Unless you spend a lot of time around health policy wonks, you’ve probably never heard of the term “value-based health insurance benefits.”  In fact, you may not even know that it’s the hottest new fad in the field.

Here is my layman’s summary: If you are like most people, you are not a very good consumer of health care. Odds are, you will fall for the latest fad advertised on TV or follow the advice you get at the bridge club instead of buying the care that has been scientifically shown to be better for you.

So as a corrective, a lot of employers are finding ways to “nudge” you into better decisions through financial incentives. Say you have a chronic condition and need to take certain medications. Your employer might drop your deductible down to zero (or may even pay your to take them) to encourage your compliance. But for services where there appears to be wasteful overuse (such as MRI scans), the employer might impose a hefty $500 deductible.

This idea intrigued me, so I turned to a rather lengthy article in the Washington Post, which informed that value-based insurance benefits are incorporated into the new health reform law, “including the requirement that new insurance provide free recommended preventive services such as mammograms and colon cancer screenings.”

In the world of big business, this idea is all the rage. One in every five employers employing at least 500 people is already doing it. Four in five employers who employ at least 10,000 workers say they are interested.

So if big business is for it; the government is mandating it; and health policy wonks like it; how could anyone possibly obj-……..

Whoops… wait a minute… Mammograms?… I haven’t seen a slew of articles over the past year or so questioning the value of mammograms — suggesting that Americans get too many, concluding that the costs are often greater than the benefits, even questioning whether they are a useful breast cancer detection tool? In case you haven’t been keeping up, see here, here, here and here.

I wish I could say this was a mere oversight. An error on someone’s part. Alas. It is not. Turns out that the “value” in value-based insurance benefits does not necessarily mean high-quality, low-cost, evidence-based care, despite all the rhetoric. There are other values at play here and they may not be values you share.

For example, despite a mountain of evidence that so-called preventive care does not pay for itself — especially when provided to otherwise healthy people — the new health law mandates that a whole laundry list of services be provided for free.

I’ve offered a political explanation of this phenomenon before, in response to the puzzling fact that other countries seem to over-provide to the healthy and under-provide to the sick. Unregulated doctors and hospitals are likely to spend more than half the health budget on 5% of the population. But if you are the Minister of Health, you cannot afford to spend half your money on 5% of the voters — many of whom will die before the next election or will be too sick to make it to the polls and vote anyway. Redistribution from the sick to the healthy makes political sense, even if it makes no medical sense.

Employers have a different type of perverse incentive: it is in their financial self-interest to attract the healthy and avoid the sick. From their point of view, it makes sense to provide free mammograms, PAP smears, PSA tests, etc. What else are healthy people going to spend health dollars on? Wellness programs that emphasize no smoking, weight control and physical fitness are going to attract what kind of employees? Answer: the ones who don’t smoke and who are thin and fit. At the same time, it also makes sense to charge employees more for their sleep apnea care or for the plethora of treatments available for ailing joints. If the employer is lucky, maybe these will become some other employer’s problems.

As an economist, I like the idea of economic incentives being incorporated into public policy. Here are some interesting examples collected by the Washington Post:

  • In Scotland, the National Health Service actually pays people to quit smoking.
  • The fee is even higher for pregnant mother who quit.
  • In Tanzania, a World Bank program pays young men and women who test negative for sexually transmitted diseases.
  • In Greensboro N.C., young girls are paid not to get pregnant.
  • In Minnesota, at-risk women are paid to get mammograms.
  • In another experiment, low-income African-American patients were paid to make depression therapy appointments.

These efforts may not prove cost effective. A series of studies show short-term gains, but no long-lasting benefits from paying patients to lose weight or to stop smoking.

I’m willing to allow competition and free markets to sort out what works and what doesn’t, what’s sensible and what’s not. In the meantime, be alert that the providers of value-based insurance benefits may have values different from yours.

