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October 24, 2007

The Regressivity of Consumer Directed Health Care

This may not shock anybody, but a new paper from Health Affairs finds that consumer-driven care -- also known as the Republican Party's answer to universal health care -- "would probably widen socioeconomic disparities in care and redistribute wealth in 'reverse Robin Hood' fashion, from the working poor and middle classes to the well-off. Racial and ethnic disparities in care would also probably worsen."

The reasons for this are largely issues we've talked through in the past. Health Savings Accounts and their ilk are attractive to the healthy, unattractive to the sick, and thus worsen "risk segmentation" in the market. Without healthy individuals subsidizing sick folks, more sick folks will be priced out of care. It's possible that attracting health individuals would actually lead to a net increase in those with something called "coverage." But the losses would be concentrated among those who most need health insurance.

The paper also brings up a finding from the RAND health care experiment. Cost-sharing didn't affect the health outcomes of most participants. But among the poor, higher cost sharing resulted in "elevated death rates, worse control of hypertension, and other inferior health outcomes." We now know, though, that a large number of participants in the cost sharing plans dropped out when their health took a turn for the worse. Going by the rules of the experiment, upon dropping out, their insurance reverted back to its pre-RAND state. So those who dropped out, we can infer, had pretty good insurance, which probably means they were high-income. Low-income folks don't generally have good insurance, and so they stayed in -- and showed worse health outcomes. So we can both say, with some certainty, that consumer-driven care will result in worse outcomes for the low income, and suggest, with good reason, that that result is generalizable up the income scale.

I also want to highlight this argument about consumer-driven care and coordinated care, which I'll quote in full:

Especially in cases of complex and chronic illness, involving multiple specialties, coordination of clinical services is crucial to the pursuit of quality.28 Errors of omission and duplication, missed diagnoses, toxic treatment interactions, and failure to see the clinical "big picture" are among the pathologies that ensue from fragmentation of care. The least advantaged among us are especially vulnerable to this fragmentation, since they tend to be less able than others to negotiate complex organizational arrangements. Recent efforts to improve patient safety and clinical quality have prioritized systems approaches, including integration of diagnostic and therapeutic efforts for every patient. Such approaches promise both to improve the overall quality of care and to reduce disparities, by pushing health care systems toward best practices for all.

The consumer-directed model pushes back against this quality improvement strategy by calling on patients to plan their own care. Its cost-sharing requirements discourage patients from compliance with coordinated care based on best practices. This, in turn, discourages providers from developing the organizational arrangements and information infrastructure necessary to improve quality by coordinating care. The spread of this model would be problematic for all patients from a quality-of-care perspective but especially troubling for those least able to negotiate complex systems of care on their own.

That's a very important point. Chronic disease is a massive driver of cost growth, and all available evidence suggests that we need to respond by better coordinating care, incentivizing prevention, and encouraging routine treatment and adherence to therapies. Consumer-driven care does none of that, and in fact, fights against most of it. That chronic diseases are more common amongst the poor, who are least likely to use health savings account in the platonically optimal way, simply ensures that the worst impacts of consumer-driven care will come in the communities who can least afford the harm.

I'll also quote this bit on the regressivity of consumer-driven care:

The spread of the consumer-directed model is likely to redistribute money from the less advantaged to the prosperous in several ways. The most obvious is tax-deductibility of contributions to HSAs—transparently a greater benefit to higher-income Americans and thus a burden for the less well-off. Compounding this inequity is the greater ability of the well-off to contribute to these accounts in the first place. At times of health crisis, the less prosperous are more likely to exhaust their (smaller) balances entirely, and thus more likely to spend post-tax income on care that the well-off can cover with pre-tax dollars.

A less obvious "reverse Robin Hood" effect, not addressed in published criticisms of the consumer-directed model, arises from a feature that accounts for much of its cost-control potential. Outpatient diagnostic work-ups, which high cost sharing discourages, often trigger cascades of care (including hospitalization)—and spending that exceeds out-of-pocket maxima. Insurance then picks up the bill—more frequently for those who are able and willing to pay out of pocket for the triggering diagnostic work-up. Whether for worse or for better from a therapeutic perspective, those who are less able and willing to pay out of pocket, outside the hospital, receive less of the high-cost care that exceeds annual maxima and is therefore insured in full. These less prosperous policyholders thus tap the insurance pool to a lesser degree. Yet for employment-based coverage, at least, all who subscribe to a given plan pay equally into the pool. The result is a cross-subsidy from the less well-off to the more prosperous via premiums and pay-outs from high-deductible plans.

