The American Healthcare Consumer

Ian MorrisonWhen you hear the word “empowerment,” it’s code for “You’re on your own, pal.”

Health care leaders are starting to recognize that consumers are becoming a major decision-making force. Let’s be clear at the outset: The rise of the consumer is not the panacea that will solve all our problems. It is a reality that hospitals and health systems must respond to. For the foreseeable future, consumers will pay more for health care and be more involved in picking plans, providers and individual treatment options. This development means significant financial consequences for consumers (unlike almost any other developed country).

Providers need to understand the financial predicament of the typical American health consumer and the responses consumers are making in this changing environment. At the same time, with a new congress and a political season of primaries and posturing just around the corner, pundits, politicians and plutocrats need to recognize where consumers are as voters, plan members, employees, patients and family members.

This fact-based review of where American health care consumers are and where they are headed is a synthesis of a wide variety of sources, including publicly available economic and survey data as well as proprietary survey data distilled form Harris Interactive/Nielsen’s Strategic Health Perspectives, a service that I have been involved in since its inception almost 30 years ago. I am particularly indebted to my colleagues at Harris/Nielsen and Harvard for teaching me all of this during our work together. My colleague Kim Slocum’s work on health care consumerism and the shallow pockets of most American households has been very influential on my own thinking.

The short version is this: Health care costs have hit the limit of affordability for the typical American household, yet consumers are being asked to take on more of the cost burden (unless they get a subsidy in an exchange or are covered by Medicaid). When they have to make choices, the vast majority will pick cheap (less provider choice in return for lower premiums, even for those consumers receiving substantial subsidies), and they will forgo care (both necessary care and unnecessary care) because they have neither the income nor the savings to pay for a significant out-of-pocket cost burden.

Welcome to the future. Hospitals and health systems just need to deal with it … we’ll get to the possible responses at the end of the column.

Why Focus on Consumers?

The American health care consumer is becoming older, fatter, more diverse, and more skeptical and demanding over time. But the key trend is that consumers are being asked to pay and choose more than they have in the past. Indeed, we may be nearing the cost-conscious consumer envisaged in my friend Alain Enthoven’s elegant conception of managed competition, in which consumers (my words not Alain’s) select a plan when they are well and live with the consequences when they are sick.

As more of the market moves to exchanges, as high-deductible health plans and narrow networks proliferate, and as managed care in public programs such as Medicare and Medicaid become the norm, so consumers will be asked to make more decisions, increasingly with their own money.

An International Context

American health care consumers are exceptional. They operate in the most expensive health care system in the world, with the highest out-of-pocket costs in absolute and relative terms (arguably, Switzerland has higher relative out-of-pocket costs). And the United States is alone among the developed countries in having more than a quarter of its citizens experiencing cost-related health care access problems.

In addition, detailed comparisons of 11 countries sponsored by the Commonwealth Fund find that the U.S. health care system underperforms on many measures of cost, quality, value and consumer responsiveness. For example, and surprisingly to many, Americans enjoy less immediate access to primary care services than most of the comparison countries and ironically rank last in the percentage of primary care physicians who report that their practices have arrangements to see a doctor or nurse after hours. People, you can get a cheeseburger anywhere in America at 2 o’clock in the morning, but you can’t see a primary care physician at 6 o’clock at night? That’s crazy.

Shallow Pockets

You can’t turn around without hearing about income inequality. (We talk about it, but can’t agree on solutions. Other countries have taken action on this; for example, fast food workers in Denmark enjoy a minimum wage of $20 per hour, without much of a hit, surprisingly, to the price of a Big Mac.)

It is undeniable that in most countries, and particularly in the United States, most of the income gains have accrued to the top 1 percent and in turn to the top 0.1 percent and 0.001 percent of the income distribution. My worst nightmare is that America is re-creating 19th-century Britain with a self-perpetuating affluent aristocracy and a bunch of poorly paid servants. It’s like “Downton Abbey” in which only Kardashians and the scions of venture capitalism enjoy the pampered good life, and the rest of us are doffing our caps as Uber drivers or waiting tables at Michelin-starred restaurants that have a nine-month waiting list for a reservation.

The problem for health care is that we all get sick, and awkwardly and inconveniently, poor people are sicker on average than rich people. Cause and effect work both ways here, by the way.

So, let’s just focus on typical or average consumers. Given the disparity of income, it is wise to think about median consumers rather than average (mean) experience. For example, median household income for 2015 will come in around $53,000 (mean will be in the low $70,000s). But here is the kicker: The average health plan premium for a family in a typical employer-sponsored plan is in excess of $17,000 per year.

The average family can’t afford the average premium. On top of that, each year the share of the premium that workers have to pay continues to rise.

Nor is there much prospect of median incomes rising. They have remained flat for nearly 20 years, and likely will continue to remain flat because of globalization and technology that creates a bifurcated economy where the hyperproductive (or super-fortunate) few do well while everyone else is in a global competition for work.

