Jamie Robinson is one of the best and brightest of the “younger” crop of health economists in America, and certainly has his ear to the ground of what’s going on in American health care in a way that few others (aside from Uwe Reinhardt who anyway I’d classify as being in the “elder” generation of health economists) seem to understand. He was one of the first in academia to see the potential of the capitated physician groups, and was also one of the first to understand the end of managed care. Most academics spend forever mining the archaeology of the longly dead. Jamie sticks closely to the recent past and hints at the future.
His latest, one of numerous articles in a bursting at the seams Health Affairs, is on Managed Consumerism. It’s an attempt, and not a bad one, to put a unified framework around both the CDHP movement and managed competition:
“consumerism and managed competition often are proposing different solutions to different problems, not different and incompatible solutions to the same problems.”
Robinson spends a little time explaining that the two come from different philosophies. Consumerism from individual consumers making choices at time of care mostly from solo docs paid fee for service and therefore, (not that he says it) politically promoted by those doctors. Managed competition relies on consumers making choices among different integrated HMOs/health plans which use multi-specialty groups that are incented to keep costs down (or at least neutral) by use of capitation and pre-payment. He goes onto note not why managed competition failed, but instead that health plans stopped using the techniques of managed care (such as small networks and utilization management). What he doesn’t say but what is true is that the regulation (the management part of “managed competition”) was never in place to force plans to do so, despite the fact that Alain Enthoven had worked out the mechanism a decade earlier. (BTW for those of you who care, the mechanism involves pooling large numbers of people, forcing health plans to offer them the same set of benefits, and making the people choose between health plans with actual post-tax dollars, thereby giving the health plans the incentive to reduce overall costs per population). That never happened in any population, because it requires substantial reform of the insurance market (We’ll get to that later, even if Robinson doesn’t). Because that never happened, managed care never put the mechanisms in place that consistently would reduce costs, and instead when push came to shove (and the system pushed back) managed care meekly gave up. And then the managed care plans noticed that they could make more money just being old fashioned insurance companies.
Five years into that inflation spiral, employers and consumers are moaning again, and so now we get the plan that looks like a 1970s major medical with a high deductible, but we can dress it up and call it a consumer-directed plan…and it’s much better. Of course it remains a high deductible plan that is basically unmanaged beyond the deductible, and it by definition doesn’t do much to control the costs of the expensive people on whom (as all you THCB readers should know by now) 80% of the money is spent on.
So what is going to happen. I’m skipping his optimistic bit but here’s the pessimism
“Ever-higher consumer cost sharing and ever-tighter provider networks would threaten the efficiency and equity of the health care delivery system. Excessive consumer cost sharing reduces the social pooling of risk, transferring financial responsibility from the healthy to the sick, and potentially reduces efficiency by reimbursing episodic and acute care services more generously than preventive and chronic care services. Excessively narrow provider networks frustrate patients’ ability to match their preferences with provider characteristics and limit providers’ ability to compete broadly on the basis of price and quality at the time of care”
What Jamie thinks is coming next is of course the managed high deductible plan
“It is not hard to envisage high-deductible, narrow-network, tightly managed product designs where choice of providers and procedures is limited by consumers themselves in favor of affordability. “
What comes next in his analysis is at once very useful and interesting, and also misses the point. He provides a schematic about how insurance companies should buy medical care from providers. He argues that they should change their benefits based on whether or not the service being received is either demand or supply inelastic….i.e. whether changing the way its paid for can influence the patient the provider or both.
As witnessed in this chart (Exhibit 2–click on it to see it more clearly), this is pretty innovative stuff, and I’m sure that lots of big consulting shops are even now stealing it to take to their insurance clients.
Robinson does something similar for the clinical care market by dividing it up into acute and chronic care episodes and whether or not there are efficiencies of scale in delivery systems or not. And there are some good additions that his confluting together the consumer world (the 80% of the people) with the managed care world (the 80% of the dollars) provides. Rightfully, he accuses the proponents of managed competition and CDHC of extrapolating essentially from the institutions they know, and his framework at least covers the real world.
But he starts to lose me when he concludes that the market has spoken and rejected the managed competition approach.
