The Key to Reforming U.S. Health Care: Put Patients in Charge

Published August 1, 2005

Review of Consumer Driven Health Care
by Roger D. Blackwell, Ph.D., and Thomas E. Williams, M.D., Ph.D., with Alan A. Ayers, MSA MAcc, foreword by Bernadine Healy, M.D.
Book Publishing Associates, 2005
$17.95 paper, 208 pages, ISBN 0976744902

The annual cost to cover a family in an employer-sponsored family health plan is about $10,000 and rising, forcing many employers to shift greater responsibility to their workers. That trend will ultimately transform the U.S. health care system, according to a new book by the well-known Ohio State University marketing professor Robert Blackwell and his co-authors.

Consumer Driven Health Care: How a Health Savings Account May Save Your Job and Solve America’s “Two Trillion Dollar Crisis” predicts a fundamental shift in the way Americans interact with institutional health care. Blackwell’s prescription for the U.S. health care system is a market-based solution: Consumer-driven health care.

HSAs Create Incentives

One of the book’s recurring themes is that incentives matter. The authors say incentives will increasingly empower consumers by encouraging responsibility through choice and control. Patients need incentives to be wise consumers of medical services.

Consumer-driven health plans, such as health savings accounts (HSAs), provide this incentive by having patients pay incidental medical bills from their HSA. Consequently, patients with HSAs have an incentive to conserve health care dollars the way they safeguard their own money.

While most experts now agree that third-party payment of medical bills increases consumption of medical services and boosts health care spending, less obvious is the loss of patient autonomy that occurs when third parties make decisions with respect to how health dollars are spent. Third parties will always ration care by spending only on disease, rather than investing in disease prevention.

With the right incentives, the authors note, Americans will increasingly focus on preventing diseases instead of waiting until conditions become costly to treat. This means consumers who maintain better health should benefit economically. Under the current system, in order to “win” the health insurance lottery, you must become sick.

Incentives Transform Providers

Incentives also matter for providers, the book argues. Transforming health care institutions requires that they become patient-centered.

This happens when consumers control the dollars health care providers receive. When patients have more choice and control over their health care dollars, health care institutions have to provide medical products and services consumers want at competitive prices or go out of business.

Sounds impossible? Consumer Driven Health Care predicts Americans will take back control of their health from a system dominated by third parties more concerned with “sick care” than a medical marketplace serving patients’ needs. According to Blackwell and his coauthors, consumerism can revolutionize health care the same way it changed the distribution of other goods and services.

Singapore Model Impresses

Singapore is an example of a patient-centered health care system. A recent report by Canadian health economist Cynthia Ramsay, explored in Blackwell’s book, found Singapore has the best health care system in the world.

Workers in Singapore are required to save about 6 to 8 percent of their income in Medisave accounts (similar to HSAs). Consequently, the Singapore government avoids the type of “free care” provided to low-income people in the United States. Instead, it uses a system of varying co-payments for low-income people to pay for medical services.

Although the government subsidizes some of the cost of services provided to low-income people, all citizens have financial incentives to conserve resources. According to Blackwell, “when consumers are in control, they evaluate their options and choose the lowest cost, most efficient providers.”

Advantages Abound

The results have been rather impressive:

  • In Singapore, 55 percent of surgeries are performed in less expensive outpatient clinics, whereas 87 percent of surgeries in the United States are performed in hospitals;
  • Surgeries performed in hospitals cost more than the same surgery performed in an outpatient clinic; thus, only serious procedures requiring a hospital stay are performed in hospitals;
  • When patients do enter hospitals in Singapore, they tend to have shorter stays; for instance, the average length of stay is 4.8 days in Singapore compared to 6.2 days in the United States; and
  • Hospitals in Singapore have an occupancy rate of 74 percent, versus 64 percent in the United States, indicating the former operate more efficiently,

People who take care of themselves and practice disease prevention also benefit from lower costs and better health. Overall, Singapore spends only 3.9 percent of gross domestic product on its health care system–about one-fourth the share spent by the United States.

“Medical Tourism” Growing

Examples of free-market medicine can be found in other areas as well. A new concept known as “medical tourism” gives patients the option of treating expensive conditions in low-cost, high-quality health centers located in parts of the world where prices are significantly lower.

Patients who opt for this type of “medical outsourcing” often find they can pay for surgical procedures, airfare, and lodging abroad (often in luxurious facilities located in scenic tourist destinations) and still spend only a fraction of what the procedure would cost in the United States, notes Blackwell.

In addition, not all medical consultations require an in-person visit, the book notes. Some of these (reading radiology scans or interpreting lab results) can be outsourced to countries such as India, where quality is high but costs are lower. Consumers purchasing medical services with an HSA might opt to make this tradeoff.

It is clear that as health insurance premiums rise, workers will be forced to take greater responsibility for their health care decisions. This will transform the U.S. health care system as patients who control more of their health care dollars demand value for their money. The result will be a patient-centered health care system that offers high-quality medical services at a price Americans can afford.

Devon M. Herrick, Ph.D. ([email protected]) is a health economist and senior fellow of the National Center for Policy Analysis.