Healthcare price transparency is the best way to lower prices. It should be in next stimulus.

When Arthur’s son returned home from Barcelona in March with Covid-19 symptoms, he went to a Nashville hospital to get tested. He did not see a doctor, but he saw four nurses and was sent home without taking a coronavirus test. His bill, which arrived weeks later in the mail, was $15,000.

Most people either know someone or have themselves been impacted by similar egregious medical billing. Many of these patients never would have agreed to be treated if they knew prices beforehand. Once bitten by healthcare price opacity, they are shy to ever return to a hospital – just like the one-third of Americans who avoid them for fear of financial ruin.

As lawmakers shape the contours of the next COVID-19 relief legislation, they should include a systemwide healthcare price transparency mandate. By requiring hospitals to post real prices and insurers to disclose secret negotiated reimbursement rates before care is delivered, policymakers can not only help patients like Arthur’s son but also provide an unprecedented economic stimulus at no cost to taxpayers.

Due to the COVID-19-induced economic fallout, patients, employers, and all levels of government have seen their finances crippled. Employment, earnings, and tax revenues have all cratered. Reducing healthcare costs for these healthcare consumers is now urgent. In fact, it’s a necessary component of the nation’s economic recovery.

Lowering healthcare burdens means higher net wages, the potential for increased business earnings, and a better fiscal outlook for governments. These outcomes will boost economic growth because they will increase consumption, hiring, and government services. More money can be spent on productive endeavors and less on unproductively propagating the healthcare cartel.

Eliminating healthcare waste, which accounts for 25 percent of U.S. healthcare spending, according to a 2019 JAMA study, will save the country approximately $1 trillion annually.

Price transparency is the best and least complicated way to lower healthcare costs. While economists don’t agree on much, all acknowledge that consumers make their economic decisions based on prices and benefits. Without real prices in healthcare, it’s impossible for consumers to make decisions on cost and quality. So, they fly blind when it comes to their healthcare choices, playing pin the tail on the donkey and praying they land on a less-expensive provider. In this environment where consumers have no power, hospitals and insurers have no incentive to economize and every incentive to price gouge.

At the most basic level, price transparency lowers healthcare prices because it gives healthcare consumers the information they need to shop for better value. They can compare prices like consumers do for hotel rooms or virtually any other product and choose the least expensive option subject to a given level of quality.

When consumers can shop based on price, wildly divergent healthcare prices will converge into a market rate. Suppliers that engage in waste, overbilling, and profiteering are identified by their prices and punished by consumers. Hospitals that price gouge or recklessly sue their customers will be laughed out of town as consumers shop elsewhere.

Our research finds that cash healthcare prices are, on average, 39 percent less expensive than insurers’ negotiated rates. There are numerous stories around the nation of businesses slashing their healthcare costs by around this much by shedding the status quo and contracting directly with a small number of price transparent providers.

Healthcare price transparency enjoys overwhelming bipartisan public support, which is no surprise given its potential to fuel the economy. It’s backed by nine out of ten Americans, according to separate polls conducted by Harvard-Harris and a physician trade association.

The current economic crisis presents lawmakers with an opportunity to fix American healthcare by including a price transparency measure as part of the Phase 4 stimulus legislation. This reform can help Americans emerge from our current recession and provide economic prosperity, making all of us and our country healthier and wealthier than ever before in the years to come.

Arthur Laffer Ph.D. was a member of President Reagan’s Economic Policy Advisory Board for both of his two terms and is the founder and chairman of Laffer Associates. Larry Van Horn Ph.D. is an expert in health care economics and serves as, Professor and Executive Director of health affairs at Vanderbilt’s Owen Graduate School of Business. Drs. Laffer and Van Horn are participating in a virtual healthcare price transparency event hosted by the Institute for the Study of Free Enterprise at the University of Kentucky on Tuesday.