Perhaps more alarming is the current net worth of Americans and their current cash savings, both of which have been dramatically affected by the Great Recession. For example, households with incomes up to 400 percent of the federal poverty level are in a negative financial asset situation and have liquid assets of less than $3,000. So a $3,000 deductible virtually wipes them out. Most Americans live paycheck to paycheck — not the best situation for high-deductible health care.

How do consumers deal with this rising economic burden of health care, and how do they feel about it? The short answer to the first question is that they go without care when they have to pay; they’ll skip doses of medications (even injections for cancer care!). For example, recent Commonwealth Fund Tracking Surveys show that lower-income folk on private insurance are particularly vulnerable and, as a consequence, 46 percent of Americans with private insurance who earn below 200 percent of the federal poverty level have experienced some cost-related access problem in the past 12 months: They have skipped doses, failed to fill a prescription, or neglected to visit a doctor or specialist when needed.

The problem is aggravated for those with one or more chronic illness. Detailed studies by RAND researchers show that cost-sharing causes consumers to forgo necessary and unnecessary care in equal measure. “Skin in the game” is a blunt and somewhat cruel instrument.

In addition, consumers often lack the literacy to understand health insurance concepts, and many consumers report to surveys that they “don’t know” what their premiums, deductibles and co-payments actually cost them. For way too many of us, health care costs are a “gotcha” after the event.

Harris/Nielsen surveys of consumer emotion reveal that consumers are not exactly delighted to be empowered. When asked how they feel about health care and what they pay, the most common responses are typically “resigned” and “accepting,” not “hopeful” or “empowered.” But among the chronically ill and economically vulnerable, they are much more likely to use terms like “powerless,” “depressed” and “angry.”

Crowding Out Consumer Spending

Most of us realize that if we spend 20 percent of GDP on health care (almost half through government), that it crowds out government spending on other public goods such as education, infrastructure, transportation and income support. But rising health care costs also directly affect consumers and their spending patterns at the household level.

A recent analysis by the Wall Street Journal of the change in middle-income consumers’ spending patterns between 2007 and 2013 found that the three fastest-growing purchases (home Internet, up 81.3 percent; cellphones, up 49.1 percent; and health insurance, up 42.1 percent) were crowding out traditional goods, such as apparel or appliances. No wonder the Christmas retail sales disappointed: It all went to Apple, Comcast and health care.

Aging and Diversity

America is becoming older and more diverse. We have known this would happen for a long time, but now it is real. For example, from 2012 on, the number of folks turning 65 increases from an annual run rate of approximately 2.6 million per year to 3.5 million per year in 2015, a number that will rise to nearly 4 million per year over the next decade. (By the way, one positive effect of this baby boom bolus is that it will reduce the average age of the Medicare population at least for the first decade and, it’s hoped, provide some countervailing balance to the rapid growth in the over-85 population, which is growing because of enhanced longevity.)

As seniors become Medicare-eligible, they are likely to pick Medicare Advantage. Surveys show that 57 percent of those turning 65 state a preference for Medicare Managed Care as opposed to only 29 percent of the currently eligible population.

The ethnic composition of Americans is changing, too, and of particular importance is the Latino population. Latinos account for 17 percent of the population, and they will grow as a share of the total population and of the electorate for the foreseeable future. They are disproportionately concentrated in the South and West of the United States. Indeed, three states (California, Texas and Florida) account for 55 percent of all Latinos in the United States.

Latinos are an important segment for coverage expansion. Remember that a third of the uninsured are Latino and, conversely, a third of Latinos are uninsured. While 20–30 percent of the Latino population may be ineligible for coverage expansion because they are undocumented, many Latinos are benefiting from coverage expansion through both exchanges and through Medicaid expansion where available. California and Texas alone accounted for a full half of all uninsured Latinos prior to Obamacare. As a result of Obamacare, Latinos living in California are benefiting substantially from coverage expansion; Latinos in Texas, not so much.

But while Latinos are concentrated in a few states, the states with the fastest-growing Latino populations are rural states such as Alabama, South Carolina, Tennessee and Kentucky. Diversity is increasing everywhere as the rural economy mirrors the global economy we described earlier: Hyperproductive older white farmers armed with sophisticated tractors and technology are supported (when needed) by migrant Latino or Southeast Asian farm workers.

Emerging Consumer Aspects

Consumers have other factors, beyond buying things. They are also voters, employees, parents and spouses; they live in rural and urban settings; some are more digitally oriented than others and so forth. Let’s take a quick tour of some of these other aspects.

Consumer as voter. The American public is not in love with Obamacare. Nobody is changing anyone’s mind on this. We all have entrenched opinions based more on ideological preferences than real experiences.

Ironically, many middle-class voters attribute the rise in out-of-pocket costs of their own employer-sponsored coverage to Obamacare (which is a tenuous connection at best and dead wrong at worst). This perceived harm to middle-class health care coverage was a centerpiece of the $400 million–plus spent on anti-Obamacare ads in the 12 swing senate races. Republicans crushed Democrats in those states, and anti-Obamacare ads were credited as being helpful in mobilizing the conservative base. The Democrats’ extreme reluctance to tout gains made by Obamacare meant that it was a very one-sided debate in those states.