So the GOP's answer to the current health care system, where the healthy help subsidize the sick, is to encourage the poor to help subsidize the rich. That should play well.

October 24, 2007 in Consumer-Directed Health Care | Permalink

Comments

"We now know, though, that a large number of participants in the cost sharing plans dropped out when their health took a turn for the worse."

While this is only a small portion of a larger commentary, this line jumped out at me because it takes a giant step from what you posted previously on RAND, such as:

“The explanation that makes the most sense is that the dropouts were participants who had just been diagnosed with an illness that would require a costly hospital procedure”

Unless there’s some new bit of information I missed, this is one man’s speculation, not fact. Also, as noted in the comments on this site and others, the RAND study did try to take this into account.

Posted by: DM | Oct 24, 2007 11:55:18 AM

Check out this WaPo "fact check" feature where they asked the Romney and Giuliani campaigns to defend their positions on healthcare.

http://blog.washingtonpost.com/fact-checker/2007/10/hillary_care_and_socialized_me.html#comments

Romney's response is remarkable because they admit that given the choice between a gov't insurance plan and private insurance, "the reality of the marketplace is that everyone will end up in government-run coverage over time."

Giuliani's response is remarkable because he just made up the idea that health insurance costs "would be cut in more than half" if more individuals were responsible for buying their own insurance.

And the best postscript, telling you all you need to know about the WaPo's "fact checking" is that making up figures out of whole cloth is considered the lowest level of inaccuracy (described in part as "Some omissions and exaggerations, but no outright falsehoods.")

Posted by: Doh | Oct 24, 2007 12:16:32 PM

Another regressive aspect of 'consumer-directed' health care is the sheer incomprehensibility of it--illustrated, for example, by this SF Chronicle article about the brand-new (and unregulated) profession of 'health care advocates'. A whole profession has grown up as a consequence of the fact that the system is so mind-numbingly complex that you have to pay an expert if you want to have any hope of making the right choices.

Posted by: Tom Hilton | Oct 24, 2007 12:39:11 PM

...a new paper from Health Affairs...

You should use better references than a magazine directed at the Healthcare industry that, in every article I saw, assumes that the money just magically appears and never discusses how to finance their assessments and fixes. It's obviously very biased.

Unlimited government funding would be OK with them.

Posted by: El Viajero | Oct 24, 2007 12:58:33 PM

A whole profession has grown up as a consequence of the fact that the system is so mind-numbingly complex that you have to pay an expert if you want to have any hope of making the right choices.

You also must believe that law, taxation and real estate are also so burdensome in their complexity that you would like to trash those systems as well.

Posted by: El Viajero | Oct 24, 2007 1:04:34 PM

The desireability of coordinated care is also undercut by the tendency of health care providers to operate independent health care practices composed solely of narrow slices of the health care spectrum.

I experience (on the positive side) the advantages of coordination by receiving all my health care from an nationally-acclaimed academic health care center with a unified electronic recordkeeping system - and those advantages are present regardless of the degree of knowledge of the recipients. I really can't imagine how I'd manage if I had to search out individual specialists, each with their own records maintenance approach and ability/desire to communicate with each other.

Medicine is becoming hyper-specialized (like many professions) such that finding even a digestive systems specialist (internal organs and intestines) is way too broad a selector. Even specialists on things like the liver are sub-specialized by types of liver disorders - cancer is treated by different specialists than other disorders, for instance. This maze is really not negotiable by a non-medical person.

The push for an ideological solution (marketplace economics and individual purchasing analysis) to health care is so counter to reality that it can only be explained by ignorance, greed, and power-seeking adherence to fantasy ideology.

Posted by: JimPortlandOR | Oct 24, 2007 1:12:14 PM

Chronic disease is a massive driver of cost growth, and all available evidence suggests that we need to respond by better coordinating care, incentivizing prevention, and encouraging routine treatment and adherence to therapies.

