A strong dose of consumerism will solve the health care cost crisis because people will be more careful in spending their own money than they are when bills are paid by great big insurance companies. That’s the theory behind the latest ‘innovation’ in health insurance – consumer directed health plans (CDHPs).
Unfortunately, that theory doesn’t work very well in the real world.
CDHPs combine super-high-deductible health plans with private Health Savings Accounts (HSAs). The idea is that people set aside funds in tax-deferred HSAs and use those funds to pay deductibles, which run over $1,000 annually for a single person, or $5,000 for a family.
Positive spin about CDHPs abounds, mostly from the usual suspects: GOP think tanks, presidential candidates, and the reigning incumbent. The spin falls into three arguments: HSA plans are growing rapidly; CDHPs will reduce health care costs; and individual tax incentives will spur the purchase of health insurance. There are kernels of truth in each of these claims, but the important word is kernels. Doubling enrollment is no great hurrah when you start with a mere handful of members; reported cost savings are based on one or two years’ of claims, a wafer-thin sampling that is too green to be meaningful; and as for tax incentives, the few folks who have enrolled in CDHPs and funded their HSA accounts (less than half of all accounts have any money in them) are significantly wealthier than the average American. HSAs are great tax shelters for the privileged few, but if you don’t make enough to pay high taxes, you won’t find much shelter.
The underpinnings of CDHPs lie in the economic theory of “Moral Hazard.” Journalist-author Malcolm Gladwell describes this as the belief that “insurance can change the behavior of the person being insured” and notes that it is popular among many economists and think-tank types and, consequently, has been influential in shaping health care delivery systems. The idea is that if insurance covers the bills, people are more likely to seek care and run up unnecessary costs.
The Moral Hazard theory falls short when confronted by the rather uncomfortable reality of actually having health care services rendered to one’s own person. Why would anyone want to subject themselves to surgery or hospitalization if there were an option to avoid it and just go fishing instead?
But on the surface, the concept makes some sense. Most people would be careful about getting an MRI if they knew they had to foot the bill, but perhaps too careful. People will not simply avoid discretionary care; they will avoid necessary care, as several studies indicate. One Rand Corporation study concludes that when individuals are required to pay more for prescription drugs, they don’t take them as they should. This leads to nasty physical and financial problems, such as more strokes, which cause lots of pain and cost lots of money to fix when a few blood-pressure pills might have sufficed. As far as drug copays go, increasing consumers’ costs actually drives up total medical expenses. It’s not a great leap to think individuals with high deductibles will likely wait before scheduling an appointment with their physician to see if a problem just goes away on its own. In a time when the Centers for Disease Control describe diabetes as “a runaway train,” is it economically wise to foster measures that discourage preventive care?
The coup de gras for CDHP is its old nemesis, the real world. CDHP’s fatal flaw is that the “consumer” part is directed at the wrong people. Half of U.S. health care costs are spent on five percent of the population. A deductible has little impact on the purchasing behavior of these folks; they’ll blow through a few thousand bucks in a couple of months
Conversely, over two-thirds of Americans spend less than a thousand dollars a year on health care. The only effect a high deductible will have on these folks is to discourage the use of preventive care.
Consumerism is not all bad – health care shouldn’t be “free” for anyone. Requiring people to share in the cost of their care should be a part of any serious reform effort. The fix for CDHP is relatively simple – get rid of high deductibles, which are unaffordable for many and may well discourage preventive care, and replace them with copays per service to ensure patients have some financial skin in the game. Insurance companies should keep an income-indexed out-of pocket-maximum, while covering preventive services and maintenance medications at very low copays, to encourage their use. Oh, and test the plan in the real world before declaring victory.