John C. Goodman, PhD, is president and CEO of the National Center for Policy Analysis. He is also the Kellye Wright Fellow in health care. His Health Policy Blog is considered among the top conservative health care blogs where health care problems are discussed by top health policy experts from all sides of the political spectrum.

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31 Responses for “Employers as Doctors”

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  2. Emily says:

    Maybe I’m missing something, but even if there is some discussion about whether or not mammograms should be recommended for women 40-50, I don’t think there’s anyone who is recommending that mammograms should not be covered by insurance, i.e. that they do not represent cost-effective preventative care (even if that benefit is smaller in magnitude than previously believed and less for younger women).

    Also, I think the obesity study you meant to link is this one: http://www.ncbi.nlm.nih.gov/pubmed/21249462. It’s done by the same group as the one you linked, except it looks at long-term rather than short-term outcomes. As far as I can tell without looking at the original article, it does not claim that the intervention did not work (it did) but that it did not have a lasting effect -after- people were taken off the financial incentive. If the incentive to not be obese is built into someone’s insurance program, I’m not really sure how effects after financial incentives are taken away are really relevant here.

  3. Peter says:

    “As an economist, I like the idea of economic incentives being incorporated into public policy.”

    So do I John. Would you favor taxing unhealthy choices to pay for resulting health treatment costs? As a “conservative economist” is tax even in your vocabulary?

  4. conner says:

    Health care costs have exploded in the US over the past decade mainly because of over use of medical servcies and prescription drugs. Come on people, drop the fork and push away from the table! Well, why do that when they can have a script filled for $4 to patch and postpone the issue?

    Just look at the Europeans compared to us here in the states. Very few obese, because most they have to walk to get anywhere, the train, the market etc. Here you can go anywhere and see obese kids and adults. No physical activity at all. That’s right, go ahead and sit in front of the tv or cumputer all day, then hit the drive-thru.

    It’s a bad situation getting worse!

  5. Nate Ogden says:

    Emily I’ll say it, Mammograms should not be covered by insurance. If every women over 50 should have a mammogram then there is nothing to insure against. It would be more cost effective to pay for it out of pocket.

    If women started buying mammograms out of pocket the cost would plummet, access would improve, and quality would follow.

    In the matter of 5 years cost savings and quality improvements could be achieved that would never be possible if paid by insurance. The money saved would be their reward/payment for having it done.

  6. Jared Miller says:

    This is what will happen when OBAMACARE takes effect!!! http://www.youtube.com/watch?v=mH3k-nEP55s

  7. Peter says:

    “If every women over 50 should have a mammogram then there is nothing to insure against.”

    I doubt every women over 50, at least those at risk. Explain, “nothing to insure against”? Is this inline with your thinking Nate that people dying sooner will save us money? Undetected breast cancer means we spend less to keep them alive?

    http://www.cancer.org/AboutUs/DrLensBlog/post/2007/01/26/Fewer-Mammograms-Means-More-Breast-Cancer-Deaths.aspx

  8. Nate Ogden says:

    “Is this inline with your thinking Nate that people dying sooner will save us money? Undetected breast cancer means we spend less to keep them alive?”

    No Peter that is you being an idiot. I’ll try to say it in a simplier fashion that even you understand.

    If you know your going to have a test that cost $50 then it would not be a very smart thing to pay $60 in insurance premium to pay for it. Don’t insure the risk, save $60, pay for the test and you end up $10 ahead. Do you follow now?

    The disparity would actually be higher, if it became a non insured benefit.

  9. Peter says:

    “If you know your going to have a test that cost $50 then it would not be a very smart thing to pay $60 in insurance premium to pay for it.”

    Does a mammogram cost $50? Is this in line with your thinking that coverage should not be mandated, especially if men have to pay for womens’ coverage items?

  10. Nate Ogden says:

    Do you subscribe to the Ezra Klein “HSAs are sexist” school of thought?

    No they cost $100 what’s your point? If they weren’t paid by insurance then they would cost $50

  11. Peter says:

    “If they weren’t paid by insurance then they would cost $50″

    Is that like a law of physics?