Way back in the day, these were all arguments used to advance the "managed care" model and a system of gatekeepers (primary care doctors) to manage and coordinate care.

That worked out well.

As long as the system is fragmented, the care will remain fragmented.

Posted by: flory | Oct 24, 2007 1:15:40 PM

Ezra,

The author made my point much easier by explicitly saying it in the abstract.

These effects could be alleviated by adjustments to the consumer-directed paradigm. Possible fixes include more progressive tax subsidies, tiering of cost-sharing schemes to promote high-value care, and reduced cost sharing for the less well-off. These fixes, though, are unlikely to gain traction.

Here's my concern. The last time you posted on CDHC we went back and forth on what could be done with these plans generally, and you made the point that my points were not "part of the CDHC argument yet" so your criticisms still held.

http://ezraklein.typepad.com/blog/2007/07/how-do-hsas-rat.html#comments

Now you have an author explicitly saying that the issues he raised could be addressed, but notes they are unlikely to gain traction. The fact that you tee up the problems cited from an article and make no mention of potential solutions is disappointing. Further, it provides evidence for Bloche's point that it won't gain traction. Why? Because we don't have a nuanced, balanced debate on the issue. We have the right pushing a stripped-down, poorly conceived version of CDHC. We have the left, including yourself that seems more interested in proving Republicans as having no good ideas on health care, rather than taking an idea with flaws and improving upon them as the author did above.

You clearly aren't a fan of CDHC, so no expectation for you to become a cheerleader. But as a so-called health wonk, you do have some responsibility to provide a balanced view on the topics you cover for your readers. To not even mention potential solutions that an author spent half the abstract to explain, strikes me as biased. We don't get any further with health care reform if we can't learn from other's views.

Posted by: wisewon | Oct 24, 2007 1:34:37 PM

No, that's not true. We won't get any further on health care reform if wonks like me decide to pretend this is a platonic argument in which the Republicans may end up at my favored solution. It is not. It is a political argument, the policy they are advocating is a terrible policy that rewards their contributors, and it should be opposed, and defeated. When they sit down at the table and offer something better, I'll listen. When they sit on their podiums and call our plans socialized medicine, I won't.

Posted by: Ezra | Oct 24, 2007 1:38:02 PM

You're conflating things-- the politics and the concept. In the private sector, there are a lot of really bright people that spend their days thinking about how to make CDHC work. They aren't interested in plans that at the end of the day, will fail. In their eyes, CDHC is a work-in-progress with a lot needed to evolve in order to be successful. Republicans don't "own" CDHC as a concept, which seems to be the problem here.

If this blog is purely about health care politics, so be it. But if you are interested in discussing policy, there are some good ideas here. You can say again that you "can't take the politics out of politics"-- but if you never look at the policy ideas outside the context of politics, you can never frame the "ideal plan" that can that be adjusted for the politics. Its exactly what Rove's problem was-- there was never any consideration for the best policy outside the context of the politics. Its a marriage and balance of the two. I've never read a post here where you've examined the potential of CDHC without the political lens.

Posted by: wisewon | Oct 24, 2007 1:48:59 PM

If the issues raised can be address, is it that you just don't like how they're being addressed? Or, does the fact they can be address, in ways that may be acceptable to you, weaken your argument for your stated position and as such, you feel the need to hide them?

Posted by: DM | Oct 24, 2007 1:49:17 PM

It is a political argument, the policy they are advocating is a terrible policy that rewards their contributors, and it should be opposed, and defeated.

I guess my problem is that you're making a political argument dressed up as a policy post. If you're going to be linking from Health Affairs, and only choosing the data points from the article that support your political argument, it seems misleading to me.

The political argument could have been made all by itself without the linkage to Health Affairs. Cherry-picking data from an article from a respected journal gives the appearance that the article in fact supports your political argument, which actually isn't really accurate-- it says the the plans could work if modified. That doesn't sit right.

