To judge by recent headlines, it seems the concept of
consumer-driven health care (CDHC) has taken a severe beating.
News stories have highlighted studies by the Government
Accountability Office and the RAND Corporation that purport to show
CDHC plans, especially health savings accounts (HSAs), are
primarily for the wealthy. The studies further claim that they
probably won’t work regardless because patients don’t make very
good health-care consumers and most health-care expenses are
catastrophic and hence not subject to consumer choice. Yet these
studies either have serious flaws or are being interpreted
incorrectly.
Patients Don’t Make Good Health Care
Consumers
David Wessel got this ball rolling in the Wall Street Journal by
citing a study from the RAND Corporation of 236 elderly patients in
two managed-care plans. The study found that these patients often
rated their health care as excellent regardless of the actual
quality of that care. Wessel suggested that, in health care, the
“consumer theory falls flat.” Ezra Klein, at the American
Prospect, upped the ante, dismissing CDHC as “a silly idea.”
Wessel and Klein are drawing implications from the RAND study that are unwarranted. To see this, simply ask
yourself, what experience have the 236 elderly people had as
health-care consumers? CDHC is a relatively new concept, and most
of the patients in the RAND study have probably spent most of their
lives in traditional health insurance where they simply went to the
doctor and a health insurance company paid the bill. In other
words, they have never done any of the many things — shop around,
compare prices, consider quality, etc. — that they would if they
were consumers of health care. To expect this demographic to be
consumers of health care is a bit like asking Eskimos to rate the
quality of suntan lotion. If you wanted to know how effective
patients are as consumers of health care, you would need to study a
group that had been enrolled in CDHC plans for a few years. What
the RAND study really does is gauge people who have been enrolled
in a non-consumer based health-care system their entire lives and
do not have the skills to be discerning health-care consumers.
Consumer vs. Catastrophic
Opponents of CDHC often propagate the myth that because much of
health-care costs are catastrophic, and hence expensive,
introducing consumerism into health care is doomed to fail. For
example, Karen Davis, president of the Commonwealth Fund, recently
argued that “the very ill — those suffering
from heart attacks, strokes, cancer, mental illness, or injuries —
are responsible for most of the nation’s health-care costs…
shopping for the best physician or hospital is impractical in such
circumstances.” The Center for American Progress chimed in, “HSAs also do nothing to solve the
underlying problem of exploding health-care costs. The approach
does not address the costs associated with high-cost patients who
account for most health-care spending.”
While it’s true that you shouldn’t be looking around for your
HSA checkbook if you are having a heart attack (and no one is
saying that you should have to), both Davis and the Center for
American Progress seem to be making the mistake that many of CDHC
opponents do: assuming that health-care expenses that one can pay
for out of pocket and catastrophic expenses are mutually exclusive.
But they aren’t. Consider that when a patient goes to a hospital
for elective surgery, he pays for it out of his HSA. On the bill,
he will be charged a price for the anesthetic. Since he can get the
surgery at other places, the hospital will have to work to keep the
charge for anesthetic low. That will also effect the price that the
hospital charges for the anesthetic used in catastrophic care —
say, open-heart surgery — if for no other reason than that
insurance companies that pay for the catastrophic care will be
keeping a close eye on what the hospital charges for the
non-catastrophic care. From payments to surgeons, medical supplies,
and doctors’ office visits, there are a potentially endless number
of areas of health care where CDHC will have a beneficial effect on
both consumer-based and catastrophic care.
GAO Shows That HSAs Benefit the Wealthy
According to the Center for Budget and Policy
Priorities (CBPP):
A groundbreaking new study by the Government
Accountability Office (GAO) demonstrates that Health Savings
Accounts (HSAs) — tax-favored savings accounts attached to
high-deductible health insurance plans established under the 2003
Medicare drug law — are heavily skewed toward affluent
individuals.
It is true that the GAO
study did find that 51% of those with HSAs had
incomes of $75,000 or more. However, it is also true that nearly
30% had incomes under $50,000 and about 15% had incomes under
$30,000, strongly suggesting that HSA policies have appeal to those
with lower incomes.
Yet the GAO study doesn’t tell us nearly as much as CBPP and
other leftists think. First, the GAO culled its data from IRS
returns of 2004, the first year in which HSAs were widely
available. What the GAO has captured is probably not the effect of
income, but education. People who are better
educated often consider themselves well informed and are thus more
willing to risk trying a new product. Thus, it is not surprising
that the first year that HSAs were available, better-educated
people were more likely than the less educated to choose them. The
reason the GAO indicated higher income people are flocking to HSAs
is that people with more education also tend to have higher
incomes. Indeed, Greg Scandlen of Consumers for Health
Care Choices rightly faults the GAO for not controlling for the
effect of education: “The implication that ‘the wealthy’ are more
attracted to HSAs would only apply if wealthier people choose the
HSA more frequently than non-wealthy people of the same educational
attainment.”
The experience of HSAs will probably mimic that of other new
products, with increasing numbers of people of all demographic
backgrounds choosing them as time goes on. Data on the first year
that HSAs were available only tells us who was likely to adopt HSAs
in, well, the first year they were available.
A recent survey of 3,000 health insurance consumers by BlueCross
BlueShield that looked at the recent experience of HSA
policyholders showed that HSAs are performing quite well. The
survey found that the percentage of those with HSA policies
reporting either fair or poor health was similar to those in more
traditional plans, suggesting that HSAs are not merely for the
healthy. It also shows that the lower cost of an HSA policy appeals
to the uninsured: 10% of those who chose HSAs were previously
uninsured vs. only 3% of those who chose more traditional
plans.
It will be several years before we know whether CDHC will
ultimately transform our health-care system, but the early evidence
is promising. While CDHC has barely gotten out of the starting
gate, the left is already claiming that it has lost the race. Too
bad the left doesn’t show similar impatience with government-run
health-care programs. Perhaps if it did, we’d have a much better
health-care system today.
David Hogberg is an analyst at the National Center for
Public Policy Research. He also hosts his own website, Hog
Haven.