    How come uninsured pay more than $100?

    “For an uninsured patient, typical full-price cost of a mammogram ranges from $80 to $120 or more, with an average of about $102, according to Blue Cross Blue Shield of North Carolina. Some providers charge more, and some offer an uninsured discount. For example, at the Kapiolani Medical Center in Aiea, Hawaii, where the full price is about $212, an uninsured patient would pay about $127 to $148.”

  12. imdoc says:

    It isn’t really possible to know the free market price of mammograms when no real free market exists. To get a sense of what it might cost would require knowing the actual revenue after discounts and bad debt less the cost of billing service, AR, etc. I do think the cost of the equipment would get more price pressure as well if doctors were paid directly. We might also have more incentive for newer tests (for example, blood test) which serves the same screening function for less.
    The whole “insurance” coverage for something under $200 reminds me of the extended warranty offers on appliances. If it is so good for me, the consumer, why the sales pitch? But, hey if the next guy wants it…

  13. Nate Ogden says:

    we can get pretty close to estimating free market cost. It should be easy to find the cost of the equipement and expected lifetime. Add in labor and overhead and you know your net cost. In a competitive market I don’t think you could get away with more then 15% proftit margin.

    Cost of entry would be pretty low. I would expect operating hours to be much longer then your current offerings which would bring cost down.

  14. [...] arediscussed by top health policy experts from all sides of the politicalspectrum. Tweet this Share on FacebookThe HealthCare [...]

  15. I don’t understand the logic here, Nate. Why would the unit price be lower when I (private citizen) buy by the unit, compared to the unit price when I (insurer) buy in bulk?

  16. Peter says:

    Nate, why do you think individuals would be better negotiators than insurance companies? Don’t insurance companies market premium price for equal/better coverage? Don’t insurance companies have the resources to know equipment cost, overhead, wages and profit, and what is a fair return? And as Margalit says, they have the advantage of bringing in volume.

    • botetourt says:

      What everyone seems to be forgetting is that in healthcare nothing paid for by insurance is ever priced at its marginal cost (+a reasonable mark-up) because every provider is trying to make up for all the other things that are not paid for fairly, for the underpayments by govt payers, the free care, etc. You can’t isolate mammography and try to apply a storekeeper mentality to its pricing without taking into account how messed up the rest of our system is. This is why physicians build open heart and orthopedic specialty hospitals and not pneumonia or mental health specialty centers. In our system the procedural services pay for everything else.

  17. Peter says:

    “because every provider is trying to make up for all the other things that are not paid for fairly, for the underpayments by govt payers, the free care, etc.”

    Why are you assuming that “govmt” underpays just because providers say that? Why can’t we assume private payers over pay or providers overcharge? Of course less free care through mandatory coverage would help provide more income to providers, but how do we know they will reduce charges and not just pad income/profits? There is also a lot of charity paid care that offsets “free” care and charging full list price to the uninsured. If all costs/payments were transparent instead of hidden by insurance contract or lack of independent audit we would have a better understanding. As far as applying shopkeeper mentality to mammography isn’t that what standalone clinics outside of hospital overhead attempt to do?

  18. imdoc says:

    This issue will become clearer if you google “cat scan, cash” and see all the imaging providers offering low cost services. They do this by running on low cost structure and stay open 24hrs to spread the fixed cost.
    The hospital-insurance arrangement will make sure only hospitals and radiologists retain this technology as a cash cow and prevent anyone else from providing it (legislation, certificate-of-need, etc, etc) Meanwhile, free market provides the service at rock-bottom prices.

  19. Nate Ogden says:

    imdoc summed it up pretty good. You need only look at lasik surgery, breast enhancement, or any other cosmetic procedure to see the power of consumerism. When an insured patient recieves a mammogram they are only spending their co-pay or co-insurance, total cost is a minor factor if a factor at all. If they had to pay 100% of the cost then they would gladly go to the suburbs to save 50%, or go to an outpatient facility a friend told them about. When they don’t have to pay the bill why not go to the hospital, the most expensive place to have it done.