Posted by: wisewon | Oct 24, 2007 1:59:27 PM

I'll chime in to support Wisewon here... There are some meaningful reforms in CDHC--stuff like increased price transparency, better data reporting, etc., along with the notion that people can look more freely for doctors or care--are all positive concepts. There are also cost-savings issues: For example, insurers don't necessarily want to invest in preventive care that will save money ten years from now if they believe that another company will realize those savings. We need either a single payer (really, not realistic at the moment even though that would be my personal preference) or an individual payer with a long term investment to realize some of those savings (we also need much better communication and information, but let's set that aside for now.)

From my perspective, the biggest problem right now with CDHC is that it's essentially an excuse for employers to cut costs and dump low and middle income people into crappy health plans that are HSA eligible, but that don't necessarily include any HSA contributions. The effect, in many cases, is that people have high deductibles and not enough money to cover the costs, so they get less care. Rich people get to save more money tax free, and people who have nothing to invest, or who don't have the time and energy to navigate our maze of tax laws, get the shaft. All of this is very bad, obviously.

But as a practical matter, CDHC reforms do have a lot of potential--if coupled with some government subsidies and various other methods to make sure people can afford the care they are seeking. And I think Wisewon's point--or at least a point I'll make--is that health is too frightfully complex and too large a segment of the economy to get reformed without substantial compromise and heavy borrowing from health wonks of all stripes. On balance, my personal opinion is that democratic reforms are more solid and thoughtful, and that if one policy group got to ram through a plan, the left's version would be vastly more preferable. But that isn't going to happen. And the fact that, on balance, the left has better ideas doesn't mean that any conception of cdhc is totally bankrupt.

Posted by: brad | Oct 24, 2007 2:56:29 PM

Ezra writes,

We now know, though, that a large number of participants in the cost sharing plans dropped out when their health took a turn for the worse.

We do? How do we know that?

Did you see my comments on your previous RAND post?

Posted by: JasonR | Oct 24, 2007 3:06:13 PM

http://www.marginalrevolution.com/marginalrevolution/2007/10/rand-hits-back.html
RAND Hits Back
Joseph Newhouse and the other RAND researchers have responded to Nyman's paper arguing that attrition bias biased their results. The RAND researchers were aware of these issues and in fact designed the experiment to avoid incentives for non-random attrition. Most importantly, the basic RAND findings have now been replicated in many other studies (smaller and not always experiments but the results are solid). I call it a knockout for RAND

Posted by: Floccina | Oct 24, 2007 3:15:56 PM

Yeah, Ezra, you're a little behind the curve on that one: http://www.hcp.med.harvard.edu/files/Nyman_Response_10-24-07.pdf

Posted by: John Dope | Oct 24, 2007 3:33:09 PM

I think Ezra needs to read the rebuttal before he posts again on the Rand Study's shortcomings.

Posted by: richard | Oct 24, 2007 6:04:40 PM

When they sit down at the table and offer something better, I'll listen. When they sit on their podiums and call our plans socialized medicine, I won't.

[applauds]

'Eeew, France' is not a plan. Splitting the difference between any of the Dem candidates' plans and 'eeew, France' is not an option. The 'eeew, France' brigade are welcome to get serious about healthcare policy at any time they like, but they have chosen an unserious, unhealthy alternative.

wisewon: with all respect, you'll need to find someone with political power to ride your favoured horse.

Posted by: pseudonymous in nc | Oct 24, 2007 6:50:47 PM

The quotes from Health Affairs where written by someone that obviously never sold a policy and doesn't know the first thing about insurance in general.

If you are seriously ill you are better off under a high deductible plan. Almost every single HDHP caps OOP at a couple thousand for an individual. Most HMO plans sold do not have a maximum limit on co-pays you are responsible for over the course of a year. It doesn't take many hospital admissions with labs and bouncing between specialist to blow past a couple thousand. Throw in the fact Rx co-pays are unlimited and you can approach 5 figures. The individual with the HDHP stopped paying out of pocket at 2-3K.

The notion that quality and continuity of care differ is also completely false. Carrier X offers the HMO and the HDHP, the same disease management, UR, and health resource are available to both policy holders. The carrier is on the hook for large claims under wither policy, to think they would neglect one over the other is foolish.

