“Consumer driven healthcare” plans were introduced in the USA in 2001. The idea was simple enough. Here’s how Republican Presidential hopeful Ben Carson described it:
In order to right the ship, we need to return the responsibility for good health care to the patient and the health care provider. One of the best ways to do this is through health savings accounts, which patients can control.
Republicans see this principle of patient responsibility as particularly important, because they mostly believe in an economic theory called moral hazard. Here’s Timothy Noah explaining it in a Slate article:
The theory that artificially lowering the price of any commodity leads to its overconsumption is called “moral hazard.” In health insurance, the principal method for limiting moral hazard is to require consumers to pay a fee, or “copayment,” every time they go to the doctor.
Unfortunately, increasing copayments also tends to make people less likely to go to the doctor. That, in turn, means that minor medical issues don’t get diagnosed or treated until they have become major problems. At that point, they’re often much more expensive to treat — or in some cases, impossible to cure, becoming chronic problems. Noah cites a study which concluded that increasing copayments would cut spending on outpatient visits by $1,200, bring in $5,950 in extra copayments — and in the long term, increase spending by $24,000. (All figures per 100 health plan participants.)
This is why my healthcare plan has a zero copay for routine checkups and routine preventative care. My employer wants me to get a checkup any time I feel there might be something wrong, because that’s the surest way to save money in the long term. They want me to get a flu shot, because it’s better than having me off work with the flu.
So high deductible patient-driven healthcare clearly has a few problems when it comes to cost/benefit analysis. But in spite of the problems, the Affordable Care Act’s new health insurance plans generally have not just high copayments, but high deductibles as well — so typically, you aren’t able to claim at all until you have paid for over a thousand dollars of medical treatment.
Again, the theory is simple enough: If people have to pay for the first thousand dollars of their healthcare each year, they won’t demand any unnecessary healthcare. Furthermore, they’ll be more inclined to shop around for cheaper providers, and choose more cost-efficient procedures. The free market will force down costs. Simple and obvious, right?
John Stossel, Fox News pundit, put it like this:
[…] insurance is a terrible way to pay for things. It burdens us with paperwork, invites cheating and, worst of all, creates a moral hazard that distorts incentives. It raises costs by insulating consumers from medicine’s real prices.
Suppose you had grocery insurance. With your employer paying 80 percent of the bill, you would fill the cart with lobster and filet mignon. Everything would cost more because supermarkets would stop running sales. Why should they, when their customers barely care about the price?
Aaron Carroll, a Professor at the IU Center for Health Policy and Professionalism Research, points out the stupidity of that argument:
That supermarket example isn’t even remotely comparable. If I made colonoscopies free tomorrow, no one would start picking them up by the dozen. If I declared no one would ever have to pay for chemotherapy again, you wouldn’t ask for extra. If surgeons refused to accept payment for appendectomies anymore, would anyone go and get one just for the hell of it? We have a hard enough time getting people to do the things we want them to do to be healthy without having to expose them to more hardship to get them.
When Obamacare’s high deductibles started to affect people, Republicans briefly feigned outrage at their own ideas, but high deductible insurance has remained the Republican answer to how to deal with America’s rising healthcare costs, usually in combination with a tax-free healthcare savings account. It’s still Jeb Bush’s plan, for example.
But as USA Today published in January, corporations are also pushing employees towards high deductible plans:
[…] a Mercer study showed that 2014 saw the largest one-year increase in enrollment in “high-deductible plans” — from 18% to 23% of all covered employees.
Meanwhile the size of the average deductible more than doubled in eight years, from $584 to $1,217 for individual coverage.
That’s not to say that high deductibles aren’t encouraging people to be mindful of healthcare costs, though. Far from it:
Patients often do a sort of medical and financial triage when they get sick. Jacobs, a former college professor, says every time a doctor suggests a new test, procedure or medication for her severe arthritis, she asks herself: ” ‘Is it critical?’ You’re always playing the odds. … And I’m constantly asking my doctor: Can I stop taking this medication?”
When her shoulder started hurting a couple of years ago, she had an X-ray but put off the recommended MRI for two years. It worsened, and she couldn’t move her arm without pain or lift her right hand above her head. She finally got that surgery in October but is now forgoing a shoulder procedure, opting for less expensive physical therapy and planning to “tough out the pain.”
As Aaron Carroll summarizes:
Yes, if we make it more expensive to seek care, if we demand more “skin in the game”, if we remove the moral hazard, people will seek less care. That’s fine for healthy people; it’s terrible for those who are ill.
But it’s worse than that. There’s a newly-published study which looked at the impact of high deductibles introduced at a large self-insured firm. Sarah Kliff on Vox summarizes:
Economists Zarek Brot-Goldberg, Amitabh Chandra, Benjamin Handel, and Jonathan Kolstad studied a firm that, in 2013, shifted tens of thousands of workers into high-deductible insurance plans. This was a perfect moment to look at how their patterns of care changed — whether they did, in fact, use the new shopping tools their employer gave them to compare prices.
Turns out they didn’t. The new paper shows that when faced with a higher deductible, patients did not price shop for a better deal. Instead, both healthy and sick patients simply used way less health care.
Another failure of the free market. People did, indeed, look at prices — but only to decide whether to deny themselves care or not.
There’s a basic problem here: healthcare is a terrible match for free market economics, for a number of reasons which I’d think would be pretty obvious, but apparently not, so here we go:
People who need healthcare do not want to go shopping. When I had a kidney stone and suddenly found myself in agonizing pain on the floor of the office restroom, I didn’t give a damn whether MGH was an expensive hospital or not. It was the closest, so it won.
Healthcare professionals are not fungible. It took me years to find a dentist I was completely happy with, and I am absolutely not going to switch to a different dentist even if they offer a procedure at 20% lower cost.
Patients are not free agents. For a true free market to apply, participants have to be able to simply walk away if they don’t like the deal(s) on offer. That’s generally not the case for healthcare, particularly not if (like me) you have chronic conditions to deal with.
There’s a major information imbalance. When the doctor makes a diagnosis and a recommendation, the average patient simply cannot tell whether the doctor is correct or not. Theoretically patients could get second opinions, but that’s expensive, and in practice not something people do. Even for elective surgery, only 30% of patients seek a second opinion, and 18% of those are required to by their insurers.
As Martin Shkreli demonstrated, the drug market is far from a free market, even for generic drugs whose patent protection has expired. As with many other goods (Internet service, water and waste services), there are major cost barriers to competition.
People are really bad at making decisions that are in their long term interest. For example they drink soda, fail to exercise, and end up with diabetes that needs expensive treatment for the rest of their lives.