Yet, surveys reveal that consumers who are newly covered by Obamacare (whether through exchanges or Medicaid expansion) are both grateful and satisfied with their coverage. Indeed, the newly covered are more satisfied with their coverage than those with employer-sponsored insurance, according to recent Gallup polls.

It is undeniable that more than 10 million Americans have coverage (net of all changes) as result of Obamacare compared with 2013. That is the biggest reduction in the uninsured since Lyndon B. Johnson’s presidency. You’d think it would be the subject of some national pride, rather than seen by half the country as the perfect symbol of a failed administration.

Consumers as employees. More than 160 million Americans receive health insurance through employer-sponsored coverage. Most economists agree that the cost of health benefits is a tax-efficient form of compensation. Middle-class consumers did not receive a wage increase in the last two decades; it all went to health care.

Employees increasingly are exposed to more cost burden for health care coverage, a trend that has been building for more than a decade. But, as we described in a previous column titled “Urgent Care,” employers feel a sense of urgency, because of the Cadillac tax and other factors, to take more action against health cost increases. Employers are redefining retiree and spousal benefits to place more of the economic burden on households. In addition, more employers will use exchanges, both public and private, as a tool in their health benefit strategy, further moving the market toward retail and asking more of consumers to choose and pay.

Rural consumers. Rural Americans have the same issues as all consumers, only they are more extreme. They tend to have lower incomes, poorer health status and are less likely to have health coverage through work because there are fewer large employers in rural areas. As a consequence, rural consumers also are more likely to be uninsured and more likely to be covered by public rather than private insurance.

But, the political geography of the United States aggravates the coverage situation for rural consumers. Analysis by the Kaiser Family Foundation found that a full 65 percent of the 7.3 million uninsured who live in rural areas were in states that were not expanding Medicaid. (Only half of the urban population is in non-expansion states.) Given the composition of the new Congress and the makeup of state houses and state legislators, rural consumers will have higher numbers of the uninsured, at least for the next two years, and maybe forever.

The e-consumer. Ask yourself how much you rely on your smartphone to conduct your daily life. We shop and manage all our travel, relationships and families with our phones. (Everyone has become a smartass, just a few clicks away from answering any question you may have in a conversation. Who was that guy in “Breaking Bad” again?)

The smartphone is the platform for our mobile life. And so it must be for health care. Health care is behind, but it’s catching up fast. Vast amounts of venture capital investment are being poured into apps to serve consumers’ health needs. Most of these investments will turn out to be duplicative and ineffective, but there will be many that change how we manage and deliver care.

For example, recent surveys by the Harris Poll show that consumers of all ages have a keen interest in virtual health care visits. Similarly, consumers expect to interact with health care as they do with other service industries — using online appointment scheduling, comparison-shopping and tools for navigating through the continuum of care.

The phone is also rapidly becoming a platform for clinical apps that monitor and manage chronic conditions and improve wellness. Again, significant proportions of consumers are demonstrating interest in these apps and devices. How many of you got a Fitbit for Christmas?

Retail consumers. As the first $1,000 to $3,000 of health spending moves to an out-of-pocket basis, consumers are looking to new retail care options that provide convenience and affordability. Consumers express strong interest in retail clinics, work site-based clinics and urgent care centers as convenient alternatives for many acute and chronic care needs. Indeed, 20 percent of consumers have used one of these facilities in the past 12 months.

Consumers value convenience, even more than cost. Location and ease of making an appointment after hours are critical factors in their reason to go retail. Health systems, particularly those with affiliated primary care practices, would be well-advised to serve the expectations of retail consumers.

Trade-Offs and Choices

As we have reported before in this column, when consumers are making choices with their own money, they tend to select cheaper alternatives. Both public and private exchanges are a massive national consumer experiment in which the vast majority (more than 85 percent) of consumers selected Bronze- or Silver-level plans in an exchange situation. Similarly, Harris/Nielsen trade-off surveys of consumers have shown consistently over the past five years that consumers prefer lower premiums and their current doctors over extensive networks of hospitals. Even patients with cancer or multiple chronic conditions are willing to make these trade-offs (at least in surveys).

Implications for Consumers

The American health care consumer has shallow pockets. Providers and policymakers alike must recognize this.

If Republicans win the White House in 2016, we can expect a greater burden on the consumer to pay for and choose health care: Medicaid expansion would be pared back, more high-deductible, bare-bones plans would be the norm, and Medicare Advantage would grow even faster, perhaps with a defined contribution. Exchanges likely would still be a vehicle, but the subsidies may be pared back, again putting more of the burden on overstretched, middle-income households.

If Democrats regain control of the Senate and win the White House, then Medicaid expansion would likely continue beyond the existing states, and there would be a higher likelihood of federal subsidies remaining for exchange-based coverage.

