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Consumer-Driven Health Care: Promise and Performance

I am always struck by the difference between the salesmanship of health plans offering consumer-driven health products and the reality of the data.

James Robinson and Paul Ginsburg have an article in the January 27th edition of Health Affairs with an objective review of the consumer-driven movement of recent years.

Here is the central point of the article:

The performance of consumer-driven health care has fallen short of both the aspirations of its proponents and the fears of its critics. Growth of the favored organizational forms, including HDHPs and individually purchased insurance, has been anemic. The forms of insurance and sponsorship originally embodied in the consumer-driven vision have mutated into forms far from those originally envisaged. This process is not unique to consumerism, but one well known to managed care, where the original group-/staff-model HMO was diluted into the loosely structured independent practice association (IPA)-model plan and the sponsorship framework of managed competition into the “total replacement” purchasing format of self-insured employers.

They also point out that:

  • Enrollment in HDHP/HSA plans grew from 400,000 in September 2004 to 6.1 million in January 2008–“a large absolute increase but still small in relation to overall enrollment in private insurance.” By comparison, HMOs continue to hold 20 percent of the employer market and POS plans 12 percent.
  • “The consumer-driven health care movement has been obliged to dilute its principles in light of the overuse of inappropriate services and underuse of appropriate services in the real world. HDHPs now incorporate elements of disease management for enrollees with chronic conditions; case management for enrollees with complex or comorbid conditions; and utilization management for patients using particularly costly drugs, devices, or procedures. Most of these medical management programs are obtained from the same diversified insurers that offer HMO and PPO products. Indeed, the potential for integration with claims databases is leading insurers to acquire many formerly independent medical management vendors.”
  • “The blind spot in the consumer-driven analysis of market performance concerns the importance of coordination in insurance, delivery, and sponsorship. The obdurate insistence on á la carte choice and retail purchasing pushed the theorists of consumerism into positing organizational and market dynamics that have not been observed in the real world.”

Consumer-driven principles have clearly impacted the design of mainstream health insurance plans for the better.

But consumer-driven principles have not changed the fundamental dynamics of our health insurance system nor have they turned out to be a silver-bullet solution.

In my mind, the fundamental fault with the logic that they would be was the belief that consumers could do what insurance companies, employer benefit managers, and even providers could not.

Robert Laszweski has been a fixture in Washington health policy circles for the better part of three decades. He currently serves as the president of Health Policy and Strategy Associates of Alexandria, Virginia. Before forming HPSA in 1992, Robert served as the COO, Group Markets, for the Liberty Mutual Insurance Company. You can read more of his thoughtful analysis of healthcare industry trends at Health Policy and Marketplace Blog, where this post first appeared.

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15 replies »

  1. Seems there are a few points that serious people can agree upon, but, interestingly, they are not being pushed in policy circles.
    Price transparency is good. How about requiring providers to disclose their prices and carriers to disclose their contract rates (including p4p) to customers?
    Price gouging is bad. How about banning price discrimination against self-payers?
    Giving me access to my medical data is good. How about requiring insurers (including Medicare) to make their claims data on individual members freely available to those members?
    Arguing socialism vs. libertarianism is entertaining but experts could do far more good if they spoke as loudly for the things they agree on.

  2. The solution is simple. Effective use of HSAs and solid preventative coverage will save money for everyone…and keep the government out of the equation.

  3. “If socialized medicine is so good, get a group of people together and create your own Great Society, lifetime membership HMO, and leave the rest of us alone.”
    Progressives already did this it’s called MA, NY, & NJ and they can’t afford it, that’s why they are so damn persistant on reforming the rest of the country so we can help pay for their Utopia.
    They are modeling it after federal income taxes and how you can write off your state and local taxes. Liberals can’t afford to live in CA and NY and pay those rediciouls taxes so they have conservative america living in low tax areas subsidize them. They want their ideologically failed healthcare system everyone else knows won’t work but want the rest of America to pick up the tab. MA you created the most epenesive healthcare market in the world you pay for it!

