Consumer-Directed Health Care’s Naive Dreams (and a Real Alternative)

According to Stephanie Saul, trying economic times are leading more and more sick people to dilute or skip their normal regimens of prescription drugs. For those who think that “cost control” and “consumer choice” should come before access to care in health policy, that should be a good thing. Finally, the recession is putting a budget constraint on out-of-control health spending. Gotta break a few eggs to make an omelette, right?

Unfortunately for consumer-directed health care advocates, this tough-minded realism fails even on its own terms. As Saul notes, “If enough people try to save money by forgoing drugs, controllable conditions could escalate into major medical problems.” Jerry Avorn found exactly such an effect in his study of New Hampshire’s clumsy efforts to ration drugs due to budget cuts. Forcing patients to choose between meds and meals also ignores a basic aspect of the economics of most drugs: they are produced at near-zero marginal cost. Yes, the patent-holder should receive compensation for innovation. But you can’t squeeze blood from a stone, and any market for medicine worth having would rapidly move to a humane policy of price discrimination that avoided wiping out patients’ chance at a decent standard of living. If prescription drug assistance (PDA) plans aren’t working, or involve paperwork overwhelming to your average chronically ill/aged/frail person, it’s time for regulation to make that a reality.

Sadly, the larger intellectual movement of consumer-directed health care is slowly eating away at the solidaristic commitments that underlie such intervention. A great L.A. Times series explains how.


Michael A. Hiltzick reports on what is essentially an oxymoron: health insurers are increasingly trying to avoid “medical risk.” One would think the very purpose of a health insurer would be to help spread risk among individuals over time and circumstance–letting the young subsidize the old, the rich subsidize the poor, and the healthy subsidize the sick. Instead it looks like these new insurer-bankers are offering a whole new form of assurance–that an individual who saves, say, a few thousand bucks a year in a health savings account can watch that amount grow exponentially to cover all their health expenses. I mean, just look how great the stock market has been doing!:

Insurers are moving away from their traditional role of pooling health risks and are reinventing themselves as money managers — providers of financial vehicles through which consumers pay for their own healthcare. . . . “This is a turning point,” said Jacob Hacker, a professor of political science at UC Berkeley who has written extensively on healthcare reform. “It’s a fundamental shift away from the idea of broadly shared risk. It’s going to lead to a complete transformation of the health insurer, which will be increasingly focused on providing management of money.”

* * *

HSAs and their related health insurance policies, which carry high deductibles and offer bare-bones coverage, are particularly beneficial to healthier, younger and wealthier customers. If these customers abandon the conventional insurance market, they will trap those with chronic or serious conditions in a shrinking, high-cost insurance pool. “Eventually it will be harder and harder to find individual policies that aren’t high-deductible plans,” said Timothy S. Jost, a law professor at Washington and Lee University in Lexington, Va., and a critic of health savings accounts. “Those plans are great if you’re healthy. Other people will find that they have access to health insurance but not healthcare.”

The dream of CDHC here is that “empowered consumers” will drive down prices by shopping around whne they need care. As Jill Horwitz pithily puts it, there’s a lot of naivete in this vision: “Illness is messy. Medical treatment is complex. Knowledge is limited. Decisions need to be made quickly.” Try bargaining for a cheaper antibiotic when you’re on a ventilator. Prices are often opaque because of trade secrecy–a form of property near and dear to libertarian Richard Epstein. Free market fundamentalists can promote informed purchases of health care, or the property rights protection afforded by trade secrecy for proprietary pricing, but they can’t have both.

Sure, in some areas of elective surgery a comparison of prices may make sense. But given the urgency of health care interventions, and the concentration of spending on the already beleaguered chronically ill, it’s hard to see millions of disaggregated consumers having much power vis a vis concentrated hospitals, powerful doctors, and massive pharmaceutical companies. As one caller said on Oprah, “while I am searching for affordable health care, my daughter may die.”

We could continue fitting the square peg of health care into the round hole of market-pricing. But to do so ignores the very real power the government has to influence the distribution of health care–and its moral obligation to do so. As Himmelstein and Woolhandler have put it, we are “paying for national health insurance–and not getting it.” Other countries with as good or better health outcomes as ours spend less per capita on insuring everyone than our government contributes to a system that leaves nearly fifty million uninsured. And our government’s contribution is lower, proportionally, than theirs–leaving private insurance premiums and out-of-pocket payments to help cover our extraordinary administrative costs and well-remunerated specialists.

So where does that lead us? We can either follow other civilized nations in encouraging risk-spreading, or we can (via neglect or misguided “reform”) intensify the risk borne by those already unlucky enough to be simultaneously uninsured and chronically ill, frail, or simply routinely hurt. As another LAT piece reported,

Insurers insist that they can’t stay in business without excluding chronic disease sufferers, known in the industry as “clinical train wrecks.” But companies in the individual market also want to avoid even marginal risk — adopting a practice some insiders call “hangnail underwriting.”

* * *

The rationale of universal coverage, the norm in other industrialized countries, is that costs are manageable when everyone is covered because the risk pool includes the young and healthy to offset the older and sicker. “One of the basic goals of universal coverage should be to change the health coverage business from avoiding risk to balancing health risks and focusing primarily on quality, service and cost-effective delivery,” Bodaken [CEO of BC/BS of California] wrote recently. . . .

Given our growing understanding of the financial crisis, it’s no surprise that insurers are remaking themselves as banks. It’s a lot easier to grab guaranteed fees from opaque speculation than it is to do real due diligence on the productivity and value of a company. In health care, sitting on a pile of cash is far more appealing than trying to determine the clinical effectiveness of treatments, the quality of doctors, and more effective ways of delivering care.

What’s the solution? Here are some broad outlines:

1) The US government gradually expands the option of Medicare or membership in the FEHBP to all citizens.

2) To the extent physicians opt out of treating a “fair share” of citizens in the public program (a problem of parallel public/private health insurance provision discussed at length in Canada’s Chaouilli case), the government should begin making its subsidies to medical education more transparent. As Katherine Mangan reports, “Jonathan P. Weiner, a professor of health policy and management at the Johns Hopkins University [estimates that] [t]xpayers end up paying $500,000 to $1-million to train each new doctor through programs such as Medicare and subsidies to state medical schools.”

3) Those who refuse the subsidies and take on the $500,000 to $1,000,000 true cost of medical education themselves can freely choose to treat whomever they wish.

4) Those who take subsidies (and some additional financial support) are obliged to treat patients roughly in proportion to enrollments in the public backstop plans and the private insurance market. In other words, if half of patient-time demanded was originating from public plans, about half the doctor’s time would be spent on such patients.

Making a public backstop plan available to all is the crucial and compelling alternative to the gradual unraveling of risk-pooling via CDHC. Given the government’s extant contribution to health care education and infrastructure, it has not merely the moral authority but the obligation to start making this a reality during the next administration. Pace Robert Samuelson and David Walker, we do not have a Medicare entitlement crisis–rather, we have an opportunity to finally use the power of the governmental purse to promote access, quality, and cost-containment. The principles of the College Cost Reduction And Access Act of 2008 need to better inform medical education policy.

You may also like...