But, all that is ahead. As we start the race for the White House, candidates of both parties will have to propose what they are going to do about health care (if not Obamacare, then what exactly?) and they must recognize where the American consumer stands economically. Good luck with all that.

Either way, the consumer will remain an important force, because no administration can afford first-dollar coverage when there is no deductible, for a generous benefit package for a technologically sophisticated American health care delivery system. Just ask an actuary.

Well, actually there is another way: budgetary targets and controls. But, that is a subject for another day and is very unlikely as a national solution quite yet. We will be watching and reporting on states like Massachusetts and Maryland, which are experimenting with this path, in future columns.

Implications for Providers

First, as I said at the outset, having consumers pay more is not a solution; it is a reality. But we can do better than dumb cost-shifting, blind premium support or simple tax credits. Value-based benefit design (VBD) shows some promise in targeting consumer incentives to encourage consumers to choose more wisely. In addition, large integrated systems of care that take risk (directly or in partnership with plans) may be positioned best to apply VBD principles to engage the consumers and communities they serve in a more creative and effective way — by waiving economic barriers to primary care and partnering with retail provider systems and other community resources.

Health system leaders need to be attentive to the economic circumstances of American health care consumers and their preferences and changing needs. As we have seen, this will require investment in electronic infrastructure; service redesign; and dealing with consumers who are facing revenue cycle issues, such as collections.

The needs of the shallow-pocketed consumer also may redefine community benefit away from uncompensated care to undercompensated care. For example, it may mean providing ambulatory health care services on a systematic basis to maximize the health of the population you choose to serve, regardless of their economic circumstances. As the burden of inpatient uncompensated care falls (in the Medicaid expansion states, in particular), many health systems will focus on new ways of serving the economically vulnerable health care consumer as a true community benefit.

Ian Morrison is an author, consultant and futurist based in Menlo Park, California. 

Ian Morrison, Ph.D., is an author, consultant and futurist based in Menlo Park, Calif. He is also a regular contributor to H&HN Daily and a member of Speakers Express.

32 replies »

  1. Ian,
    I assume that few if any of these consumers of healthcare will be choosing the “Pimp my Ride” version of care that you popularized a few years ago. I guess that’s a good thing.

  2. I wouldn’t expect large employers to improve health insurance coverage anytime soon no matter how much their profits increase. The reason is that they don’t really want to be in the business of providing health insurance to employees and their families and the only reason they are is an accident of World War II history when health insurance benefits were offered as a way to get around federal wage controls. In 1954, the Supreme Court affirmed that such benefits are not taxable income to employees.

    I think both healthcare and health insurance would be less expensive if the current tax preference were phased out and other taxes were lowered to ensure that most people in the bottom 75%-80% of the income distribution don’t pay any more in combined federal income and FICA taxes than they do now and salaries were raised by an amount roughly equal to the prior employer contribution on an age adjusted basis.

    We would be better served if people buy health insurance that best meets their needs and pay for it with after tax dollars just like they pay for auto, home, umbrella liability, life and, for a small number, long term care insurance with after tax dollars. Insurer customer service would also be a lot better if they perceived that the individual insured person was their customer and not the employer. I know such an approach would be a steep uphill slog politically because the unions would oppose it with everything they’ve got and much of the rest of the workforce probably wouldn’t like it either if, for no other reason, they would be trading a known quantity for an unknown one.

    If we were starting with a clean sheet of paper, we would never design a healthcare and health insurance system that looks anything like the one we have. We would probably have something that looks more like the Swiss model but with more coverage choices including higher deductibles.

  3. This may sound like heresy but I question this assumption
    “First, as I said at the outset, having consumers pay more is not a solution; it is a reality”. This is music to the ears of employers. The American economy is on turbo power with corporations concerned what they will do with all this valuable cash. I doubt that any CEO has said that we should give it back to our employees by reducing their deductibles. The consumer as well as the author have bought into the “obvious” solution of reducing health care costs by empowering the consumer. Conventional wisdom in this case is generated by manipulative agenda of employers who take it away but never give it back when the economic times improve. If employees continue to allow their employers to plead poverty, the reality is that more employees will face the prospect of poverty.

  4. I would also add, that related to payer mix, commercial reimbursement rates are also an important determinant of hospital profitability. The large and powerful systems with regional market power get paid considerably more than their smaller competitors for the same work.

  5. Bob,

    While I hear you on this, I would like to see some decent data that compares U.S. hospital operating costs to costs at comparable hospitals in other developed countries. Since hospitals are heavily capital intensive and most of their operating costs are fixed, at least in the short term, one of the most important drivers of profitability is the average occupancy rate. An equally important factor is the payer mix – commercial insurance, Medicare, Medicaid, uninsured / self-pay. Somewhat less important is the average acuity of the case mix.

    There is a long term secular decline in the number of inpatient hospital beds in the U.S. After World War II, there were roughly 10 beds per million residents. Now the number is 3 or a bit less and the long term trend is still down. Better drugs, fewer infections, more thorough discharge planning, less invasive surgical techniques among other factors are reducing the need for inpatient beds and that’s a good thing.