  4. Peter, I’m not saying there isn’t a need for commenting on the article. I just said I’ll leave it to someone else.
    “No it puts it in the hands of a non-medical person trying to figure out if they can afford the procedure, not whether it is medically necessary. In Canada, budgets and reduced access make medical people determine which patients need the care the most based on medical need, not what their bank account determines is the most urgent.”
    I’m sorry, but what procedures i need is a matter between me and my personal physician. It’s not the business of the “medical people.” I sure as hell don’t want some political appointee determining what is needed and not needed for what is deemed to be the surplus population.
    “Like all those small businesse that cannot afford health insurance benefits now?”
    This comment is illogical. Premiums between traditional and HDHPs are no small difference.
    “Yea, one simple payment from your own bank acount. How would that help those on Medicare or Medicaid if they don’t have that one simple payment. Administrative costs could also be dramatically less under single-pay – one payor, one set of rules, negotiated reimbursement.”
    You don’t force everyone into a health care system that assumes everyone is destitute. It’s doesn’t make economic sense; it doesn’t coincide with reality, and most important it is morally bankrupt (wrong).
    “Is that because they consider it the same as an uninsured cash payment? The charges for those are 3-4 times what the hospital would accept from an insurance company – sure it’s a better deal, but it does not inspire hospitals to cut costs.”
    It is easy to negotiate a decent price with a hospital, though most people don’t know that. This is easy to fix, and people will be willing to learn once the word gets out. Consumers aren’t stupid. I would even go so far as to say they are smarter than your “medical people.”
    “Nothing in your (or Nate’s) answer tells me where HDHP stops the unsustainable spending. It tells me that insurance companies will have their costs cut, but not individuals. You’re rearranging the deck chairs, that’s all. HDHPs are an insurance creation because they are lossing premium payers. HDHPs still shift risk to individuals from insurance companies so they get less premiums but they also pay less – their spreads have not changed. It’s the same hocus-pocus from car salesmen who says they can reduce your monthly payments – just increase the downpayment or extend the length of payments.”
    I think Nate answered this point…
    Peter, I can see you have an affinity toward socialized medicine. That’s fine, as long as you don’t force your views on me. It’s pretty intolerant. If socialized medicine is so good, get a group of people together and create your own Great Society, lifetime membership HMO, and leave the rest of us alone.

  5. 20% of a population will account for 80% of the cost in a sufficiently large insurance pool. For starters Peter stop slapping around your Red Herrings. Most people don’t have a procedure to shop for, most people don’t meet their deductible. Most people don’t have anything more complex then some office visits and a couple prescriptions. There is no one size fits all solution to healthcare. If you keep dismissing proven solutions because they only solve a portion of the problem not the entire system’s ills nothing will ever get done.
    “HDHPs are an insurance creation because they are lossing premium payers.”
    “It tells me that insurance companies will have their costs cut”
    Your ability to blame EVERYTHING on insurance even when you contradict yourself is amazing. Most insurance companies HATE HDHPs and the way they are being used. CA carriers under their small group reform CALCHOICE, forbid them. As I have told you 100 times if I have told you once carriers make roughly 6% margin on premium. When a consultant teaches their clients how to buy a HDHP and self fund back down cutting the carriers premium 20-50% it cost the carrier money but does not change the benefits the employee had. The employee doesn’t have any increase in OOP cost. If your talking an HSA qualified plan I told you exactly how they are cheaper. HSA qualified plans have lower OOP then most “normal” plans. You might pay more upfront but you pay substantially less on the back end. If you are seriously ill at the end of the year you will have paid less total OOP. Of course your going to get a bill, who do you expect to pay them? If you pay $1200 a year less in premium you think you just get to pocket it all? No if your one of the 20% then that premium savings is used to pay the provider. If your one of the 80% you save it till you do need care and have bills to pay.
    Individuals don’t have their cost cut, are you forgetting they are the consumer of care? Individuals don’t spend the money and thus save, it’s their decision to make. If you paid your insurance company $12 to cover your birth control then buy a policy that excludes birth control so you buy it direct for $10 how do you not see the $2 savings? Most of the $4 generics have $5 to $10 co-pays under PBMs, not only is the employee saving $1-$6 buy paying direct they saved the employer money as well lowering their premium.
    The whole purpose of HDHPs was to shift risk, but it’s risk no one with common sense would have given the insurance company in the first place. Known events are not risk, they are events. You don’t insure against an event you know is going to happen, i.e. do you buy empty gas tank insurance and pay a 20% mark up over the normal price at the pump? If not why are you opposed to these plans, if you do I’ll sell you a policy for only 15% mark up.
    “Retailers can afford $4 generics because they attract people to buy other stuff.”
    Then why are you asking your insurance company to pay $10 for it?