    Its a basic fact of economics. You see the same thing with auto repair and home repair after an accident, if someone had to replace something out of their pocket they shop for the best price, if insurance pays for it they go for the highest perceived quality regardless of price.

    An insurance company with a broad network doesn’t buy in bulk, they don’t guarantee a machine X amount of usage at certain times. There are companies that schedule, steer, and buy machine time in bulk and they can get test for less then half of what the hospitals charge.

    This isn’t a thery or idea, its being done now to an extent and has been done for decades with non covered items. Its common sense that paying for it with insurance is more expensive then paying for it OOP.

  20. Peter says:

    “You need only look at lasik surgery, breast enhancement, or any other cosmetic procedure to see the power of consumerism.”

    Sure, all unnecessary optional procedures that when not done do not risk health. Mammography detects life threatening disease, less done equals less detection and more deaths or serious health issues.

    “You see the same thing with auto repair and home repair after an accident, if someone had to replace something out of their pocket they shop for the best price, if insurance pays for it they go for the highest perceived quality regardless of price.”

    Not sure how many auto accidents or insured home repairs you’ve done Nate, but an insurance adjuster determines how much damage and how much they will pay the body shop or contractor. Do people really want an adjuster getting in the way of their healthcare decisions? Can’t compare cars or houses with healthcare as our bodies aren’t disposable.

    “An insurance company with a broad network doesn’t buy in bulk, they don’t guarantee a machine X amount of usage at certain times.”

    No, but I bet insurance sells how many insured clients they can give the clinic access to, especially when there are in and out of system clinics.

  21. Nate Ogden says:

    Sorry Peter, if you can’t grasp basic economic forces not much I can do to help you. The medical necessity of a procedure has nothing to do with its pricing in a free market. No idea why you relate non connected forces like you do. For logical thinkers it makes sense.

    ” Do people really want an adjuster getting in the way of their healthcare decisions?”

    Um then don’t insure it? I know that might be to simple of an answer but the only way to make sure an insurance adjuster isn’t invloved in your healthcare is to not insure what you don’t need to.

    And I have had more car accidents then I car to remember and more then a couple home owner claims and not once did an adjuster ever dictate where I had the work done or have control over cost to the point I had to find a cheaper contractor or mechanic.

  22. Nate Ogden says:

    Peter Generic drugs are medically necessary yet there is stil a very competitive market for Rx that fall under the typical co-pay. First $4 then $1.99 then free for drugs that fall under the usual $10 to $15 generic co-pay, shoppers are willing to change pharmacy to lower their cost from 10 to 4 to nothing.

  23. [...] arediscussed by top health policy experts from all sides of the politicalspectrum. Tweet this Share on FacebookThe HealthCare Blog Tags: Doctors, [...]

  24. Peter says:

    “The medical necessity of a procedure has nothing to do with its pricing in a free market.”

    Try holding your breath Nate and see how much you’re willing to pay for air.

    “not once did an adjuster ever dictate where I had the work done or have control over cost to the point I had to find a cheaper contractor or mechanic.”

    Usually state law. But did the insurance just pay the bills the contractor/body shop sent in, or did you have to phone the company first then have an adjuster inspect the damage and measure the repair cost against industry standards. Insurance even specs used parts for car repair. Body shops and home repair know an adjuster is looking at their charges, that holds down costs. Ask Americans if they want an insurance adjuster to look at your health treatment and oversee how the doc wants to treat you. Remember managed care? Ask Americans if they want their health premiums increasing because of # of claims, or even have insurance cancel policy if claims history is too high – that’s how home and auto insurance works.

  25. ReedRN says:

    If the American people could have the type of health care insurance that would take care of them when they are sick as well as when they are healthy, our health insurance would be perfect. I am an RN. I have been a health care professional for over 30 yrs. I have had health care for free including prescription medications and I have had to pay a small fortune out of every paycheck to have what is considered adequate, not great health care.

