Consumer Choice Matters: Absolutely the Next Big Thing

Published April 1, 2005

In a January 31 Los Angeles Times article, Ricardo Alonso-Zaldivar wrote the Bush administration wants to “move the nation away from the system of employer-provided health insurance … [and toward] a system in which workers … would take personal responsibility for protecting themselves and their families.” The article quotes Newt Gingrich as saying, “My view is that this is absolutely the next big thing. You are going to see a continued move to trying to get people involved in the process by owning their own health accounts.”

Health Savings Accounts (HSAs) are certainly the centerpiece of the effort, but many other issues come into play, such as portability and cost containment. Not everyone is sanguine about the proposed new direction, of course. Rep. Pete Stark (D-CA) says in the Times article, “Healthcare isn’t like buying a Chevrolet,” and he objects to the lack of consumer-friendly information. A Commonwealth Fund report is cited, claiming people with high deductibles are “more likely to have trouble paying medical bills than those in traditional insurance plans.”

The Galen Institute’s Grace-Marie Turner is quoted as reassuring the hysterics: “We are not trying to do one big change for the whole country, all at once. … We want to let people choose this if it meets their needs, and not rip out the underpinnings of the current system.”

But even supporters of consumer-driven health care tend to agree with Stark that an information revolution is needed. The Times article notes Senate Majority Leader Bill Frist (R-TN) is pushing for exactly such a transformation.

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“Fundamental Reorientation Is Underway”

Writers Paul Mango and Vivian Riefberg report in the January issue of the McKinsey Quarterly, “A remedy [to double-digit health insurance premium increases] might be emerging in the form of consumer-driven health plans. … Early results suggest that these plans could slow the rise in costs by lowering demand and prompt hospitals and other medical professionals to improve the quality of care.”

They caution success will depend on how well the plans address chronic diseases. The article says neither payers nor providers have “explicitly realized how drastic the effect on [their] business systems will probably be.” Providers, for instance, “will have to learn how to compete on the basis of value in a more transparent marketplace requiring a greater focus on clinical quality, service, responsiveness, and productivity.”

Most interesting is what the article cites as the reason for rising health care costs. It says they are “a result of three basic problems: third-party payers that insulate consumers from the financial implications of their health care choices, a lack of transparency in the quality of care and in the prices providers charge, and a reimbursement system that rewards activity over outcomes.”

The article goes on to suggest detailed strategic approaches for both providers and payers for surviving and prospering in this new environment. It concludes, “Whatever the take-up of consumer-driven health plans, a fundamental reorientation of the health care business toward the consumer is already under way.”


“Mandatory Health Insurance Now!”

A thoughtful libertarian commentary comes from Ronald Bailey, the respected science correspondent of Reason magazine. He gets all his facts right, but comes to the conclusion that it is time for “Mandatory Health Insurance Now!” He thinks mandatory coverage is a safeguard against a single-payer system and argues such a mandate will “keep medicine private and consumer-driven.”

Bailey is critical of employer-based, first-dollar coverage and the resultant high costs and questionable quality, and he cites some public opinion surveys that show health care is a major issue for the public, even to the point of supporting a government guarantee of coverage. Bailey endorses a proposal by the New America Foundation that would require every American to purchase at least a high-deductible health plan.

The problem is that once you have enacted the policies that make mandatory coverage possible, you also have made it unnecessary. That is, providing the subsidies and access guarantees so that everyone is able to comply with the mandate means very few people will not voluntarily gain coverage–so why bother with a mandate? Sure, there may continue to be a few hard cases who absolutely refuse to have health insurance coverage, but that is hardly a grave national crisis.

Even today, Bailey acknowledges, uncompensated care amounts to a mere $34.5 billion out of a total health care economy of $1.7 trillion. At 2 percent of the total, it is a trivial portion by any measure. The amount would be much smaller if the proper subsidies were installed, and the downside of a mandate would be enormous (think “enforcement”).


Business Insurance Looks at Consumer-Driven Care

The February 7 issue of Business Insurance includes an entire section devoted to consumer-driven health care, with articles that get into the real machinery that make the wheels go ’round.

It starts with an article by Jerry Geisel about the conversion to consumer-driven health care by Whole Foods and its chairman, John Mackey. According to the article, “Mr. Mackey is an enthusiastic proponent of the CDHP [consumer-driven health plan] approach, whether it is based on an HRA [health reimbursement account] or its cousin, a health savings account” (HSA). At a recent speech to the World Health Care Congress, “Mr. Mackey said employers have revealed their ‘incompetence’ in the health care arena, referring to their inability to keep health care costs under control.”

The article also cites John Goodman, president of the National Center for Policy Analysis, as saying widespread adoption of consumer-driven plans will create cost-consciousness among providers and patients. “If you control the money, the system will work better for you,” Goodman says. On the other hand, The Brookings Institution’s Henry Aaron “questioned if exposing individuals to more health care costs will over the long run slow down cost increases.”

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Employees Are “Starting to Be Engaged”

Judy Greenwald also weighs in with an article, “HSAs Help Ease Transition to Consumer-Directed Care.” She cites the Neenah, Wisconsin-based Plexus Corp. as reporting there was “kicking and screaming” when it moved to a consumer-directed health program two years ago.

But benefits manager Sarah Novak says the company earlier this year introduced an HSA with a high deductible, and “employees … are coming to her with reports of where they can get lower-priced prescription drugs. They are ‘starting to be engaged, starting to look at the cost of health care, which I think is really key.'” Rob Corrigan of First Health Group is quoted as concluding, “the higher the turnover in the company, the more likely they are to lean towards an HRA.”

But Ray Herschman of Mercer says HSAs “are beginning to surpass HRAs.” He said, “The amount of commitment to move forward with HSAs is well beyond what we saw for HRAs, and part of it is because HRAs really did help people get familiar with the concept of an account-based plan.”

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