This is the moment for a second generation of consumer-driven health policies and products. The shortcomings of HMOs, capitation, IDSs, and the other components of managed competition have opened the way for alternative approaches to using market mechanisms for improving the health care system
Writing in the same issue of Health Affairs in an excellent piece that points out many of the foibles of consumer directed health care Bob Berneson of the Urban Institute points out what was right about Enthoven’s original vision
In the right hands, market competition ideas can be made consistent with this ethos. Alain Enthoven’s managed competition approach, for example, in the words of Uwe Reinhardt, was an attempt to “fuse a price-competitive framework for health care with production processes designed to produce medical treatments efficiently and with income transfers designed to achieve a desired level of social equity.” This sounds fine to me, because it might have been done in ways that did not threaten the foundation of trust. It’s just that markets haven’t followed Enthoven’s vision—for lots of reasons.
So Enthoven’s vision required regulatory reform that was not allowed to happen, because in the end it would have been bad for the providers of health care’s fiscal interests. Robinson knows that the real world won’t let theories like his work. He even notes (even before it’s fully happened, not that it’ll be a secret to THCB readers) what’s going to go wrong with consumer-directed care.
However, consumer-driven health care suffers from its own shortcomings. Blunt cost-sharing provisions, unadjusted for the patient’s income or health status, will penalize the poor and the sick while allowing their wealthier and healthier compatriots to retain higher balances in their HSAs. Nonselective network designs, the dismantling of utilization management, and a reversion to fee-for-service payment will encourage spending for high-cost services that fall above the insurance deductible.
But while he believes that there is a chance for managed consumerism, he’s ignoring two factors that will cause managed consumerism to be the failure that both managed care has been and consumer directed health care is about to be.
First, the market for clinical care is dominated by policies and regulations set in the 1930s and 1960s, and that’s why we have the institutions (solo practice docs, FFS medicine, and more latterly physician-owned surgicenters and now specialty hospitals) that fit neatly into Robinson’s new chart but don’t make any real sense for the way health care ought to be delivered in any rational market, or for that matter in a state-designed system. So in the absence of massive reform, there is still no real way that we are going to have a system that does any better than provide the players in the system with what they think will be best for them. Hence the strongest proponents of HSAs have forever been the solo practice docs who in their delusion believe that it will enable them to directly bill their patients and get the insurance companies out of the middle. The political power of the providers (sometimes aligning the docs with and sometimes opposing them to the hospitals) will continue to push against any rationalization of their organization or behavior. So the management part of managed consumerism is seeking a fix from the workings of an invisible hand that providers will just bite off.
Second, and this is the crucial bit, the market for insurance — irrespective of how insurers pay doctors and providers — is rigged so that insurers are better off insuring healthy people. Robinson calls his section on how insurers pay providers The Market For Insurance Coverage. But he’s wrong, the market for insurance coverage is about how people buy health insurance, not how health insurers buy or contracts for care. In the US most people are going to continue to have insurance covered by their employer or the taxpayer irrespective of how much it costs. This drives to the heart of the problem. Because we live in a rich country with a virtually inelastic demand for care, and because upper income employees receive health care for which they are not aware of the cost at the insurance level or the provider level, the system can always increase its prices — knowing that it will increase its revenue more from the price increase than it will lose it by the price effect.
Of course some people can’t afford it (or their employers can’t) and they get tossed into the uninsured numbers. But because no-one is responsible for them, and no-one (i.e. no central government) has to concern itself with the overall costs, no one cares. The provider keeps doing more, and the insurer has the choice of doing the hard things and beating them down (which is expensive and inefficient) or the easy thing which is selecting its risks better and jacking up its rates to its clients. It’ll lose a few, but no matter as it’ll stay more profitable on the ones it keeps. Robinson know this very well, as it’s a story he told about Aetna in Health Affairs last year.
And as Paul Krugman wrote yesterday in the NY Times in his “Healthcare Economics 101” column, the real issue is that the market for health insurance cannot be solved in an efficient or frankly humane way if we don’t have a universal pool. In other words it needs to be “rigged” so that insurers are no longer better off insuring healthy people. That at least was the concept behind managed competition, and it’s the same concept behind single payer, et al. It was not the concept behind market-driven managed care and is the complete anathema to consumer directed health care as exists now (and will in the future given that United has bought Golden Rule). And that is the elephant in the room that Robinson fails to note, for all the innovation in his schema.
Without real insurance reform, whatever we do we are never going to solve the core problems of cost (or even cost-effectiveness) and uninsurance. Anything else is lipstick on the pig.
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