    If ASC’s can do many surgical procedures safely for 25%-50% lower cost than a hospital, then I would like to see as much business as possible gravitate to them. As hospital occupancy rates decline, more of them should close but perhaps a stand-alone emergency room could remain in place which is happening in many rural areas and some urban locations as well. These are far less expensive to operate because you don’t need all the housekeeping and foodservice staff or all the administrative and executive types that populate hospitals. If an inpatient admission is necessary, the patient can be transferred to a nearby facility once stabilized. In rural areas, helicopter transport may be necessary.

    I don’t think the fire department paid for by taxpayers analogy is an appropriate model for hospitals. Fires are comparatively rare these days and, even in the big cities, are far less common than they were 40 or 50 years ago. Firemen are there to put out fires and serve as EMT’s. We don’t need a wide array of specialists and a large support staff to help them do their jobs. While fire engines are not cheap at $200,000-$300,000 each, the capital intensity and cost structure hardly compares to a hospital. Finally, when there is a large fire, personnel and equipment from neighboring towns can be called in to help out. Finally, as I learned personally last October, ambulance transportation to the local hospital is now billed to the person who needed it whereas it used to be free. For the most part, though, taxpayer financing works reasonably well for fire departments. For hospitals, not so much in my opinion.

  6. When we start posting prices in earnest, we have to think through what we want to happen in hospitals.

    We Americans go back and forth about seeing hospitals as quasi public quasi charitable institutions, and then letting them actually operate as profit maximizing creeps (franikly). We mandate them to care for patients in emergencies (EMTALA), but then we allow and in fact expect them to squeeze those patients for payment and (in some cases) sue them for debt.

    A fire station never sues the victim of a fire for payment. The fire stations in almost all medium to large cities get 98% of their revenue from taxes.

    We ask hospitals to provide many types of tree care, but then we bristle when they overcharge and milk the fee schedules to make up their losses.

    So…….do we let hospitals go broke if they are underpriced by ambulatory surgery centers? Part of me would be secretly pleased to see that happen, but the communities involved might wind up worse off.

    We need to shake off the cobwebs about hospitals.

  7. “The biggest complaint among the young, I think, is that, as a group, they are being charged more for insurance than their actuarial risk would justify. ”

    “Actuarial risk” across what period of time? Actuarial risk with respect to health is a ~60 year proposition (when limited to adults), with the risk, in the aggregate, inexorably correlated with age. The fact that we chunk it up into business imperative one-year open enrollment periods does not negate that reality, the grumblings of the Young Invincibles notwithstanding.

  8. Paul, if in your perfect world we all had insurance prior to pre-exist, which I would assume would include born with conditions, then all that risk would be included in all our premiums anyway – Obamacare or not.

    Cost of pre-exist staying with original insurer when that insurer is not getting premiums makes no sense – unless you want to be able to allow exclusive non pre-exist poicies that block pre-exist entrants.

  9. Peter1

    Re competitive pricing in a duopoly like Raleigh….it is likely new
    entrants would undercut their prices….like doctor owned ambulatory surgery centers did several years ago….in my area amb orthopedic surgery was 50% lower than hospital based ortho surgery. Also, I think once the prices got posted even the 2 big players would start sharpening their pencils fast….it would require a shift in hospital accounting….weeding out the decades long complicated cross subsidization (i.e. the overcharged ambulatory surgery that paid for the money losing stuff including too many administrators).

    Re the pre existing condition problem. It is mainly a result of the lack of insurance portability….if people kept their insurance once they leave their employer the cost of the future condition stays with the original insurer. Goodman also suggests creating Health Status Insurance….which you buy when you are healthy and it pays for the cost higher future premiums from a change in health status. The point is, there are good market efficient solutions to the pre existing condition issue.

  10. Before the ACA, if only young women had to pay for maternity benefits in the individual / underwritten health insurance market, their premium would probably be at least twice as high as for men of similar age who declined maternity benefits because they didn’t need them. It’s not right, in my opinion.

    The biggest complaint among the young, I think, is that, as a group, they are being charged more for insurance than their actuarial risk would justify. The 3 to 1 maximum age rating band required by the ACA would have to be increased to 6 to 1 to fix this because the 60-64 year old population consumes about six times more healthcare on average than those in their early to mid-twenties. Personally, I wouldn’t have a problem with this as long as nobody had to pay more than 9.5% of gross income for health insurance including those with incomes above 400% of the FPL. That would cost more for subsidies but we can afford more than we thought we could when the legislation was being debated in 2009 and 2010. For example, in 2009, the CBO estimated that Medicare would cost $706 billion in 2014 net of beneficiary premiums and state payments for the dual-eligible population. The actual number came in at $580 billion or 18% less.

    According to an article in the most recent issue of Health Affairs, before the ACA, 37% of adult men under age 35 did not have health insurance and 27% of young women didn’t have it either. Many didn’t buy it because they thought they were healthy and could get by without it.