  6. First Jellaby the article does need commenting on as it brings out some HDHP real life facts.
    “All consumer driven health care does, is put the power to answer those questions in the hands of the individual, which is where it should be in the first place.”
    No it puts it in the hands of a non-medical person trying to figure out if they can afford the procedure, not whether it is medically necessary. In Canada, budgets and reduced access make medical people determine which patients need the care the most based on medical need, not what their bank account determines is the most urgent.
    “Any good HSA employer based plan will fund the account to the maximum allowed in a year.”
    Like all those small businesse that cannot afford health insurance benefits now?
    “Definitely not true. In Alaska if you don’t already have one, you can’t get a doc to treat you if you are on Medicare because the reimbursement rates are so lousy. For those who are insured, the administrative costs for insureds are killing the primary care profession. Not so for those who have HSA’s. One simple payment.”
    Yea, one simple payment from your own bank acount. How would that help those on Medicare or Medicaid if they don’t have that one simple payment. Administrative costs could also be dramatically less under single-pay – one payor, one set of rules, negotiated reimbursement.
    “Any hospital will tell you, getting paid by an HSA holder is a better deal than a reimbursement from Medicare or Medicaid.”
    Is that because they consider it the same as an uninsured cash payment? The charges for those are 3-4 times what the hospital would accept from an insurance company – sure it’s a better deal, but it does not inspire hospitals to cut costs.
    “Health care spending in the US is unsustainable.”
    Nothing in your (or Nate’s) answer tells me where HDHP stops the unsustainable spending. It tells me that insurance companies will have their costs cut, but not individuals. You’re rearranging the deck chairs, that’s all. HDHPs are an insurance creation because they are lossing premium payers. HDHPs still shift risk to individuals from insurance companies so they get less premiums but they also pay less – their spreads have not changed. It’s the same hocus-pocus from car salesmen who says they can reduce your monthly payments – just increase the downpayment or extend the length of payments.
    So Nate, in a HDHP I won’t get a bill from the specialist that says, “this is your portion that was not covered by insurance”?
    “If you have serious medical bills your better off with a HDHP.”
    Only if you can continue to pay your premiums and deductibles. How are HDHPs doing in this economy for the unemployed/underemployed?
    “You also need to google the prolifercation of $4 generic programs”
    Great, when will we see those $4 office visit specials? How about the spring open heart operation special. Retailers can afford $4 generics because they attract people to buy other stuff.

  7. Peter do the math, most HDHPs reimburse at 100% after the deductible is meet, this means your annual OOP is 1200-5000 or what ever your deductible is. Your standard plans almost always have higher OOP then that. Further co-pays usually don’t count towards your OOP so you keep paying those the entire year. Why don’t you do some basic research before running off at the mouth? If you have serious medical bills your better off with a HDHP. If your really healthy your much better off with a HDHP, it’s only a small percentge of people with moderate claims that come out worse under an HDHP and most of the time small changes to their care would make up the difference.
    You also need to google the prolifercation of $4 generic programs, do you think almost every major chain copied Wal Mart out of civic duty? No people started going to Wal Mart in droves to save money so they had to in order to compete. If you have a $5 co-pay on your drug card you go where ever is easy to fill it with no regard to the total cost. When it’s your money peopel call around for the best price.

  8. Correction in my long post: Medicare obviously isn’t for those who have trouble paying their bills. Medicaid is. Sorry about that.

  9. Peter, I’ll leave commenting on the USnews article to someone else, but I would like to take issue with your comments. You said,
    “My feeling right now is that HDHPs are doing nothing to control money driven medicine,…”
    Health care will always be a judgement based on value. Is it worth it to pay $2500 to get an MRI to eliminate the 2-3% possibility that my headache might be a serious life-threatening problem? In the current system we have, and in the system that Canada has, those questions are answered by insurers and employers here, and bureaucrats and politicians in Canada. All consumer driven health care does, is put the power to answer those questions in the hands of the individual, which is where it should be in the first place. Frankly, an insurer or provider or employer is going to answer that question with its bottom line in mind. That bottom line may not play as prominent a role in the individual’s mind.
    You continue…
    “…just transferring risk and costs from insurance companies to individuals.”
    Actually, the issue for most people is over who controls the first $1200 you spend on health care in the course of a year. Any good HSA employer based plan will fund the account to the maximum allowed in a year. It’s not about risk. It’s about shifting the control. Unfortunately, insurers are finding that this means less premium revenue to play around with. There is less, because people are taking that money and putting it into an HSA (or at least they should be).
    Cont…
    “They also do not give us better access to primary care..”
    Definitely not true. In Alaska if you don’t already have one, you can’t get a doc to treat you if you are on Medicare because the reimbursement rates are so lousy. For those who are insured, the administrative costs for insureds are killing the primary care profession. Not so for those who have HSA’s. One simple payment.
    Cont…
    “…but will help somewhat for catastrophic illness,”
    Somewhat??? I can see your point, as long as you are saying that Traditional plans ‘somewhat’ help catatrophic illness cases. But even then, the lifetime maximums on HDHP insurance products are higher. In that (amony other things), HDHPs are superior.
    cont…
    “unless you get a cronic condition that not only drains your high deductible but does not help you pay the premiums if you can’t work.”
    If you are having trouble paying bills, we have unemployment, public assistance, Medicare…etc.. Until you get to that point, you know exactly what your out of pocket will be for a year. To prepare for that possibility, start saving as a young person.
    cont…
    “And if hospitals see less patients (less billings) due to high deductibles how does that help their bottom line instead of insurance companies bottom line?”
    Any hospital will tell you, getting paid by an HSA holder is a better deal than a reimbursement from Medicare or Medicaid. Also, I’m not convinced that people with HSA’s are less inclined to go to the doc for checkups. But, for the sake of argument, let’s assume they are. If people are not getting in to see the doctor enough, take just a fraction of spending on public health, and spearhead a campaign on the importance of getting to the doc for a yearly checkup. It would be nice of public health departments actually did something useful for a change anyway.
    cont…
    “What we’re getting with HDHPs is less not more, which always costs less, nothing innovative there.”
    Not so. Health care spending in the US is unsustainable. I just changed jobs. My previous employer paid over $800 a month for a plan with a $500 deductible. I had to pay taxes on any money spent on the deductible, and if the plan didn’t think my expenses met their specifications, I had to eat them. How is it worse to raise that deductible to $1200, and take the difference you save on premiums into a tax sheltered account? If they were to pay me just $200 a month into this account, after 6 months, I would have FIRST-DOLLAR-COVERAGE, and that’s just what my employer would put into it. How is that worse?