Anyone knowledgeable in insurance knows the 80/20 rule or the 20/80, 20% of your employees will account for 80% of your claims. Conversely that means 80% of your employees will incur only 20% of your claims. Standard low deductible plans mean poor Johny who lives paycheck to paycheck is usually healthy but gets sick he either needs to pay $250 of deductible first or at least pay $20 co-pay and another $20 for Rx. That’s $40 Johny doesn’t have so he doesn’t go, bam blows into ammonia he dies family loses bread earner and all on the street. If only Johny had $40 he would be alive and working today. But what if Johny had a HDHP? Even a complete scrooge of an employer gives their employees a few hundred a year, so Johny would have had the money, could have gone to the Doctor and would still be alive today, why do Liberals want Johny dead so bad?

Contrary to every attack on CDHC I read poor employees are better off with CDHC because it gives them first dollar coverage they wouldn’t have otherwise. I know this because it is what I do every day all day. I have reams of data on actual employers and employees that have real plans and live real lives. Not studies compiled by someone that doesn’t know the first thing about insurance. CDHC allows poor employees to save money that otherwise would be sitting in an insurance company bank account.

The real irony is how liberals attack insurance companies for making these gross profits but along comes CDHC which takes those profits from the insurance companies and gives them to the employees and they attack those to. It just shows that Liberals won’t be satisfied with any insurance delivery system that doesn’t move these large sums of reserves to government control…to use in all of ur best interest I am sure.

Posted by: Nate O | Oct 24, 2007 11:09:55 PM

I'll chime in to support Wisewon here... There are some meaningful reforms in CDHC--stuff like increased price transparency, better data reporting, etc., along with the notion that people can look more freely for doctors or care--are all positive concepts. There are also cost-savings issues: For example, insurers don't necessarily want to invest in preventive care that will save money ten years from now if they believe that another company will realize those savings. We need either a single payer (really, not realistic at the moment even though that would be my personal preference) or an individual payer with a long term investment to realize some of those savings (we also need much better communication and information, but let's set that aside for now.)

This goes back to my comment that as long as the system is fragmented, the care will remain fragmented. The payer most likely to reap the benefits of any investment in preventive medicine is Medicare. Disease does tend to manifest in old age.
No private, especially for-profit, insurer is going to make an investment in systems of care that will ultimately benefit the taxpayers. Nor should they be expected to.
I'm not sure what an "individual payer with a long term investment" would be, but extending Medicare to everyone as an alternative to private insurance would be a great start.

Posted by: flory | Oct 25, 2007 12:58:17 PM

The only problem I have with this discussion is that it uses the term "consumer-driven health care" incorrectly. The term has been hijacked to mean something quite different than what was originally intended by Regina Herzlinger in her book "Who Killed Health Care?" in coining the term. In her plan, there was much more overhaul to the entire system than what the term has now come to mean. Deregulation of the industry is a huge aspect of true consumer-driven care that is often left off the table. As an example, say the current wait to get a non-emergent MRI at your local hospital is 4 weeks. Think the hospital should install another MRI suite to meet the demand? The hospital probably agrees, but in the current system, the hospital is required to get government permission to do so. WHY?? The providers need the freedom to build and structure the system to best meet the needs of their patient population. Does anyone disagree that the local hospitals and physicians know best the needs of their patient population? Currently, there is a massive government bureaucracy in place that providers must wade through in order to expand their services in any way. What does this add to the cost of health care?? Didn't anyone ever wonder why a hospital might build a brand new, multi-million dollar building yet not add any expanded capacity in the process? It is because the government has told them they cannot add capacity without government permission. What does it cost to provide the government with all the application paperwork, compile all the supporting data and compile it in a form the government will accept? All to be told, no, you can't expand capacity. I know this to be a fact. I once worked at a major university medical center in their Pediatric ICU. We spent months compiling the data showing where we were turning away specialty referrals due to lack of beds on the order of 500 turn-aways a year. That is more than one a day. All these were from community hospitals who did not offer the pediatric specialties to treat the child's medical condition (neurosurgery, cardiology, etc.). Because of our limited capacity, these children were required to either travel hundreds of miles further from home or not get treated at all. We had the staffing capacity, just did not have the physical bed capacity to care for them. This data seemed to show to anyone with common sense that granting us permission to add beds was a no-brainer. The answer from the government was a simple no. No explanation of why the answer was no. What would happen if we added beds anyway? Easy, we would have lost our certification to be a provider for medicaid/medicare patients. A kiss of death for any hospital. Why does the government exercise such control over the capacity of the system? Their answer is to control over-supply. Huh? And this is the government we want to give even more control of the system to?