    With respect to price transparency, my understanding is that both insurers and providers want to keep the system opaque. The big insurers believe they pay lower reimbursement rates than their smaller competitors and that’s a big source of competitive advantage for them. The large hospital systems and provider groups with a lot of regional market power believe they get paid more per service, test or procedure than their smaller competitors and don’t want prices to be visible either. Even medical device manufacturers won’t let hospitals tell other hospitals what they pay for medical devices and the prices vary quite significantly with the big academic medical centers generally getting the best prices. I think the problem can only be fixed by the intervention of regulators or legislators.

    I don’t think prices paid by Medicare Advantage insurers vary all that much from one insurer to the next. They are all probably pretty close to the Medicare allowance with some a little higher and some a little lower. If they can compete effectively under those conditions, they should be able to do it in the non-Medicare market as well. They should differentiate themselves based on deductibles and copays, customer service, provider networks, case management skills, and the like. Patients / customers need price transparency and the sooner the better.

  11. Paul, do those without pre-exist benefit from the genetic lottery – so the other unlucky duckies can just “F” off? Wonder if those born into wealth benefit from a genetic lottery?

    Here in Chapel Hill/Raleigh the two market dominate hospitals are Duke and UNCH. Posting prices for any procedure means nothing as the high price is the price.

  12. Good points Barry and Bob. The drafters of the ACA and its essential/mandatory elements like maternity were seen as an opportunity to take from the “lucky duckies” and those benefiting from the “genetic lottery” and shift the proceeds to those they see as victims of the economic system…..driving up the costs.

    It would be so much more helpful if the government focused on the price transparency issue Barry raises. “A powerful role of the government could be to require posting of prices for medical procedures and services. Start with the ten to twenty most common procedures in both outpatient and inpatient medicine, such as MRI, a surgeon’s bill for rotator cuff repair….etc……based on the provider’s previous three-to-six months’ average of charges.” (Scott Atlas, In Excellent Health).

    I like Atlas’s suggestion to start simply with a limited number of procedures…..giving the opportunity for everyone to figure out the best way to do it before rolling it out (unlike the continuing disastrous roll out of EHRs)…..and I like using rolling averages rather than some kind of fixed price set by medicare that always leads to games like upcoding.

  13. “To begin with, if an insurance company must now pay more claims on young women, why does that cause the premiums of a 57 year old man to increase?”

    Last I checked on Goggle Bob there is a man involved in having a baby.

    “In a group policy, I understand”

    We’re all one big group Bob, that failure to understand is the “tensions in American health care”.

  14. The protests against maternity benefits (mentioned by Barry) reveals a lot about the tensions in American health care.

    To begin with, if an insurance company must now pay more claims on young women, why does that cause the premiums of a 57 year old man to increase?
    In a group policy, I understand — but in individual coverage, why not just raise the premiums for young women?

    I think that the ACA has some behind the scenes regulation to prevent this.

    All the essential benefits add at least 15% to insurance premiums.
    (see the attached study:

    The drafters of the ACA probably felt that federal subsidies would take the sting out of this for most individually insureds — and for the persons who get no subsidies, well they were just lucky duckies who rode the genetic lottery to preferred low premiums.

    This was callous, but the Dems may get away with it.

  15. Barry, I’d love to not pay property taxes for education – never had kids, don’t intend to. Wonder how many people would back out of education taxes after their kids have left home if they had the choice – oh wait, when they did have kids their cost of education would be a lot higher.

  16. Peter1,

    I agree that the Obamacare policies provide broader coverage but at a higher price than some policies previously available before the ACA became law. A lot of the grumbling, I think, centers around four pieces of the essential benefits package that a lot of people would prefer not to buy if they were optional. Those are: maternity benefits, which both many men and older women don’t want to pay for, mental health, substance abuse, and chiropractic benefits. Maternity benefits appear to be the most controversial. I don’t know how much of the total premium those four benefits account for.

    I also agree that high deductible plans work best for the upper half of the income distribution that can best afford to cover a, hopefully only occasional high bill within the deductible, out of current income and savings. They don’t work nearly as well for the lower half but many of those folks choose them because that’s all they can afford.

    Finally, if costs are to come down, the large hospital systems with too much market power, along with the specialty drug manufacturers, need to stop gouging us and we need less defensive medicine.

  17. Paul, the “higher mandated” plans provide more coverage spread over a larger pool. No pre-exist, no lifetime max, better coverage overall, not just faux coverage. People said they liked those things about insurance – but failed to realize that private insurers would charge more. Anybody can do takeaway coverage to get to lower premiums, that’s not coverage.

    I don’t support the high premiums post Obamacare, but we need to lower prices overall. Do you want go back to allowing insurance to create high profit risk pools that exclude a lot of people from coverage?

    HSAs only work for those who have the extra disposable income to save to cover high out-of-pocket – people pick HDHPs because they don’t really have choice and need lower premiums.