  10. Price and quality transparency have a long way to go to get to where they need to be in order for consumer directed plans to realize their potential. Here is what I would want with respect to transparency.
    First, for discrete items like prescription drugs, I want to know the full cost (not just my co-pay) of all drugs in the relevant therapeutic class that might be appropriate for me and, for a specific drug, which local drug store charges the least. If it’s an imaging procedure, which local imaging center or hospital charges the least (based on contract rates, not list price) for acceptable quality?
    If we’re talking about an expensive surgery like CABG or hip replacement, etc., assuming the surgeons available to me have roughly comparable risk adjusted outcomes records, I’m interested in which combination of surgeon and hospital offers the best price for the complete episode of care from pre-admission testing to post surgery follow-up to physical therapy and drugs. The same would be true for a course of cancer treatment.
    If it’s choosing a primary care doctor or specialist, besides passing the competency bar, I would want to know whether he or she is considered a cost-effective practitioner or a high utilizer of medical services. Utilization variation, I assume, is driven mainly be defensive medicine and, if imaging and testing equipment is owned by the practice, financial rewards for utilizing it more heavily. I would also want to know if the doctor has been successfully sued more often than his or her peers or not. I would also want my referring doctor to be aware of the cost differences among providers and to reflect that information in the referral recommendation. I wonder how doctors and nurses go about choosing doctors for themselves and their families. How do they satisfy themselves that the doctors that they see are as good as their colleagues who recommended them said they are? I’m told that lousy doctors generally have no or very few doctors or nurses as patients. That would also be a nice piece of information to know. As it is, most people choose doctors based on the three A’s – affability, availability and last and least, ability.
    I think high deductible plans could work well, at least for the upper half of the income distribution if adequate price and quality information were available. For lower income people, other countries that use deductibles and co-pays have means tested procedures to mitigate or waive them. There is no reason why we couldn’t do the same.

  11. Greg, maybe you could comment on this:
    http://www.usnews.com/blogs/on-health-and-money/2008/4/17/high-deductible-health-plans-for-many-too-costly.html
    I’ve also been reading about an increasing number of insured who can’t pay their deductible. My feeling right now is that HDHPs are doing nothing to control money driven medicine, just transferring risk and costs from insurance companies to individuals. They also do not give us better access to primary care but will help somewhat for catastrophic illness, unless you get a cronic condition that not only drains your high deductible but does not help you pay the premiums if you can’t work. And if hospitals see less patients (less billings) due to high deductibles how does that help their bottom line instead of insurance companies bottom line? What we’re getting with HDHPs is less not more, which always costs less, nothing innovative there.

  12. I completely agree Greg. Growth in CDH is not anemic…as I pointed out on Laszewski’s blog, going from zero accounts and zero dollars in HSAs to more than six million accounts and $8 billion in assets in just 4+ years is hardly anemic. And that doesn’t even account for the HRA-based plans out there. Are CDHP’s a silver bullet? Of course not. Are they for everyone? No. But we will see nearly a third of the commercially insured in this country enrolled in one by 2012. The real question is, will the insurers and providers actually empower consumers with the information they need to make wise choices? That’s where this “movement” is anemic. It doesn’t have to be so complicated.

