A Jaundiced Look at Consumerism

Published May 1, 2005

The New Republic has published a major article called “Medicine and the Free Market. The Health of Nations,” by Arnold Relman, former editor of the New England Journal of Medicine.

The article is broken into several sections. The first is a fairly selective review of the history of American health care policy. I say selective because the author starts in 1960 and completely ignores the distorting effects of tax policy and public policy encouragement of third-party payment over all other forms of health care financing.

Even within his time frame, Relman says not a word about the many disastrous public policies on health planning, mandated benefits, price controls, and federal encouragement of health maintenance organizations (HMOs) and self-insurance by large corporations that have been adopted since 1960. He places blame for most of the health care system’s problems on the commercialization of the system, which he says “diminish[es] the special aura of professionalism and social service … of medicine.”

Concerned about Financial Pressures

From there, Relman goes into a pretty accurate description of consumer-driven health care and the hopes and rationales of its proponents. For that I congratulate him. It isn’t easy to provide a fair description of an idea one opposes vehemently. For instance, he says, “it is commonly believed that in health care the most important missing ingredient of a free market is the traditional consumer who has the incentive and the ability to bargain for the desired price and quality of services.”

Fair enough. So it is important to take his criticisms seriously.

His first criticism is that under consumer-driven health care, “low- and modest-income families … would feel financial pressure to cut their doctor visits and their use of other medical services … [while] higher-earning beneficiaries would not feel such pressure and would continue to use all medical services freely.”

I think that is true. Wealthier people are much less influenced by financial incentives than most of us are. But the argument is irrelevant. Wealthier people will always get what they want because they have the means to pay for it. Even in Canada, the wealthy are able to bypass health care waiting lists and shortages by coming to the United States and buying what they want. But the wealthy are a small portion of the population, so in terms of system-wide reform it doesn’t matter what they do.

Relman also does the usual riff on selection, saying the young and healthy (who presumably are not also the “wealthy”) will prefer high-deductible coverage while “those with health problems would be forced to choose plans with the lowest allowable deductibles but higher premiums.”

This is an argument I simply don’t understand. In many cases, the premium savings of a higher-deductible plan exceed the cost of the deductible, so a high-deductible plan would benefit the young and the old, the rich and the poor. Plus, we know from experience that the people who most resisted low-deductible managed care were the “people with health problems” who used the services most.

The “young and the healthy” didn’t object much to these plans because they didn’t use the services enough to notice the problems.

Proposes Single-Payer Plan

Relman also worries consumer-driven health care “would impede efforts to improve the quality of care.” He argues, “the Institute of Medicine’s recommendations about quality [could not] be achieved if doctors and hospitals were expected to function as independent vendors do in ordinary markets, simply responding to the demands of consumers … and the uniform adoption of modern information technology would be impossible.”

If I’m not mistaken, banks are light-years ahead of health care providers in the use of “modern information technology,” such as automated teller machines, precisely because they are responding to the demands of consumers. To date, the health care bureaucracy has been an abysmal failure in assuring quality or encouraging the use of information technology. It is time for bureaucrats to step aside and let popular demand take over.

Still, Relman concedes consumerism is “now firmly embedded in current thinking about health policy and will surely be more widely tested.” He expects it ultimately to fail, though he thinks it may take a decade to do so.

In anticipation of that failure, he proposes a different system featuring a single-payer approach even more rigorous than Canada’s. All physicians would be working in multi-specialty groups, paid by salary, and confined to providing services on an approved list. Patients would choose their own “physician group” and could change only at “specified intervals.” Facilities would all be nonprofit and paid by a global budget. The entire system would be overseen by a “National Health Care Agency” that would be “sufficiently independent of congressional and administration management to be protected from political manipulation and annual budgetary struggles.”

Source: http://www.tnr.com/doc.mhtml?pt=lkWDsxbKs8PSs20MmELh7c%3D%3D

HSAs “Too Powerful to Ignore”

Consumer-driven health care is on a roll. Leah Carlson of Employee Benefit News attributes a diminishing of last year’s deleterious health care trends (such as cost increases) at least in part to the growth of consumerism. She reports enrollment in preferred provider organizations (PPOs) is still dominant, but cites a Hewitt study showing 57 percent of employers are considering Health Savings Accounts (HSAs). She also notes, “Just 4 percent of Americans are enrolled in a health savings account, according to a recent study by the Kaiser Family Foundation and Harvard’s School of Public Health.”

I’m not sure about the number, but 4 percent in one year seems like a whole lot to me. The article points out that, according to a survey by America’s Health Insurance Plans (AHIP), 79 percent of the HSAs sold in the first nine months of 2004 went to individuals, 18 percent to small groups, and a mere 3 percent to large groups. Still, according to a Watson Wyatt survey, relatively few people (29 percent) are familiar with HSAs, while 61 percent are not yet familiar with them.

Watson Wyatt’s Ted Chien says, “The whole concept of account-based plans is really catching on. The potential of HSAs to lower costs when combined with financial incentives to improve employee health and change health care purchasing behavior is too powerful to ignore.”

Source: http://www.benefitnews.com/pfv.cfm?id=7181

“Exceeding Expectations”

HSAs are even catching on in Vermont, which has little competition and a small population, according to the Times Argus.

An article by George Malek of the state chamber of commerce reported enrollment in the Blue Cross Blue Shield HSA has “exceeded the company’s expectations.” He adds, “The VACE-Cigna small business group began offering them January 1, 2005, and had a similar experience. More than 13 percent of participants in the program changed to the HSA-compliant policy.”

Source: http://www.timesargus.com/apps/pbcs.dll/article?AID=/20050310/NEWS/503100311/100

Encouraging Cash-Only Practice

World magazine celebrates the growing trend of physicians going to cash-only practices, in an article by Lynn Vincent. The article presents the move as a response to many trends, including rising professional liability costs, growth in the number of uninsured, rising administrative costs, and new forms of payment such as HSAs.

The article cites Dr. Daniel Cosgrove, who switched from a family PPO plan that cost $900/month to an HSA-qualified plan. He says, “Now for less than $5,000 a year, I can get catastrophic coverage and use the money I’m saving to cover the deductible or pay for preventive care.” The article also cites Dr. Robert Berry of Greeneville, Tennessee and Seattle-based SimpleCare as examples of the new era of cash-only physician practices.

Source: http://www.worldmag.com/displayarticle.cfm?id=10408

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