  18. Peter1,

    HDHP are good, especially when linked to health savings accounts and when people have some real choice in what kind of coverage they are getting. They are bad when the offered mandated plans have premiums that are so expensive people are effectively forced to choose extremely high deductibles and co-pays…..as is the case with ObamaCare.

  19. I’ll cover several separate topics here.

    First, with respect to employer provided health insurance, I met someone recently who works for one of the major benefit consulting firms, Aon-Hewitt. He noted that there is a lot of interest among employers in moving to private exchanges where employees would be provided with a defined contribution to select a health insurance plan. The menu of choices would include multiple carriers and multiple options within each carrier. The defined contribution amount would likely be sufficient to pay for the lowest cost plan and employees would have to pay the difference out-of-pocket if they wanted a richer plan.

    Second, prices are a problem in our healthcare system, especially those related to hospital based care and specialty drugs. I’ve long advocated for special rules to apply to care that must be delivered under emergency conditions and is, therefore, not shopable. Whether the patient is uninsured or finds himself out of network, allowed prices should be limited, in my opinion, to 115% of the Medicare allowance or the lowest private insurance rate that the hospital accepts as full payment, whichever is higher. For care that can be scheduled in advance, we really need price transparency and, at a minimum, a binding estimate of out-of-pocket costs. For any costs that the patient was not made aware of ahead of time, he should not be responsible for paying them.

    Third, on a positive note, hospitals are continuing to make progress in reducing hospital acquired infections which reduces costs and saves lives. They are also doing more thorough discharge planning which also reduces costs by lowering preventable readmissions. They deserve credit for these initiatives.

    Finally, with respect to very high cost specialty drugs to treat cancer, RA, MS, Parkinson’s, etc., insurers and PBM’s need to be prepared to just refuse to pay for them if they cost too much especially if there less expensive viable alternatives available. Memorial Sloan Kettering did this recently with Zaltrap to treat colon cancer because it cost twice as much as Avastin and was no more effective. Within about four weeks of that decision, Zaltrap’s manufacturer cut the price in half. Sometimes market forces actually work even in healthcare!

  20. Health insurance does not insure health. It insures assets against the unexpected costs of illness or injury. HDHPs for average American consumers have perverted that purpose to the extent that insurers now bear the moral hazard, not the insureds.

    Catastrophic costs? An uncomplicated appendicitis can easily run up $25K or more in bills. Not counting the out-of-network hidden providers.

    Americans have insurance that neither pays for medical costs, protects their homes or protects their standards of living. For many folks, their key asset is their income stream. When a family member must miss work to give care that in the past was paid by insurance, even this most fundamental asset is in jeopardy. If a job is lost, the whole precarious family structure collapses.

    Patients are engaged alright. Trying keep bills paid, the lights on, food on the table. Hoping the kids are OK after school when parents go to a second job. Their pockets aren’t shallow. Their pockets are turned inside out, lint floating in the breeze.

  21. Thanks Ian for the stark reality of health care in America. The “middle-class” has not progressed since 1974 but are expected to pay for 6% – 10% compounded yearly cost increases for health care. Harder now that coverage is mandated.


  22. Paul, why are HDHPs good for private insurance but bad for plans through Obamacare?

    By the way, Obamacare also helps pay for deductibles and co-pays for qualified people by subsidizing a silver plan, with lower out-of-pocket than a bronze plan, along with premium subsidies making a silver plan “affordable”.

    Not ideal as out-of-pocket can still be high, but a subsidy none the less.

  23. Ian Morrison cherry picks the data to show the worst comparison:
    “In addition, detailed comparisons of 11 countries sponsored by the Commonwealth Fund find that the U.S. health care system underperforms on many measures of cost, quality, value and consumer responsiveness. For example, and surprisingly to many, Americans enjoy less immediate access to primary care services than most of the comparison countries and ironically rank last in the percentage of primary care physicians who report that their practices have arrangements to see a doctor or nurse after hours.”

    Yet on a more important metric the US outperforms per the same source the Commonwealth Fund which states re sicker patients “the United States stood out for relatively short waiting times for specialized care and for elective surgery”

  24. FYI $26+ billion was dispensed by CMS to reimburse doctors and hospitals for adopting EMR systems. Of the total, ca $600 million went to subsidize health information exchanges (HIEs)..

  25. I appreciate the thoughtful responses so far,but as Merle says there is a dearth of practical suggestions.
    I am curious as to what caused the spending of $26 billion, but I can wait for an answer.
    Let me make a few concrete suggestions (not popular, but concrete):

    a. The problem is not always the cost of health care. Lithotripsy is far cheaper than 7 days in hospital trying to pass a kidney stone.

    b. The production cost of Sovaldi in thousands of times cheaper than 10 years of living with severe hepaptitis.

    The problem is not the cost of health care, it is the prices.

    Hospitals, drug companies, and some surgeons are the real problem

    They drive up prices even as costs are falling.

    Therefore, my solution is to impose medicare and medicaid fee schedules nationwide.

    A fair number of millionaires will miss payments on their Lexuses. Who cares?

