08/2003 Consumer Choice Matters: All In a Day’s Work

Published August 1, 2003

I’m swimming in a sea of health economists at the “Fourth World Congress of the International Health Economics Association.” There are nearly 1,000 people listed as “presenters” and another 1,000 or so attendees. The “program at a glance” brochure is 70 pages long.

I’m here at the invitation of Bob Woodward of the University of New Hampshire, who presented a paper arguing the focus on outcomes and “medical necessity” misses the true utility of much of health care, which involves “consumer amenities” along with “investments” in improving health.

Amitabh Chandra of Dartmouth presented new research showing the timing of child birth is often one such amenity, and people increasingly use C-sections and induced labor to have babies during weekdays, thus avoiding holidays and weekends.

I said health care costs have been in a state of crisis since 1970, and we will never know whether our spending on health is rational until we reduce third-party payment and enable people to make their own spending decisions in competition with everything else they might spend their money on.

Uwe Reinhardt of Princeton said we need to decide how much of health care should be “socialized” and made available to everybody. Once that has happened, people should be free to spend additional money on amenities if they want to.

In a discussion way too short, we approached something of an agreement: That is, the United States already has an implicit floor of guaranteed assistance to all Americans of approximately $1,000 per person. That is roughly the per-person value of the exclusion from taxes of employer-sponsored coverage, and it is also roughly the amount of money we spend taking care of the uninsured.

Interestingly, it is also roughly what President George W. Bush has suggested as a tax credit for people who do not get employer coverage. I would prefer to have this subsidy made explicit and available to everybody through a tax credit for all to replace the exclusion as well as Medicaid. People could then buy their own preferred coverage.

Uwe would probably prefer it to be provided directly either through a government insurance system or direct provision of services. But we both agreed that beyond that baseline coverage, people should be free to spend their own money the way they want to.

Not bad for a day’s work.

“Accident of History”

Whatever they do on the Hill, the market continues to move in the direction of empowering consumers. The Florida Times-Union ran an editorial noting employer involvement in health insurance is “an accident of history.” Consumers now pay, it says, only one dollar for every five dollars of the costs–“If people paid only one-fifth of the cost of steak at the supermarket, few would eat hamburger.”

But ultimately people are paying the other four dollars as well, it is just “spread throughout the economy … and reflected in lower wages and higher prices everywhere.” The article predicts rising costs will “spark new interest in medical savings accounts.”

Source: http://www.jacksonville.com/tu-online/stories/062003/opi_12835788.shtml

“Consumers Are Pretty Smart”

Writing in the Green Bay Press-Gazette, Richard Ryman describes the new consumer-driven products being offered by Humana and American Medical Security, both of which are making use of HRAs but also offering a wide range of choices for employees and using Web-based tools “to help enrollees decide which plan suits them best.”

A benefits manager for Plexus Inc., which is using Humana’s SmartSuite product, reports 14 percent of its 3,200 employees signed up for the consumer-driven plans in the first year. She says, “Teaming up with Humana is helping us to teach our employees about just basic things. The same drug at Shopko costs different than at Copps. Employees didn’t understand that before and they didn’t need to because they just paid a $4 co-pay.” Humana CEO Mike McCallister says, “Consumers are pretty smart. They are good at picking what’s good for them.”

Source: http://www.greenbaypressgazette.com/news/archive/biz_10511157.shtml

Last Chance Before National Health Insurance

Bill Brewer reports in the Knoxville News-Sentinel that insurers are “turning to consumers to rein in costs in what some observers say is a last chance at keeping health insurance out of the federal government’s hands.”

The article is a report on a recent health care forum held in Knoxville. The chief medical officer of the Tennessee Blues, Dr. Steven Coulter, thinks physicians, insurers, employers, and employees have to “work together to control costs.” He cites his son as an example of an uninformed consumer who “believes a visit to the doctor costs $10. He doesn’t see medical care as expensive and he doesn’t make judicious choices.”

An actuary with Milliman USA, Doug Proebsting, reports “62 percent of U.S. employers surveyed by Milliman said they plan to move toward consumerism this year or next …”

The article also notes spending on health care is up 675 percent in Tennessee over the past 20 years, compared to 450 percent nationally.

Source: http://www.knoxnews.com/. This is another one of those pubs that charges to retrieve archives. The original article ran in the business section on June 15, 2003.

Rejecting Consumerism

Writing in the Dayton Daily News, Kevin Lamb reports on a local coalition taking a different approach. The Tri-River Healthcare Plan has rejected consumerism in favor, it says, of improving quality.

Hugh Becker, the human resources vice president at Robbins & Meyers, thinks consumerism does nothing more than “shift costs from employer to employee.” He says consumer plans “expect too much of consumers who have never felt the need to comparison shop.”

Instead, Tri-River is working on physician behavior, “rewarding doctors for following best treatment protocols …” It relies on a committee from the Greater Dayton Area Hospital Association to decide what protocols should be rewarded.

Source: http://www.daytondailynews.com/business/content/business/daily/0616insurance.html

Where’s the Crisis?

Finally, Richard Quinn denies there is any crisis in health care, in an article in Employee Benefit News. He says people have been talking in terms of a crisis for 30 years or more, but “the fact is that the vast majority of Americans obtain health care when needed and the majority is satisfied with the system.”

He does blast employers for being “shortsighted and strategically ill-informed …” He says, “Employers were happy to build the entitlement mentality when it suited their needs,” but now that times are tougher, they are willing to break their promises to their employees. He says doing that misses the importance of having a productive and loyal workforce, and will rebound on employers eventually.

Source: http://www.benefitnews.com/subscriber/Article.cfm?id=37881153

Greg Scandlen is director of the Galen Institute’s Center for Consumer Driven Health Care and assistant editor of Health Care News. His email address is [email protected].