Ezra Klein: The Consumers Are Speaking

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June 12, 2007

The Consumers Are Speaking

The Wall Street Journal reports on a Kaiser study showing slow adoption and low satisfaction for consumer-directed health care plans. Growth between 2005 and 2006 was a mere 300,000 -- from 2.4 million to 2.7 million -- and much of that comes on the individual market, where there are few affordable options, or because employers force the change. "Where employees do have a choice," the Journal reports, "only 19% choose the newfangled plans." In the Federal Employee Healht benefits Program, where the plans have been available for years and word-of-mouth could be expected to popularize a cheap, useful new alternative, only 50,000 of the 8 million members have signed up for the free-market wonders. The consumers are directing their health care plans, and they're directing them away from health savings accounts.

Satisfaction is low, too. The employee-benefits firm Towers-Perrin recently did a survey of the plans, and while the exact numbers aren't included in the article, David Guilmette, managing director of Towers Perrin's health-care consulting practice, summed them up: "If I were a product manager in any other industry and saw scores this low in customer satisfaction and understanding, I'd be thinking of pulling that product from the shelves or retooling it."

The really scary finding is that only 29 percent of those with the plans actually report saving money for health expenses. The whole point of health savings accounts is that you can sock away money tax-free for health expenses. With that cash lying in wait, you enjoy the low premiums and have a ready storehouse if disaster strikes. But for the vast majority of families, that cash isn't in wait, and the reduced coverage and increased deductibles will hit with full force.

So employees aren't signing up, they don't like the plans when they do sign up, and they don't use them correctly when they're enrolled. Some policy innovation. Some fix.

June 12, 2007 in Consumer-Directed Health Care | Permalink

Comments

Ezra,

You write this as if you a) are surprised and b) expect it to mean a damn to the hardcore HSA proponents on the right? There is a significant subset on the right who have a free-market fetish. They simply know that, whatever the problem, simply dissolving regulations and opening up the market is the solution.

Now, that is not to say that a government-enabled, single-payer system is the solution. I don't have a symmetric leftist government fetish. But I'd be very interested in seeing a plan that puts single-payer out there as an option, such as Edwards'. See if it works, see if people like it. Let the government compete, on a level playing field, against private insurance co's, high-deductible HSA's, etc. Let the best plan win!

Posted by: David S | Jun 12, 2007 4:10:33 PM

I use it well. Just so long as you don't take it away from me or force me to pay into something else, we'll get along fine.

Posted by: Adam Herman | Jun 12, 2007 4:41:43 PM

Republicans/Conservatives/Libertarians: Health costs will come down when people have the ability to shop around and choose the best prices.

WSJ: One reason for the frustration is the uphill battle many consumers describe in trying to shop for their health care. Six years ago, Howard Katz, an industrial-design research consultant in rural eastern Pennsylvania, bought a family health plan with a savings account and a deductible that is now $5,650. But getting specific price information on which to base purchase decisions for MRIs, doctor visits and blood work has been difficult, he says.

Pop! Another GOP economic myth exploded.

My experience, when I ask an MD how much a test or procedure costs, is that they answer that they have no idea. The billing service applies varying rules depending on who is paying (which insurer, or the patient).

Posted by: JimPortlandOR | Jun 12, 2007 5:02:55 PM

The free market drones will simply say that is because they are not being used enough.

Things like facts and studies mean nothing to those idiots.

Posted by: eh | Jun 12, 2007 5:03:13 PM

The free market drones will simply say that is because they are not being used enough.

Translation: "True Capitalism hasn't been tried!"

The free market never fails people. People, you see, fail the free market.

Posted by: Tyro | Jun 12, 2007 5:35:18 PM

Of course, this is the same thing that people said about communism: it hadn't really been tried yet.

I would ask how many executives have health savings accounts instead of normal insurance. It seems to me that HSAs are primarily a scam to cut benefits to low-level employees, and if they were actually worth having, then the high-ranking executives would be demanding it for themselves.

Adam, you have to pay into a good many things whether you want to or not. I can't opt out of paying local school taxes if I don't have kids; you won't be able to opt out of paying for national health insurance just because you dislike it.

Posted by: Josh G. | Jun 12, 2007 6:32:38 PM

Well, this is what happens when you tell people that a tax shelter is actually health insurance.

It's like labeling a box of computer parts as "winter boots." Sure, the three guys who needed an additional hard drve are gonna be thrilled. But the barefoot folks with frostbite? Not so much.

Posted by: anonymous | Jun 12, 2007 7:23:48 PM

The reality is that if you are too busy trying to cover the already expected areas of savings such as retirement, mortgage and education- where are you suppose to find the extra money for this? And an extra bonus honest- there is no way that you can save enough in these accounts to matter in terms of actual care. So what's the point?

Posted by: akaison | Jun 12, 2007 7:40:51 PM

In my case, the reason that I'm not saving money after (involuntarily) switching from a PPO to a self-directed medical account is that prescriptions that used to cost $12 per month now cost $150 or more. Since my entire deductible is eaten up by only two prescription medicines, I can't save the non-existent excess money in my account.

Posted by: FS | Jun 12, 2007 11:38:24 PM

For consumers to save money on health expenses you really don't want to insure for every single expense. Insurance companies charge a fortune for this "full coverage" The HSA program is a good start. The key here is that a consumer/employee has some of their money in it.