  26. Thank you for a sweeping, insight-filled overview of where healthcare fits in our society, economy and family budgets. You clearly and succinctly framed the issues we must address.

    The tragic truth is that not only is our situation not good, it’s terrible, frightening and will have grave consequences if we don’t do something about it — and soon!

    Instead of quibbling over analytical approaches, I’d like to hear solid practical, immediately-implementable ideas and suggestions from any and all posters and commenters about how to solve the problem of ever-increasing healthcare costs.

    It shouldn’t be treated as an intellectual exercise searching for a grand sweeping solution. That’s what we have been doing under the HITECH Act and it hasn’t worked. Ten years, untold man-hours spent in policy meetings, and $26+ billion dollars later, neither doctors nor patients have seen any real benefits. And we’re told not to expect real interoperability until for another 10 years!

    We’ve turned doctors into data entry clerks but they still can’t exchange or share patient records electronically. Patients are seemingly no better off. And the inexorable increase in healthcare costs has continued. But it doesn’t have to continue.

    Not being a provider, I can’t suggest from first-hand experience how providers can cut costs. But it is abundantly clear that we must cut medical mistakes and stop ordering unnecessary of redundant tests. These are low-hanging fruit and there is no reason to not harvest them. We can stop making a million or so sicker rather than better each year, killing 400,000+ each year and wasting hundreds of $$billions of dollars each year!

    To do so, we need new approaches and innovative ideas that work and we can implement today, not tomorrow or years hence. That means using technology that we know works rather than dreaming about unproven or highly complex approaches that will take years to implement.

    Our company has developed a patient-focused personal record system that makes total interoperability possible today and, as a result, can reduce healthcare costs today. It’s called MedKaz® (see medkaz.com). I’m sure others have developed other systems that will dramatically reduce costs, too. Instead of freezing them out because they are new or different, we should seek them out and embrace them. When we do, costs will come down and quality of care will go up!

  27. Hurray!

    Finally a meaningful blog about what it means to be a health care consumer in this money-saturated system. The technology echo chamber yammering about wearable sensors and personalized devices seems completely oblivious to vast swaths of Americans. People who already carry medical debt on their credit reports and can’t afford basic care because they can’t afford the damn deductibles. Much less iPhone Fitbit apps.

    The Great Divide that roils the rest of society will fracture health care, too. This time it will be a matter of life or death. But what the hey, let ‘em eat kale…

  28. Large employers, universities, government agencies and strong unions seem to be rolling right along with $17,000 family premiums.
    It is smaller low-margin businesses that are dropping health insurance very rapidly.
    But that is not the main problem that Ian uncovers,
    The issue is the scope of what we consider to be ordinary, necessary medical care has expanded much faster than our incomes.
    George Halvorson when at Kaiser estimated that close to half of the services provided by Kaiser did not exist 30 years ago – cancer cures, advanced diagnostics, transplants, et al.
    We have tough decisions to make on what services will be a right of citizenship, and which will be exotic like having your own helicopter.

  29. $17,000 for group family premiums and $53,000 median household income.
    We need to lower premiums now.
    We are going on the road to offer the first meaningful benefit plan in over 20 years.
    To learn about our schedule, go to nationalprosperity.com
    Don Levit

  30. It is like health care is grinding to a halt because of costs. It reminds me of private flying. When I was a youth we all thought there would be an airplane or helicopter in everyone’s garage. It turned out to be too expensive. The required safety equipment was especially prohibitive.

    We may end up in health care using advanced care nurses or PAs and artificial intelligece as a diagnostic crutch. Doctors get to be better diagnosticians because we spend more in longer training where we see the unusual cases. This is about our only difference.

    So, just as we gave up on private flying, we may be entering an era in health care that is totally foregn to what we imagined yesterday.

    Pretty exciting and interesting, isn’t it?

  31. Thought-provoking as always Ian, but ultimately this analysis-heavy, guidance-light jumble of thoughts disappoints. My main disappointment is your incoherent economic analysis.

    The distribution of health care costs across a population resembles a power law function: very few people account for a startlingly large share of total costs. At the same time, most people, most of the time, being mostly healthy, generate a small share of total costs. We should all be fairly happy about this. More of us should recognize that this should fundamentally influence how we think about, and plan for, possible health care futures.

    Among other things, this means we should pay MUCH less attention to averages, and much more to medians and ranges, and incidence probabilities.

    But there you are, telling us that “the kicker” is “the average health plan premium for a family in a typical employer-sponsored plan is in excess of $17,000 per year.”

    It’s not.

    That figure is marginally useful to corporate benefits managers and budgeters for allocating costs to operating units, or deciding in a crude way how much to charge employees for coverage contributions.

    It’s not much good at all for devising better health benefits strategies, or thinking intelligently about what we’re doing with regard to allocating spending or shaping incentives to keep more people mostly healthy most of the time.

    So come on – you’ve done this sort of thing better and I know you can still do it. Get more of that Slocum guy’s help – he’s plenty sharp. ACA has things in motion, and it’s a terrible thing to waste perfectly good inertial forces….