    Health care is definitely a business; A business that is like any other business, focused on being successful by showing huge profits. Health insurance is attempting to post excellent profits, as any other business. The problem with the posting of huge profits is that it appears as though profits are the primary focus for success as evidenced by the ‘value-based’ insurance benefits. The value should be in low-cost, high-quality, and evidence-based care that will benefit everyone.

    The reality is that the majority of us that have health insurance and those without will be healthy at some point and some of us are going to have minor to major health issues. Our health insurance should be the best in the world and cover us for whatever health care concern we might have; healthy or ill. There was a time when we had value-based health care. We can fly to the moon. Don’t you think we should have the best health care in the world again? It can happen….we, the people, have to push the issue!

    Reed, RN

  26. botetourt says:

    Peter—I was trying to illustrate the situation faced by most hospitals–only a few procedural services end up providing the margin for the whole institution. One can argue whether the insurance company is paying too much or the government too little–but the point is, without the cost-shifting that has been built in, many hospitals would fail. And if hospitals get cherry-picked on the procedural services, there is no margin being provided for poorly-reimbursed medical services, uninsured, ED, etc. I don’t get what “charity paid care” is. It is hard enough to be able to document free care, as the accounting rules require that the determination for free care occur at or before the time of service–and often people are not very cooperative in providing the information needed. Finally, a responsible hospital should be providing a blanket discount for the uninsured which approximates the average discount provided to insurance company contracts. By and large, patients who have no insurance don’t pay anyway–who can even attempt to pay hospital charges even with a 40% discount?

  27. Peter says:

    “Finally, a responsible hospital should be providing a blanket discount for the uninsured which approximates the average discount provided to insurance company contracts. By and large, patients who have no insurance don’t pay anyway–who can even attempt to pay hospital charges even with a 40% discount?”

    botetourt, I agree that if they can make money from reimbursements from insurance contracts, they can make money from cash pay, paying the same charges, but they will argue they don’t have a contract with individual cash pay and that it’s not fair for cash pays, who don’t pay premiums, to benefit from negotiated contracts. UNC, NC’s state hospital, gives a 25% discount, but that’s off charge master which has no relation to costs. And finally hospitals are huge breeding grounds for waste and unnecessary expenditures, I know because my wife has worked in them for over 30 years. They over spend and empire build because they can. Hospitals loose money because they aren’t run efficiently and rely on billings to cover inefficiencies. I will argue that hospitals in single pay countries like Canada are forced to run efficiently because they work within budgets and look at health care as a cost not as income.

  28. botetourt says:

    Peter–Hospitals are generally inefficient and have not had the right incentives. Hospitals want and try to be all things to all people–most of the time in the non-profit world with their collective hearts in the right place, but their business sense no where in evidence. In my state hospitals are probably averaging reimbursements of 140% of cost from insurance companies, so a 40% discount from charges is not that far off what the average is for insurance companies (hence premiums are outrageous even though the cost structure for hospitals is reasonable-largely due to gross Medicaid under-reimbursements). Even at free-standing, cherry-picking radiology or outpatient surgery clinics, patients can’t afford charges even with big discounts. With regard to your last point, when are politicians–especially Republicans–going to figure out that competition in healthcare does not work the same as in other industries; that supply creates, or at least enables and encourages more demand, and drives up costs. Most healthcare systems have NOTHING whatsoever to do with excess cash except to build and expand their facilities, and the public usually falls for it every time. Especially now, with the future uncertain, hospitals will build, build, build like there is no tomorrow because this time there may not be.

  29. Well, this is really awesome information you share with us which is really needed for everyone. Keep sharing continuously.

  30. Mike Kipp says:

    I recently chaired a panel on innovation that, among other things, looked at what employers might do to precipitate a “prudent buyer” revolution; and it goes well beyond the kind of simplistic transparency that would have us search out the cheapest colonoscopy (gulp). Note how EMC has done a great job of tooling their employees and dependents to be better consumers at http://tinyurl.com/4qupe3q.

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