Transparency is a powerful cost saving tool. The Combined Federal Campaign started publishing the percentage of contributions that charities used for administrative and overhead costs after a financial scandal at United Way threatened the integrity of the campaign. It set a bar of 25%. Contributors began making more informed decisions and charities reduced their overhead costs over time to get below the bar.
We could take the same approach to reduce health insurance costs. Under the Affordable Care Act, insurance companies will be required to spend 80 to 85 percent of premium dollars on medical care and health care quality improvement, rather than on administrative costs, starting in 2011. If they don’t, the insurance companies will be required to provide a rebate to their customers starting in 2012. What if OPM published the % of administrative and profit for each provider in the FEHBP at open season. We would begin to assess the value of our insurance differently and make different decisions. Companies would have to reduce costs to be competitive.
We could require doctors to do the same. That would push them to reduce costs and embrace cost saving electronic billing options and record- keeping.
My electricity provider enables customers to compare what they pay per month to what other customers in comparable (e.g., size of home) areas pay. It has found that customers change their usage because they have a measure of what is achievable in cost reduction.
Contracts are another area where transparency could affect costs. We need to push companies to be more efficient and reduce administrative and overhead costs on government contracts and especially on sub-contractor costs. The costs for specialized and high-end technical expertise are very high and so is the overhead. How much are we paying for healthcare and other benefits, how much are we paying for facilities and other overhead costs like clearance processes and compliance.