In the Spirit of Change: Release Consumers in a True Healthcare Market
A quiet but effective trend is gaining momentum in healthcare: letting individuals make informed decisions about their health and healthcare spending. Companies, municipalities and individuals have discovered that switching to high-deductible health plans lowers premiums enough to fully fund a health savings account as well as increase salaries. Giving money to employees rather than third-party insurance carriers simply makes sense as belts tighten.
Besides its value as an additional savings account, funded Health Accounts also fuel important human motivations: get more value at a better price. As Milton Friedman taught us, when spending someone else’s money, our natural motive goes in one direction: spend more. Consumers with their own money demand more information, compare prices and choose based on quality. How much more do we consume when healthcare services are “free” through insurance compared to self-paid? The RAND experiment suggests 45 percent higher costs with virtually no measurable difference in health status.
Our own research, similar to findings from Dartmouth, indicates as much as 30 percent of medical spending is extra, with little marginal health benefit, and sometimes greater risk. Further, more moral hazard occurs in the most expensive five percent of cases. The “95/5” utilization maldistribution phenomenon (half spent on five percent of people, half spent on the other 95 percent) is extreme. Micro-economic analysis shows the top five percent consistently have over 20 doctors, 15 diagnoses, 15 different medications and many (50 or more) tests each year. Frequently, their care comes from an uncoordinated list of specialists, rarely from primary care doctors who are in short supply.
Such potentially dangerous, fragmented care occurs because of the incentives created by current insurance coverage. Usually these patients have exceeded their out-of-pocket insurance cost, after which care is “free” and utilization is subject to supply-induced demand. Current insurance designs and reimbursement promote more care, not better-managed care, while limiting patients’ role in decision-making.
With evidence that we waste one in every three dollars and expose patients to risks from over-utilization, one has to question plans to solve the cost problem by mandating greater access. Spending more on healthcare does not guarantee better health. Plus, each wasted dollar is one not being spent (opportunity cost) on wages, education, job training, housing, prevention or other services arguably crucial to health. While the top five percent get excess testing, treatment and procedures, the bottom 95 percent will pay for more expensive medical coverage they don’t use and receive fewer of the other services they need.
Common objections to health accounts include concern that uninformed consumers will sacrifice necessary services to save money, or are unable to make complex choices about price or quality. However, consumers have proven to be capable stewards of medical dollars and choices; health account holders are no less likely to practice appropriate prevention and health condition management than others. Also, once mindful of cost, consumers decide appropriately which visits can wait for an office visit, and which visits require immediate care with no harmful effects.
As an example of low-income consumers making healthcare decisions, consider the “Healthy Families Succeed” program in Wyoming, which has reduced costs for expensive Medicaid recipients by advocating consumer choice through a new clinical prevention information service. The program has also improved health status, increased employment rates and reduced the need for ongoing Medicaid. This occurred not through more insurance, but from coordinated support from a team of nurses, pharmacists and job training specialists focusing on life needs rather than more medical treatments. This year, Wyoming legislators will consider a bill to further align incentives by combining this effort with health accounts, evidence-based prevention and affordable high-deductible plans for the uninsured.
Hopefully, bipartisan efforts like Wyoming’s can reinforce the unique value of health accounts and consumer choice: driving market solutions while supporting partial government funding of health accounts for those exiting Medicaid and entering the commercial market.
Consumers with choices and purchasing power will produce efficient healthcare markets where innovation happens and sellers compete on price and quality. Freedom of choice and money to spend are powerful antidotes to inefficiency. Millions of consumers asking about price and quality, and demanding information about errors and success rates, create essential transparency and incentive to reduce costs and improve quality in healthcare.
It’s necessary to continue to offer affordable insurance for unanticipated catastrophes, fund health accounts that grow over time and provide support for the five percent making difficult health and medical care decisions, but the new administration shouldn’t mandate existing, expensive coverage for the other 95 percent until we fix the moral-hazard-laden cost problem.
Dr. Harold “Hank” Gardner and Wendy D. Lynch, Ph.D., are the authors of Aligning Incentives, Information, and Choice: How to Optimize Heath and Human Capital Performance. In addition to practicing general internal medicine and primary care, Dr. Gardner has contributed to the development and implementation of improved health promotion, preventive medicine services, education for health professionals and healthcare policy for the last 35 years. Wendy D. Lynch, Ph.D. has led a successful 20-year career as an educator, researcher and consultant in the world of healthcare management. Along with HCMS Group, Dr. Gardner and Lynch are passionate about finding ways to make business and healthcare efficient and effective.