyalty programs that allow repeat consumers to accrue points redeemable for discounts or complimentary goods and services. Wholesale clubs (e.g. Costco) make it possible for consumers to purchase goods and services in bulk or at a significant discount in exchange for an annual fee. More recently, the emergence of online- and mobile-based e-commerce integrations such as Rakuten and Fetch offer personalized rewards when consumers buy from corporate partners. Each of these practices is designed to incentivize consumer behavior.
There are obvious differences between the health care and retail industries, but given that both aim to provide value to consumers and nudge spending in a desired direction, these tools could be adapted to promote savings sharing in health care. For example, health insurers could incentivize consumers to use lower cost providers by passing a percentage of the savings directly to the consumer, either in the form of an instant rebate or quarterly dividend. The reward could then be redeemed either as a disbursement to a flexible spending account to be used for qualifying purchases or as a cash payout, albeit at a lower rate. This proposal would certainly require a legal and regulatory framework, but would also provide a greater, more direct benefit to consumers.
A savings sharing model would not be a cure-all. Health care is fundamentally different from other purchases—shopping for a bypass surgery is different from shopping for a Toyota. A procedure is not a product, but a service, and the cost of services vary by when, where and by whom they are rendered. Moreover, even under ideal circumstances, not every consumer will be able or willing to price shop.
But those who are would really benefit from a model that prioritizes and rewards the cost-conscious consumer. Health care is expensive and only becoming more so. While price shopping alone will not reverse that trend, insurers and policymakers should at least make it easier and more advantageous for consumers who shop for the best deal.
Research for this article was supported by Arnold Ventures.