Posted by: Marty G., RN-PICU | Oct 25, 2007 12:59:36 PM

I'm not sure what an "individual payer with a long term investment" would be, but extending Medicare to everyone as an alternative to private insurance would be a great start.

An individual payer would be anyone (an insurer, an individual) who would realize savings from putting money into preventive care. For example, someone wanted to fix his eyes: He could get LASIK done for a few thousand dollars... since LASIK is effective for two or three decades, its total cost is actually much less than seeing an optometrist every year ($100 or so), getting new contacts or glasses and so on (another few hundred dollars every year, depending on what you need.) But no insurer will pay for LASIK because it has lots of up front costs and there's little chance the insurer will ever realize the savings. The insurer pays more and someone else (the LASIK patient, another insurer) gets all the benefits. Hence, the patient is stuck wearing glasses and total costs go up.

You're right about the fragmentation being a huge cause of cost problems; I think just about every health policy person in the country agrees that we are far too fragmented. And I'd be happy, personally, to see everyone enrolled in something like medicare, but it is hopelessly unrealistic. The best you could hope for--and I think even this would be a challenge--would be for a rule that allowed people to buy into Medicare instead of private insurance.

One concept in CDHC is that as a consumer, if I have money to spend on LASIK, I'll do that and save in the long run... There's some truth to that idea, although proponents of CDHC vastly overstate it and are often too willing to place too much of a burden on people who don't have the time or desire to research every facet of their health care and don't have the money to pay for useful treatments.

That said, there are ways to couple some of the more thoughtful aspects of CDHC with other reforms. Even an individual mandate is, essentially, a fix based at least partially on some concepts from CDHC...

Posted by: brad | Oct 25, 2007 4:17:54 PM

The hospital probably agrees, but in the current system, the hospital is required to get government permission to do so.

That is a state dependent requirement. Certificate of Need regulations were done away with in most states 20 years ago.


The providers need the freedom to build and structure the system to best meet the needs of their patient population. Does anyone disagree that the local hospitals and physicians know best the needs of their patient population?

Yeah. I do. Left to themselves physicians, and many hospital managers, are gonna build the services that make them money -- like your new MRI -- especially if the docs get a piece of the action.

Leaving services that lose money -- ERs, primary care and OB being right at the top of the list -- to be provided by governement sponsored providers and the taxpayers.

This wouldn't be a problem in a government owned and operated system, but I'm guessing you don't really want to go there.


since LASIK is effective for two or three decades, its total cost is actually much less than seeing an optometrist every year ($100 or so), getting new contacts or glasses and so on (another few hundred dollars every year, depending on what you need.)

You must have one gold plated health plan if its paying more than $100/yr for vision care. And fewer and fewer plans even offer that.

The best you could hope for--and I think even this would be a challenge--would be for a rule that allowed people to buy into Medicare instead of private insurance.

And that would be a great start. Let individuals and businesses buy into Medicare. Get rid of Medicaid and CHIP, bring those people into Medicare, and subsidize those who can't afford it on their own.

It's all just more fragmentation.


Posted by: flory | Oct 25, 2007 11:00:27 PM

The hospital probably agrees, but in the current system, the hospital is required to get government permission to do so.

That is a state dependent requirement. Certificate of Need regulations were done away with in most states 20 years ago.

True, Certificate of Need regulations are rare now. However, they have been replaced with licensing regulations. A certain hospital might be licensed for, let's say 500 beds. If they want to add additional beds, they will need to apply to expand their license. This is the same as Certificate of Need, just under a different name/system. Of course, the politicians can claim "We did away with the Certificate of Need". What they don't say is "We now enforce the same principle through the licensing system".

Posted by: Marty G., RN-PICU | Oct 26, 2007 12:32:56 PM

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