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Pluses, minuses of consumer-driven care
Jamie Robinson, a professor of health economics at Berkeley, is rapidly becoming one of the more highly regarded health economists in the country.
He has an article in the current online version of Health Affairs titled “Renewed Emphasis on Consumer Cost Sharing in Health Insurance Benefit Design.” It is not an easy read, but it is an important contribution to the literature.
Robinson acknowledges some of the downsides of consumer-driven health care, but carefully weighs them against the advantages. Importantly, he notes the difference between “supply-side” controls embodied in managed care programs and the “demand-side” controls of consumer-driven approaches. He examines four “challenges for health policy”:
- Risk selection. He agrees it will happen but suggests the problems it creates in the real world are overstated.
- Administrative complexity. He agrees there is an administrative cost to having a wide selection of choices, but argues Americans have always been willing to pay that cost to avoid uniformity of products and services.
- Cross-subsidies. While costs may rise for some, he says, “forcing the poor to purchase comprehensive insurance while forgoing goods and services to which they attach a higher value is not doing them any favor.”
- Financial barriers to access. While “it is to be assumed that substantial cost-sharing will lead to some adverse outcomes for some patients resulting from forgone care,” he says cost-sharing also provides an opportunity to entice patients into more strictly managed care programs to avoid those added costs.
In the end, Robinson says, the system-wide benefits of the “bottom-up health system reform” that consumer-driven care will foster are well worth the costs.
Friedman: Third-Party Payment Is the Problem
While we’re looking at scholarship, you might want to review an article by Milton Friedman in The Public Interest, published a year ago. Titled “How to Cure Health Care,” the article can be summed up in one short quote:
“The high cost and inequitable character of our medical care system is the direct result of our steady movement toward reliance on third-party payment. A cure requires reversing course, reprivatizing medical care by eliminating most third-party payment, and restoring the role of insurance to providing protection against major medical catastrophes.”
Friedman calculates that we spend over twice as much on health care as we would have without such reliance on third-party payments. After examining health indicators such as changes in life expectancy before and after 1950, he adds, “it is hard to see that we have gotten much for that spending other than bureaucratization and widespread dissatisfaction with the economic organization of medical care.”
Senate Republicans Agree
I was reminded of the Friedman article by a short piece issued by the U.S. Senate Republican Policy Committee (RPC). The article responds to one by Drew Altman and Larry Levitt of the Kaiser Family Foundation (KFF) in Health Affairs. Altman and Levitt say, in essence, “Golly, nothing we’ve tried over the past 35 years to hold down health care costs seems to work.”
The RPC responds, “All past efforts failed because they did not address the principal reason for escalating health spending: third-party payment.” It includes links to the Friedman article as well as to the KFF article.
CMS: Third-Party Payment Keeps Increasing
Related to Friedman’s hypothesis is a new report released by the Centers for Medicare and Medicaid Services (CMS) on national health expenditures (NHE).
According to the report, direct payment for services continues to drop as a proportion of total national spending. In 2000, only 15 percent of total NHE was paid directly out-of-pocket, while 45 percent was paid by government and 40 percent by private third-parties.
In 1980, the figures were 28 percent out-of-pocket, 40 percent government, and 32 percent private third-party. In 1960 it was 56 percent out-of-pocket, 21 percent government, and 23 percent private third-party.
Small wonder health care costs continue to escalate.
Dallas Morning News Looks for Solutions
All this talk about rising costs is no mere abstraction to employers, who have to pay the bill to maintain the system of third-party payment.
Writing in the Dallas Morning News, J.C. Conklin tries to offer employers some practical advice on controlling costs. She talks to Helen Darling of the Washington Business Group on Health (WBGH), who recommends programs like disease management and tiered drug schedules, though Darling also says, “Some (disease management) programs just send out little brochures on diabetes, others are much more active.” She says employers should invest money to make sure they have a quality program.
The article also mentions interest in “consumer-driven models” but notes some critics say “these plans are just a fancy way to cut benefits.” Conklin also quotes me as saying employers should inform workers what all this costs and allow workers to cash-out of the plan.
Source: http://www.dallasnews.com/ The article ran on March 26, 2002. You have to register to access it.
Atlanta Business Chronicle Does Too
In the Atlanta Business Chronicle, Julie Bryant is even more colorful. She writes that employers “are gingerly piling more health care costs onto employees and redefining the notion of health benefits …”
She documents local information on the rising cost of benefits and quotes Emory University’s Ken Thorpe as saying, “There has been a major transition in health care. The old tools used to control costs are no longer accepted. …” The question, then, is what’s next? Bryant doesn’t have a lot of answers, and when she does come up with some, like medical savings accounts and defined contribution, she allows Paul Ginsburg of the Center for Health Systems Change to downplay them, saying he doubts these will become “widely popular.”
Columbus Paper Likes Defined Contribution
The Columbus Ledger-Enquirer covers some of the same ground in an article by Chuck Crouch. He says, “health care is going through a critical transformation” and adds, “The move is toward defined patient-controlled plans.”
Crouch lists five elements of these patient-controlled approaches: Cash, vouchers, health promotion accounts, health savings accounts, and community health care cooperatives.
Crouch quotes Wayne Anthony of the Business Resource Center as saying the cash and voucher approaches are already in use by about 5 percent of the “nation’s major employers.” He expects that to rise to 20 percent next year. The other approaches need legislative action before being implemented, he says.
Source: Go to http://www.ledger-enquirer.com The article ran on March 22, 2002.
Towers Perrin Dips Oar in Defined Contribution Waters
Towers Perrin has been late getting an oar in the defined contribution water, but they try to make a dent in a recent news release. They try to position themselves less as true believers and more as hard-headed business analysts. Senior consultant Michael Taylor is quoted as saying, “employers should carefully consider whether these plans will positively or negatively impact their overall business needs from a cost, quality, and employee relations perspective.” (Sounds like a job for a consultant, eh?)
Taylor goes on to say, “The bottom line is that defined contribution health plans have the potential to help some companies control costs, but without careful positioning and pricing, they may lead to increased costs for others.”
Source: Contact Stanley Davis at Towers Perrin for a copy, 914/745-4191, or [email protected].
Greg Scandlen is senior fellow in health policy at the National Center for Policy Analysis in Dallas, Texas and assistant editor of Health Care News. To sign up for his free weekly e-newsletter, Scandlen’s Health policy Comments, log on to www.ncpa.org/sub. Email Scandlen at [email protected].