When you ask free-market conservatives to describe their vision for the American health-care system, they’re likely to point to a world in which most people rely on a combination of high-deductible insurance and health savings accounts. Such a health-care composite, these conservatives might argue, would cover all ailments, with the former covering unforeseen emergencies like cancer or a car accident, and the latter being applied to the routine, predictable care that most people require. Advocates of this type of system believe that if health-care consumers had more “skin in the game,” in the form of their own personal money on the line, they would be more likely to self-ration unneeded care, or to shop around for better-value, lower-cost care. The free market, in turn, would respond by providing consumers with better health care, at a lower price. Conservatives disagree about whether the government should play a role in subsidizing coverage for low-income people, but this vision is, as conservative columnist Ross Douthat wrote recently for the New York Times, the closest thing the Republican party has to a grand plan for the American health-care system.
Later this week, the House may (or may not) vote on the American Health Care Act, its beleaguered replacement for the Affordable Care Act. The bill is pretty unpopular — everyone from moderate politicians to ultra-conservative politicians to the AARP to doctors and hospitals have expressed concerns about it — but the group that currently seems to have the most power to sink the legislation in the House are the conservatives who believe it doesn’t go far enough to reverse the ACA and shift the country in the direction of that free-market health-care vision. Tea Party politicians and conservative think tanks have described the AHCA as “Obamacare-lite.” Avik Roypoints out that one of the manager’s amendments to the bill proposed earlier this week effectively eliminates a measure meant to encourage consumer-driven cost control. Ted Cruz has cited the bill’s failures to reduce premiums as the primary reason for his opposition. Douthat, meanwhile, suggested in his column that turning the United States into Singapore would be more in line with the conservative vision for health care than the “jerry-built, incoherent thing that Paul Ryan is struggling to maneuver through the House.”
All this debate raises some interesting questions: Are conservatives on the right track? If this conservative, free-market vision for health-care reform actually came to pass, would it work? Can empowered, incentivized patients actually drive health-care savings, and improvements in quality in this country?
The most commonly cited criticism of this kind of system is that it disadvantages low-income people without the means to deposit money in an HSA, but several conservative plans floated before the introduction of the AHCA addressed this by subsidizing HSAs for people below a certain income level. The compromise bill proposed by Senators Susan Collins and Bill Cassidy in January, for example, allowed liberal states to essentially keep the ACA, while others could choose to receive federal funding for a “market-based alternative” consisting of a high-deductible plan and a subsidized HSA; states would have been permitted to auto-enroll people into this second option.
Likewise, Avik Roy’s Transcending Obamacare replacement bill would allow (although not require) consumers to move in that direction as well, providing government assistance to low-income families that could be used to subsidize both health-care premiums and health savings accounts.
“Someone has to change the nature of how care is coordinated and the nature of treatment regimens for different conditions.”
From a theoretical standpoint, this vision for health-care reform is not a crazy one. There are many reasons the U.S. spends more on health care than other developed countries without delivering measurably better outcomes. One of those reasons, according to experts across the political spectrum, is the perverse incentive structures embedded in our health-care system. Under traditionally generous employer-provided health insurance, individual patients and their doctors have no incentive to ration care by, for example, choosing to delay a more invasive or more expensive test in favor of a cheaper test or a wait-and-see approach (in fact, doctors are often rewarded for providing more services). Nor do doctors and patients have much of an incentive to shop around for better prices, and most of the time neither the patient nor doctor even knows the true cost of, say, an additional lab test that’s perhaps not medically necessary. Meanwhile, the parties that do have a financial incentive to control health-care spending — insurers and employers — are often far removed from medical decision-making. Nudging people to take financial responsibility for their own care, conservatives argue, might help reverse some of those incentives.
And, in fact, there’s reason to believe that people in high-deductible health plans (HDHPs) and consumer-driven health plans (CDHPs), which combine a HDHP with a savings account, do indeed spend less money on health care. In a paper published in the American Journal of Managed Care back in 2011, team of researchers affiliated with RAND, a think tank that analyzes policies and programs, found that families who enrolled in these plans for the first time spent 14 percent less than families on traditional insurance plans. The researchers also found that the cost savings for employers persisted even when they made small contributions to medical savings accounts, and for at least the first three years of coverage. Likewise, a study by Paul Fronstin of the Employee Benefits Research Institute and M. Christopher Roebuck of RxEconomics looked at what happened after a large company in the Midwest transitioned all of its employees to a CDHP.
“Results show that spending was reduced significantly in the inaugural year of the HSA plan in medical, pharmacy, and total-claims categories,” the authors wrote. “Further, the magnitude of the cost savings was greatest in this first year but the cost savings continued over the succeeding three years, albeit at a slower pace.”
So what’s the catch?
