If you were designing a program to lower healthcare costs, would you direct your efforts at the medical consumer, or the medical prescriber? Do you create a system where an informed and empowered consumer drives the market, or one which regulates providers and holds them accountable for the services they deliver? The answer, I think, would depend on your economic philosophy: your understanding of medicine as a free market, and particularly whether you believe consumers can make rational, best-evidence decisions about their own healthcare consumption.
Some background: As I have discussed before, many economists believe that a root cause of medical inflation is misalignment between the goals of healthcare payers, prescribers and users. And, that in the traditional (fee for service) system, few prescribers or healthcare consumers feel accountable for managing either healthcare costs or utilization.
Many healthcare economists feel this misalignment-- along with the staggering cost of developing regulated medical science for a risk-averse population-- accounts for significant medical inflation.
But, there is far less agreement on how the system should approach this misalignment. As with all basic economic problems, solutions to medical inflation differ on one's political viewpoint.
In one camp, we find proponents of managed care who argue that the solution to high cost and utilization is a system where efficient, forward looking practice is the key and where managing prescribers through regulation and contracting is the strategy. Consumers are incentivized to receive the "right care" through participation in narrow networks and by needing referrals for expensive care.
In the other camp are proponents of consumer accountability, who feel that medical consumers need to be exposed to financial risk in healthcare and that by being more exposed to cost, they will be more judicious in accepting care while holding their providers accountable for the bill.
This philosophical dispute is best demonstrated by looking at the change in US insurance models over the past few years.
Across the country, there has been dramatic shift as consumers move from expensive open-network and loosely managed preferred provider (PPO) and point-of-sale (POS) insurance plans to lower cost high deductible (HDHP) and managed care (HMO) insurance products. These two products- HMO plans and HDHP plans (often tied to tax-advantaged medical savings plans) offer two competing visions for the future.
Let's look at the implications here:
To start, there's no question that the significant year on year increase in the cost of health insurance has been pushing consumers and employers toward lower-cost insurance options. As the above graph from the Commonwealth Fund illustrates, the average health insurance premium now represents close to a quarter of the median family income, with steady year on year growth. These costs are forcing consumers to relinquish unrestricted access and choice in the healthcare market in favor of lower cost health insurance.
Across the country we are (generally) seen a move of consumers out of more expensive preferred provider organizations (PPOs) and into lower premium programs. More notably, there has been a dramatic rise in consumers choosing high deductible health insurance plans and also some more modest rise in HMO enrollment.
Price Waterhouse found rapid growth in HDHPs:
. High deductible plans generally preserve access to a range of providers, but ask the consumer to absorb the first several thousand dollars (up to $10k for a family) of health care costs. These plans are often tied to a health savings account where tax-advantaged money can be used by the consumer to pay for health services up to threshold at which point insurance company takes over payment. The idea behind these plans is to have consumers making healthcare decisions using “their own money”, ostensibly making them more cost conscious, at least for consumer facing products such as physicians visits, outpatient imaging, and the like.
High deductible plans create a situation where the consumer “takes risk” on health care decisions, but also create an incentive for patients to skip certain preventive care, routine health maintenance in cases of chronic disease, and to avoid seeking care at an early stage of disease-- all potentially driving up cost later on. (Certain "free" preventive care is mandated by Obamacare). There is also the risk of fragmenting healthcare, with consumers receiving bits of service across multiple systems, choosing those fragments of care which are most aggressively priced in one system versus another.
In contrast, managed care (HMO) type programs tend to be more affordable than traditional PPO insurance because they restrict access to more narrow networks, often times risk share with providers, and control utilization through referrals. Consumers generally don't have significant deductibles, but face restrictions that they may not see in HDHP programs. The HMO programs, in contrast, tend to pass the risk onto healthcare providers. There is a greater incentive for early diagnosis and management, but a disincentive for patients to be sent outside of the system.
: the successful model of the future with
have elements of both
, but will lean heavily in favor of the HMO model of care. The HDHP vision has too many holes and inconsistencies. Here are my concerns: 1)
and the assumption that markets will be nimble enough to respond to consumer's demands for low prices is overstated. Most health systems today are still trying to figure out what things cost, how to allocate expenses, move to cost accounting systems and figure out pricing. Its a stretch to assume that these systems will offer transparent pricing, especially for big ticket items, anytime soon. 2)
. An analogy is having a mechanic tell you you might need a $2000 pump widget for your car, and then feeling like an empowered consumer by shopping around for the best price. But, who has any idea whether the widget is needed in the first place? Shopping around is only part of the needed economic analysis, and without aligning the mechanic's interests the risk of being oversold services is high. 3)
while neglecting long-term investments in health is real. 4)
of services working together to be most efficient.
in the market: 1)
in that they create terrible self-selection problem, where those sick with chronic and costly illnesses will enroll in HMOs, while the young and healthy stay in HDHPs until they get sick. This runs the risk of putting real pricing pressure on the HMO premiums. 2) I can foresee a situation where
for the more affluent while HDHPs serve the less affluent consumer. HDHPs may be less expensive, but the inevitable problems of uncoordinated care will push near-boomers toward HMO and then Medicare Advantage plans.
This is a shame, because HDHPs are really best suited to affluent populations who are prepared to absorb the deductible and who are less "tuned" to under-treat to save money. These "catastrophic plans" are best suited to the affluent demographic.
These slick specialty mortgages were really designed for property developers who understood the risks in relation to the interest rate savings. Instead, they were sold by cynical bankers to consumers with no ability to pay more when the short mortgage term expired and rates had increased. The low rate was too compelling for consumers who decided to gamble.
that health systems are incurring from patients in HDHP plans who simply didn't have the funds to cover the deductible when they got sick:
In the end,
I'm more leery about the market's ideologic assertion that consumers will be able to successfully navigate healthcare savings beyond narrow, short term wins for low-ticket items. And, aside from the financial discussion, we will need to recognize that economic ideology-- belief in the open market, empowering consumers as opposed to regulating the market-- is very much in play here. The near term priority will be ensuring that HMO plans remain viable and affordable through ongoing growth of (young and well) members. This will require a lot of intelligent conversation with employers about benefits extending well beyond the immediate.
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