If consumerism is going to help reduce health care cost inflation, we’ll need two things – information and appropriate financial incentives. Actually, we’ll need another ‘thing’ – consumers will need the intelligence and expertise to be able to make the correct decisions when (or more likely if) reviewing information about conditions, procedures, outcomes, costs, side effects, providers, facilities, and alternatives. That’s a tough one…but I digress.
So far, the information has been sorely lacking, in part because it’s just so massive it’s hard to put it together, in part because the Feds won’t give out any data on the largest payer on the planet, Medicare, and in part because providers are really really reluctant to sign on to anything that might reveal they aren’t individually perfect.
OK, so we’re not quite there yet in the information department. What about financial incentives? We’re a lot further along there, aren’t we? Well, aren’t we?
Nope. For two reasons.
First, HSA enrollment (that’s Health Spending Accounts) is still a tiny fraction of total health plan enrollment. Yes, it is growing, but from a really small base. (and by the way, half of the folks who have HSA accounts have yet to put any money in them…kind of hard to spend money wisely when you don’t have any money…)
Second, and here’s the killer, most health care dollars are spent on and by people who spend way more than their deductible every year. So, if they’re the biggest spenders, and if they have no motivation to control their spending once they’ve blown thru the deductible, how, exactly, will consumerism affect their health care buying habits?
Lets walk thru the math.
The highest consumer-directed health plan deductible is about $5000.
4% of employees spend more than $10,000 per year on health care. Not insurance, but actual care. In total, they spend 49% of all health care dollars. Extrapolating that out across the entire population (and thereby opening myself up to criticism for mixing statistical metaphors), 4% of Americans, or about 12 million people, spend about $800 billion each year. That’s about $66,000 each. Heck, they’ll blow thru their $5000 deductible by February 17th each year.
At the other end of the spectrum are the 72% of the people who spend less than $1500 per year. They don’t buy much health care, and when they do it is likely for accidents or other emergencies, plus the odd script and physical. Yes, CDHPs may make them better consumers, but as they rarely use health care, how much time are they going to invest in research?
That leaves the group in the middle, the folks who spend between $1500 and $9999 each year. They account for 40% of spending, so perhaps consumerism will help here. But remember, a bunch of them spend over $5000, and thus have no incentive to control costs once they exceed their deductible. And, there is some evidence that they may decide to forgo preventive care and skip maintenance meds, thereby increasing the risk of a medical flare-up.
Meanwhile, the Bush Administration’s front man on health policy, Allen Hubbard, is going around the country pronouncing HSAs and consumer-driven health care as the cure for rising health care costs.
I just can’t wait to hear from “economists” who will clarify this for me!
In the meantime, you can check out Matt Holt’s views and research on this at Spot-On. Clearly, Matt has way more time, initiative, and detective skills than yours truly…
Don’t sell yourself short, Joe. This is an excellent quickie analysis, and thorough enough that I just won an argument with my conservative cousin who thinks HSAs are the bee’s knees.
Consumers spend thousands of dollars every year on flat screen high definition TV’s, vacations, cars, groceries, clothes, computers, home improvements, etc, etc, etc… And it’s great that they shop around and get the best bang for their buck.
Those same consumers will spend $2000.00 on new muffler bearings for their chevy are the same ones that balk at paying a $50.00 copay for a trip to the emergency room (for a visit that isn’t emergent).
I don’t see how anyone without any concept of medicine who doesn’t want to pay a copay for something (inappropriate) is going to effectively “shop around” for health care… I agree and I just don’t get it.
I think making employees responsible for their healthcare is a step in the right direction, but we still need them to take control of their basic health. Shopping around for a better insurance deal will only go so far when the insured is a walking time bomb ( not because of medical conditions he was born with , but rather because of his poor lifestyle choices ie HBP, diabetes , obesity, etc.) I really think we need to start rewarding those that are actually trying to get healthy/ stay healthy. I think if you look at the numbers most of the claims dollars are spent on people with conditions that are manageble – they have just chosen not to manage them.