The researchers who study these plans aren’t really sure whether patients are making smart, informed health-care spending decisions, or just avoiding the doctor’s office altogether (a decision that might drive up costs down the road). There’s some evidence to suggest it’s the latter: The RAND-affiliated researchers found that enrollees in HDHPs and CDHPs were forgoing high-value, recommended preventative care (like cancer screenings and childhood immunizations), even though those services were covered under their plans. In their research, Fronstin and Roebuck found similar declines in preventative care, as well as higher short-term rates of emergency room visits and inpatient hospital admissions among low-income workers in HSA-eligible plans.
“People definitely cut back on their use of services,” Fronstin tells Pacific Standard. “But are they shopping or just cutting back? The concern is that they’re cutting back on non-discretionary services, things they should not be cutting back on.”
In an effort to better understand what drives cost-savings in these types of plans — avoidance of the doctor or savvy medical decision-making — RAND researchers examined both the number of episodes of care patients received and the cost per episode of care. They found that the majority (two-thirds) of the cost savings they observed was driven by a decline in the number of episodes of care patients underwent each year; the remaining one-third of cost savings was driven by lower spending on each episode of care.
“The biggest patient action is just the patient saying, ‘Well, I’m not trying to get any care.’ Versus them getting into the system, and having the discussions advocating for themselves. And maybe [our finding on] the lower cost per episode is great news if people are in there talking with doctors and moving toward being really informed consumers,” says Amelia Haviland, a professor of statistics and public policy at Carnegie Mellon University and an author on the RAND study. “Or maybe they’re non-complaint. And we don’t have full answers to those questions. So the potential risks are still potential risks. Nobody’s been able to say they aren’t.”
There’s also no evidence to suggest that patients in these plans are out in the marketplace “shopping around” and driving a health-care pricing revolution. In a related paper, Haviland and her colleagues analyzed the prices paid by consumers in CDHP and traditional health plans across nine different medial services. They found that, for “eight out of nine services analyzed, prices paid by CDHP and traditional plan enrollees did not differ significantly; CDHP enrollees paid 2.3% less for office visits.”
When asked for her thoughts on the calls for the U.S. to transition to a system like this, Haviland says such a transition would need to be accompanied by other changes meant to help patients. By and large, for example, patients don’t really understand their health insurance — they don’t know what their deductible is, they don’t know what preventative services are covered, and what services are subject to a deductible or cost-sharing. Insurers, the government, and doctors could do a better job of educating people about both their insurance plans, and about the kind of care that’s truly necessary. And while efforts at price transparency have largely failed to produce cost savings so far, they could be expanded and reformed to make it easier for incentivized patients to shop around.
“It puts a greater burden on whoever is trying to deal with the insurance,” Haviland says. “[It] puts this problem of health-care spending on the patient and tells them to figure it out, even though the information is not available to them. If we’re going to do that, we need to take an active role in making that information more accessible to patients.”
None of the challenges posed by the research of Haviland and others means that the U.S. shouldn’t consider experimenting with consumer-driven plans, especially given just how much money we spend on unnecessary health care and just how large the savings associated with a large-scale transition to consumer-directed health plans in this country is. In one paper, Haviland and her colleagues estimated that, if the market share of consumer-directed health insurance plans grew to 50 percent of employer-sponsored insurance, annual health-care spending could decline by $57 billion.
Indeed, one of the most intriguing arguments I saw in favor of the Collins-Cassidy plan proposed earlier this year was that it would allow conservatives to finally test this philosophy on a large scale. “It encourages governors and legislators to actually put the conservative theory of health care to the test without simply reversing the ideological colors of the great Obamacare experiment and immediately turning the entire U.S. health-care system over to the right’s technocratic vision,” Douthat wrote back in January.
There is, however, one enormous limitation on the potential cost savings health insurance plans like this can produce. In the U.S., 10 percent of patients account for 70 percent of overall health-care spending. And, for patients like that, high deductibles don’t provide a very powerful incentive.
“High-deductible plans provide a disincentive to be hospitalized,” says Paul Ginsburg, a professor at the University of Southern California and the director of the Center for Health Policy at the Brookings Institution. “But once you’re going to be hospitalized, it doesn’t really matter where you go, because you’ll have exceeded your deductible and gotten to your out-of-pocket maximum. Some of these really expensive drugs … they’ll get people to their deductible in one cancer treatment.”
Ginsburg, as well as most of the experts I spoke with, suggested that truly revolutionary change is more likely to come from providers and insurers, not patients.
“Someone has to change the nature of how care is coordinated and the nature of treatment regimens for different conditions,” Ginsburg says. “Certainly consumers with incentives are going to drive down spending, but it’s hard to think it’s going to be the main driver.”
Patients and the free market, in other words, can’t save the American health-care system all on their own.
