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.
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