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: Driving Affordable Health Coverage Off A Cliff: Driving Affordable Health Coverage Off A Cliff

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Date: January 25, 2006
Memorandum for: Interested Parties
From: Center for American Progress
Subject: "Consumer-Driven Health Care": Driving Affordable Health Coverage Off A Cliff

"Consumer-driven health care" is the euphemism for high-deductible health plans with savings accounts. It is based on the theory that increased financial exposure will encourage patients to act like consumers, comparing quality and costs and negotiating lower prices. It also, according to the rhetoric, gives people greater control over their health care. However, consumer-driven health care could make health care less affordable because it:

- Denies people the health care choices they really want: People want the choice of affordable access to their doctors and the needed care their doctors recommend – not the choices in consumer-driven health care:

  • Satisfaction is lower in consumer-driven health plans: Only 33 to 42% of people in consumer-driven health plans were extremely or very satisfied with their health plans, compared to 63% of those with traditional plans [EBRI 2005]. Two-thirds of people prefer an employer-selected set of plans over an employer-funded account and choosing insurance on their own [Lambrew 2005].
  • Medicare drug benefit is a case in point: The President insisted on the principles of consumer-directed health care in the design of the Medicare drug benefit – in particular, significant cost-sharing and broad choice of plans. Yet, early experience has shown that "choice" means confusion, unreliable information, and continued high prices as seniors struggle to find plans that meet their needs.

- Discourages preventive and cost-effective care: Arbitrary high-deductibles and cost sharing cause a reduction in use of care whether it is needed or not [Rand]. Skipping preventive services or skimping on drugs that manage chronic conditions could lead to higher overall health costs. For example, it doesn’t make sense to charge a diabetic for a podiatrist visit but pay for her amputation.

  • Does nothing to address real costs in the system: About 70% of costs in the U.S. health system are for the top 10% most expensive people [Berk & Monheit 2001]. These people’s costs are well above the deductible, so a high deducible won’t change their behavior.

- Assumes people use health care like they buy commodities: The theory ignores two facts about health care:

  • Doctors more than patients determine health care use: Most tests, drugs, and service use result from the recommendations of health professionals, not the desires of consumers. In fact, we encourage patients to follow doctors’ advice. High-deductibles will not change the higher use that results from a higher supply in some areas [Dartmouth, 2005].
  • Stakes of forgoing health care are high: Health care is, ultimately, about preserving life and delaying death, which makes people think differently about it [Cutler 2004]. For example, most parents of sick children do not shop for or negotiate prices. People with cancer are unlikely to decline a new and expensive test or treatment.

- Does more harm than good: Consumer-driven health plans shift costs from the healthy to the sick, undermine group health insurance, and allow prices to rise unchecked.

  • Access problems are higher in consumer-driven health plans: One survey found that, while people in such plans were more cost conscious, they were twice as likely to report delaying or avoiding care and about three times as likely to report paying a large fraction of their income on health costs as those in comprehensive insurance [EBRI 2005].
  • Consumer-driven health care undermines group purchasing power: Enrollees in consumer-driven health plans appear to be significantly healthier than others [HSR August 2004]. As sicker workers stay in traditional plans, the cost of such plans will go up, causing such plans to become unaffordable for workers and employers [Burman & Gruber 2005]. This erodes group purchasing power, leading to even higher prices – and possibly more uninsured Americans. It could also undermine Medicare as it expands there.

Quotes on Consumer-Driven Health Care

Concerns about Ability to Reduce Costs

"That thousand-dollar deductible will buy, at best, four hours in the more-expensive hospital. It might buy five hours of care at the less-expensive hospital. Will people really shop between two hospitals if the same thousand dollars buys four hours of care at one and five hours of care at another?" George Halvorson, CEO, Kaiser Permanente [Health Services Research, August 2004]

Concerns about Implications for Coverage

Referring to sick people: "They’re more likely to report not filling prescriptions, more likely to report not getting lab tests done when a doctor tells them to have it done. They don’t get preventive services. So there’s national evidence that high-deductibles are harmful to people." Karen Davis, President of the Commonwealth Fund [NPR, 4/8/05]

"The main effect of putting more of it on the consumer is to reduce the social redistributive element of insurance," Victor Fuchs, Professor of Economics, Stanford University [The New Yorker, 8-29-05]

"A wholesale switch to HSAs would redistribute the nation’s overall financial burden of health care from the budgets of chronically healthy families to those of chronically ill families," Uwe Reinhardt, Professor, Princeton University [The New Republic, 11/07/05]

"I think this is a classic risk shift onto individuals that is both unpalatable to people and bad policy," Jared Bernstein of the Economic Policy Institute [WSJ, 1/12/06]

Concerns about the Theory

"Health is simply too complex for people to make smart, waste-reducing decisions; when you go to the hospital with screaming stomach pains, you have no idea how many tests you need – and you’re not in a fit state to embark on comparative shopping." Sebastian Mallaby, columnist, Washington Post [1/16/06]

"’Consumer driven’ is a nice slogan, but it turns out that buying health care isn’t at all like buying clothing." Paul Krugman, columnist, The New York Times [1/15/06]

"If you think of insurance as producing wasteful consumption of medical services, then the fact that there are forty-five million Americans without health insurance is no longer an immediate cause for alarm." Malcolm Gladwell, business expert [The New Yorker, 8-29-05]

"The American healthcare system was operated as if, when your bought a car, someone came and put all the parts on your lawn, and I think that’s particularly appropriate for the age of the consumer-directed health plan." Margaret O’Kane, President, National Committee for Quality Assurance [KFF/Health Affairs conference, 12/2/05]

"So, please, let’s dispense with the free market, personal choice rhetoric= Economically, it’s inappropriate. Politically, it’s just stupid. It didn’t work with Social Security and – trust me on this one – it really won’t work with health care." Steven Pearlstein, columnist, Washington Post [1/18/06]

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