A cost curve that bent way down
Warby Parker is the most celebrated of the online optical shops upending the traditional eyeglass business. In a market where the average price for a pair of prescription glasses has been near $300, Warby Parker sells hipster-chic frames, complete with lenses, for around $100. Fast Company calls Warby “the first great made-on-the-Internet brand.”
Less chic, but perhaps even more significant, have been discount retailers Zenni Optical and EyeBuyDirect, companies that offer basic corrective lenses in cheap frames for as little as $10 or even less. These companies threaten to disrupt the old ways of doing business—which is just what we expect in a market economy. But such innovations are rare in the business of medicine. Which is why prescription eyeglasses, though just a tiny sliver of the medical sector, may prove to be a big story for the future of health care.
How do the super-discounters make and sell glasses so inexpensively? There are some simple ways they bend the cost curve. They eschew the markups that come with fancy designer brands, and they manufacture the frames themselves, typically in China. And one key difference: They don’t indulge in the sort of price premium that the dominant market-player, Luxottica, has been able to charge.
Cutting the cost of glasses affects related markets as well. A little more than half of adult Americans have vision insurance (and the Affordable Care Act mandates such coverage for almost all children). A vision policy for a married couple costs about $25 a month when purchased from an agent and about $15 a month through an employer, and usually comes with a deductible or copayment. Buying discount glasses out-of-pocket is almost always going to be cheaper than maintaining coverage.
Can the costs of other medical devices be cut as much as the price of glasses? After all, crafting lenses is a fairly routine process, one that’s a lot easier to outsource overseas than, say, crafting and fitting prosthetic limbs.
Which points to some of the real disadvantages that come with super-cheap eyeglasses. Even with express shipping, they take a week or more to arrive; many shopping-mall opticians, by contrast, offer one-hour service. With online retailers, the technical task of making what should be a precise measurement of the distance between pupils is generally done not by an optician, but by the customer. And if you have a difficult prescription—say, a pronounced astigmatism—you’ll find that Warby Parker doesn’t offer online the lenses you need. And then there is the question of quality: Cheap frames and lenses can be, well, cheap.
But for all that, the discounters have found a robust market. There are things the medical system might learn from this quiet revolution. People buying glasses have traditionally written much of the check themselves, making them care about price. This is why the online upstarts have made cost their key pitch (Zenni Optical was originally called “19dollareyeglasses.com” but changed the name when its prices dropped as low as $6.95). Other parts of the health care sector might benefit from this sort of sensitivity to price. While it may not be wise to shop around for discount chemotherapy, the price of routine lab tests could well come down if patients were encouraged to compare costs.
But for patients to bargain-shop, doctors and hospitals would have to post their prices, which almost none currently do. State lawmakers looking to encourage market forces in health care, might consider mandating that, where possible, prices be disclosed in advance.
Perhaps most difficult to accept might be the conclusion that bending the cost curve for health care might require some trade-offs in quality and perks. Prescription eyeglasses that cost less than $10 aren’t going to be as good as those that cost $500, but price is obviously a factor. Some people pay extra for a fancy designer’s name or special lens coatings to resist fingerprints. Others conclude such perks aren’t worth the money. The same could certainly be true for other medical procedures, treatments and devices. The key to making these trade-offs acceptable and fair is in putting those choices in the hands of the consumers themselves and giving them a stake in what the costs are.
The success of online eyewear merchants, who have cut the price of glasses by as much as 90 percent, demonstrates that, even in the notoriously closed and regulated market for health care, disruptive innovation remains possible.