  13. Sorry, Bob. Ginsburg and Robinson are simply wrong about all of this.They aren’t looking at the evidence. Here is how I wrote it up in my newsletter this week —
    Jamie Robinson and Paul Ginsbrg have paired up in Health Affairs to take another shot at consumer driven health care. This is one of the most peculiar articles I’ve read on the subject. You can tell which author wrote which part of the piece. Paul Ginsbrg of the Center for Health System Change has long been a skeptic, but willing to look at the evidence. Jamie Robinson of UC Berkeley, on the other hand, has been foaming-at-the-mouth hostile to all of this stuff. About a year and a half ago he gave a speech to the Consumer Driven Summit where he declared the death of CDHC in favor of what he termed “managed consumerism.” He had a list of about ten particulars, but as we wrote at the time, he was wrong on every single one. He just hadn’t bothered to look at the evidence.
    This article continues in that vein. It does a fairly good job of describing the vision of the advocates of CDHC and concedes that we are addressing the right problems. For instance, in their conclusion the authors agree that, “When in possession of adequate information and faced with appropriate incentives, consumers make better choices for their own health than does any third party, be that third party motivated by the most praiseworthy of intentions. Moreover, as a matter of ethics, it is the patient and consumer, not the physician or insurer or employer or regulator, who should be vested with the right to make trade-offs in the emotionally and sometimes spiritually charged domain of health care.” But they object to, “The obdurate insistence on á la carte choice and retail purchasing pushed the theorists of consumerism into positing organizational and market dynamics that have not been observed in the real world.” They are hoping against hope that insurance companies will continue to be the Big Daddies of the health care system.
    My bigger objection to the article is the way the authors cherry-pick and mischaracterize the available evidence. They try to make the case that CDHC adoption has been “anemic,” but they do so by purposefully overlooking the available data. They acknowledge that, “The HDHP represents the most important product innovation in health insurance since the point-of-service (POS) product, (but) the HDHP has been a disappointment in terms of actual sales.” To support that idea they cite AHIP’s census of HSA-qualified health plans. But AHIP counts ONLY plans that are HSA-qualified. It does not count HRA plans or stand-alone HDHPs. In fact, the CDC’s annual NHIS survey found that over 20% of the under-65 population were enrolled in HDHPs as of the middle of 2008. Ain’t nuthin “anemic” about that. This finding was confirmed by the KFF/HRET annual survey of employers that found 18% of workers are in HDHPs. The authors had the KFF/HRET survey right in front of them and cited it in arguing that only 8% of workers are in “HDHPs with a savings option!” But they didn’t say that “savings options” are “the most important product innovation,” they said HDHPs are. As critics have rightly pointed out, there is no advantage in having a tax-favored savings account for a person who pays no taxes. But the behavioral impact of the HDHP applies with or without the savings option.
    Even more astonishing is the authors’ complete disregard of those behavioral changes, which have been well documented by the parties best positioned to measure it. Just in the past few months reports have been released by the Mercer Company, WellPoint, CIGNA, the Blue Cross Blue Shield Association, United Healthcare, Aon Consulting, and even the chronically skeptical EBRI, all showing that people in CDHPs pay more attention, seek out information, participate in wellness and prevention programs, choose lower-cost treatments, and save substantial amounts of money for themselves and their employers.
    If Messrs Ginsburg and Robinson are what passes for scholarship these days, no wonder the country is in trouble.

  14. CDHC will probably run its course> Let’s hope we can have the political will to implement a national health plan during the next 4 years. Incrementalism won’t work, although a primary care ‘medical home’ and electronic medical records (now used by only a minority of US practices) would be a good start. We are the only developed country without a NHP, and going broke spending $2+ trillion annually. And fewer USA med school grads are entering primary care training-FP’s and general internists are crumbling under paperwork, disrespect, and poor compensation-and Medicare is much to blame for this attitude! The health of our nation depends on safe water and sanitation and an adequate pillar of primary care. Yet, as Lew Thomas once observed, we are going broke using ‘halfway’ and often unproven technology!

  15. I don’t know, but every time there’s a mention of “consumer driven”, “consumer directed”, “empower the patient to make decisions”,etc., somehow it always ends up with patients having less coverage and patients having to make tough choices regarding what treatments to forgo.
    The health insurance discussions always deteriorate into arguments over percentages and statistics regarding a bewildering array of trade terminology. Why does it have to be so complicated? Is this variety of strategies and structures in place to achieve efficiency? Or is this in order to obfuscate the inherent conflict of interest between a for-profit insurer and the health of its enrolees?

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