Competition, the foundation of efficiency in the overall economy, does not work well in health care markets. Information asymmetries, employer and government subsidies, market consolidation, and distortions in incentives because of the presence of insurance all impede beneficiaries from shopping for lower-priced, higher-quality health care. For example, research clearly indicates that provider consolidation through mergers or acquisitions leads to increased prices without significant measurable improvement in quality or outcomes. Similarly, evidence suggests a lack of insurer competition can increase premiums Efforts to improve provider competition include initiatives such as price transparency, to support consumer shopping, as well as limits on provider consolidation and other anticompetitive behavior — such as bans on “antitiering,” where hospitals with significant market power demand placement in preferred groups during benefit design.⁵

Of these strategies, promoting price transparency is particularly popular. Existing evidence suggests that price transparency offered to employees has minimal effect.⁶ There may be some potential value to state-sponsored transparency initiatives that work through broader mechanisms, but that literature is nascent, and it seems unlikely that price transparency as currently practiced will significantly slow spending growth.⁷ Its weak impact may be because only certain services are shoppable. Moreover, even for shoppable services, insurance shields patients from the true price of their care, reducing the incentive to use transparency tools and shop for providers. Some patients also prefer to follow physician recommendations, while others are simply unable to shop for low-cost and high-quality care because of the limits on consumer choice in consolidated markets.

It could be useful to encourage insurance plans to use reference pricing — that is, making patients pay the difference between the actual price and the reference price — or tiered or narrow provider networks. Yet, those types of plans have drawbacks. In some cases, patients may be charged significant amounts out of pocket or may be unable to receive care from desired providers. In addition, patients may face disruptions in existing provider relationships. Finally, because employers typically control benefit designs, policies to promote consumer shopping will need to engage employers that may be resistant to change.