Posted by: robert weisberg | Jun 13, 2007 7:52:27 AM

Ezra,

Here's the confusing thing.

You wrote in a prior thread that you're in favor of consumers paying first dollar for non-preventive care items. That system is essentially a modified version of CDHPs.

So, is it a great policy idea? Yeah.

Did Bush take something potentially good and implement it in the worst way possible? Yeah.

Let's focus on what's wrong with the current CDHPs (a lot) and how to fix them-- i.e. another Kaiser study came out yesterday showing maternity care cost more under CDHPs. Maternity care should be relatively free (at least pre-natal care and certain birthing options) in these plans, from a first-dollar perspective.

Posted by: wisewon | Jun 13, 2007 8:03:39 AM

that seems like a whole lot of contortion to get these plans to work

Posted by: akaison | Jun 13, 2007 8:17:12 AM

These HSAs are the ones where you put in pre-tax dollars, but if there's still money in your account at the end of the year, you lose it all, right?

I've never figured out why this would be much of a bargain. You're taking a big risk of being in a 100% tax bracket in order to save 15%, or 25%, or whatever. Friends of mine have lost thousands of dollars due to badly estimating how much they'd spend during the year.

Posted by: low-tech cyclist (formerly RT) | Jun 13, 2007 9:34:48 AM

Low-tech,

Those are FSAs (flexible spending accounts) not HSAs. HSA dollars rollover from one year to the next-- think of ti like a health IRA that you can withdraw for health expenses only.

Posted by: wisewon | Jun 13, 2007 9:55:20 AM

In my view, there's a pro-HSA take on these findings that is neither fetishism nor idiotic.

See here: http://www.cato-at-liberty.org/2007/06/12/wsj-consumers-having-a-tough-time-with-hsas/.

And more broadly, here: http://www.cato.org/pubs/pas/pa569.pdf.

Posted by: Michael F. Cannon | Jun 13, 2007 10:31:06 AM

Remember "micropayments"? This was supposed to be the big innovation of the web. Instead of paying a lot of money for content in a subscription-based model, we'd just pay tiny little micropayments. Say 10 cents for a web page here, 50 cents for a video, 75 cents for a newspaper article, etc.

It didn't work. Why? Because once consumers add in the extra cost of the time and effort involved in pondering the decision to buy, it becomes too expensive. Similarly, for HSAs, the reason they are by and large rejected is because once you start having to spend money on health care, it is no longer worthwhile to start thinking about each and every associated expense. People want to fix their health issue and know that if they have a future health issue, it will be taken care of. For almost everyone, a "flat rate" subscription is considered a preferable system to negotiating every last expense-- which insurance companies can do with much more leverage on their own.

The key here is that a consumer/employee has some of their money in it.

If I wanted to run an insurance company, that's what I would have done with my life. Just because it is effectively a "family-sized" insurance company doesn't make it any more interesting or worthwhile to me. I suspect most people outside of the insurance business feel the same way when it comes to whether or not to start and HSA.

Posted by: Tyro | Jun 13, 2007 11:00:33 AM

Tyro,

Interesting point. Here's the crux of the issue for me:

For almost everyone, a "flat rate" subscription is considered a preferable system to negotiating every last expense

I don't think this is true. The "flat rate" model whether its something like the current system or a single-payer, is projected to see rapidly escalating costs on a base that is increasingly already getting enough complaints about cost. A single-payer system may seem some short-term relief, but the problem still remains (i.e. the growth rate of other countries' health expenditures is approximately the same as ours, plux/minus depending on the specific country). In a flat-rate model-- the only solution is to start cutting out coverage-- again whether its a single-payer or something like our current system. In that context, patients may want to be a little more involved rather than letting some other group of individuals determine what is "essential" to cover, and what is not.

This does not need to require patients to negotiate every last expense-- there are ways of giving consumers more options-- i.e. tiering of services similar to a formulary, without getting completely into the nitty-gritty.

Posted by: wisewon | Jun 13, 2007 12:27:40 PM

This strikes me as an incremental solution for an industry that won't improve with just incremental changes. It's going to be tough for customers to shop around without price transparancy. And I doubt price transparency will come about without a large proportion of customers shopping around. A Catch-22!

Posted by: DM | Jun 13, 2007 2:04:45 PM

DM,

This is where regulation is needed. As I mentioned when Obama's health care plan was released-- his focus on transparency on pricing and quality is one of the best ideas on health care reform in a long time from a politician.

You're completely right-- this data (dollars and quality data) is definitely needed to make it work properly. If consumers did have this data along with a plan that incented them to choose the better doctors/hospitals/etc. that would be revolutionary, rather than incremental.

Posted by: wisewon | Jun 13, 2007 2:46:00 PM

I suffered through one such plan for the last year and a half at my previous job. The pitch was that you got a big slug of money (about $1500) up front that could roll over to next year's total if you didn't use it. The only problem was the $1500 gaping hole in coverage after that before 80/20 kicked in. That and premiums that made keeping a flex spending account of sufficient size to patch the Titanic impractical (the transition to craptastic insurance was accompanied by a steep premium increase). Six months later my son was diagnosed with an anuerysmal bone cyst. Fortunately the Surgery went well and he made a full recovery. Unfortunately about $4,000 of costs fell through the hole and the copay. I'm still trying to deal with the bill.

Posted by: Don | Jun 13, 2007 5:23:24 PM

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