Health Care Economists Debate Causes of High Prices in the U.S.

by Peter Johnson

In a Sept. 9 webinar hosted by the Brookings Institution and Robert Wood Johnson Foundation, leading health care economists debated the value of government intervention in prices.

The event was held in honor of the late Princeton economist Uwe Reinhardt, who advocated for the U.S. to shift to an all-payer system along the lines of his native Germany, in which prices for health care services and products are subject to uniform schedules.

In the panel discussion, debate centered on what causes high prices in the first place.

"Looking at price variation should make us curious about why is there price variation, as opposed to saying, 'because there's price variation, we need to regulate the prices,'" said Amitabh Chandra, a professor at the Harvard Kennedy School and Harvard Business School. Chandra argued that consumer choice must account for some of the variation in prices for the same procedure even within regional markets.

That position sparked criticism from the other panelists, who observed that the opacity of pricing and the market dynamics of health insurance mean that consumers are unlikely to have an accurate perception of the true cost of a procedure.

Melinda Buntin, chair of the Department of Health Policy at Vanderbilt University Medical Center, observed that the localized, consolidated structure of health care markets also means consumers have limited choices.

"Time after time in health care, we get into the situation where high prices are associated with greater supply of things," said Buntin. "We also have a situation where we don’t have exactly monopolies, but hospitals are really multi-product firms. They don't have a monopoly in every single one of their service lines; they try to leverage the monopoly they have overall, or their reputation, to negotiate with insurers. They clearly maximize their margins of their rents by providing more of some services and less of others."

"I would also challenge the idea of choice here," said Daria Pelech, a principal analyst at the Congressional Budget Office. Pelech observed that, because commercial insurance premiums are subsidized by the federal government through tax write-offs and premiums are pooled at the group level, the group membership of a plan subsidizes the expensive health care choices of individual members.

From Health Plan Weekly