Consumer-directed health care: a panacea or the wrong prescription?

Consumerism is the latest big idea for stemming rising health care costs. Proponents argue that patients must become price-conscious shoppers to put the brakes on health care spending. Although consumer-directed health care, as it's sometimes called, has taken several forms, most interest focuses on combining a high-deductible health plan (HDHP) with a tax-favored health savings account (HSA) to cover out-of-pocket expenses.

The theory is that Americans have more health insurance than they need and are therefore insensitive to the true costs of care. Asking families to pay more out of pocket, the reasoning goes, will create more prudent consumers of health care, driving down health care costs and improving the quality of care as providers compete for patients.

In addition, the tax incentives of HSAs will lure uninsured people into the insurance market, reducing the numbers of families without health insurance.

That's the theory

Unfortunately, this theory doesn't hold up in practice. Not only are high-deductible plans coupled with HSAs unlikely to mitigate health care costs or coverage in any significant way, but early evidence indicates that they will undermine health insurance's primary objectives: reducing financial barriers to needed care and protecting-against financial hardship.

While 9 percent of the population has a high-deductible plan exceeding $1,000 for an individual, only 1 percent has an accompanying HSA, and 37 percent of covered workers' employers make no contribution to an HSA. (1)

Under the "consumer" model, those who need help the most--the very poor and the very sick--will suffer the most, because they will be unable to afford even basic care. The people who stand to benefit the most are those with higher incomes, for whom HSAs provide yet another tax break.

The consumer model is also the wrong answer to our nation's uninsured problem. The idea that low-wage workers who can't afford health insurance coverage will be drawn into the market by tax incentives is fundamentally flawed.

The majority of the uninsured--56 percent--are in a zero tax bracket, and 71 percent are in a tax bracket of 10 percent or lower. In fact, the tax benefits of HSA-eligible high-deductible plans would induce coverage of only an estimated 1 million previously uninsured people out of 46 million uninsured people-according to analysis of the tax incentive effects by Sherry Glied of Columbia University. (2)

Patients aren't to blame

How can a strategy with two such laudable stated goals--reduction of health care costs and expansion of health insurance coverage--be so self-defeating? Mainly because its underlying premise is completely wrong.

Health care costs in the United States aren't high because Americans don't pay enough for their health care. In fact, Americans pay $793 a year per capita, on average, on out-of-pocket health care costs, which is more than citizens pay in any other industrialized nation.

Our health care costs are high because our system is inefficient, poorly organized, and has the wrong financial incentives for physicians and hospitals.

For example, readmission to a hospital varies two-fold across states--often the result of complications or poor transitional care. Nursing home hospital admissions vary four-fold within a single state. Instead of blaming patients, we should be focusing on ways to improve the quality, safety and coordination of care for these high-cost patients, and make providing the right care easy and rewarding.

There's no question that increasing out-of-pocket costs for consumers makes consumers seek out cost information. In a 2005 survey conducted by the Employee Benefit Research Institute (EBRI) and The Commonwealth Fund, three out of five people enrolled in HDHPs said they had checked whether their health plan would cover their costs prior to receiving care, and about one-third checked the price of a doctor's visit or other health service. (4)

But, obtaining health care is not like shopping for other goods and services. The information needed for consumers to make truly judicious health care choices is currently unavailable.

According to the survey, only 12 to 16 percent of insured adults have access to information on the costs of care provided by hospitals and doctors; 14 to 16 percent have access to information on quality of care by hospitals and doctors. Without good information on cost and quality, consumers are forced to make health care decisions in a vacuum.

Truth and consequences

If the widespread adoption of high-deductible health plans and HSAs won't reduce health care costs and make health insurance more affordable to the uninsured, then what does it do?

For one thing, high deductibles make it more difficult for people to get needed care. The EBRI/Commonwealth Fund survey found that one-third of adults enrolled in HDHPs had delayed or avoided getting health care when they were sick because of cost--nearly twice the rate of those in more comprehensive plans.

People enrolled in HDHPs were more likely to not fill a prescription, skip doses of their medications, or delay or avoid getting other needed medical care due to cost.

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High deductibles are particularly burdensome for people who are sick, the survey shows. Among adults in high-deductible plans who rate their health as fair or poor, or who have a chronic condition or disability, an estimated 45 percent have a cost-related access problem, versus 19 percent of healthier adults who have a lower deductible.

HDHPs also increase bad debt for physicians, hospitals and other providers, as well as patients. In the survey, 54 percent of adults in high-deductible plans reported difficulties paying medical bills or that they were paying off accumulated debt, compared with 24 percent of privately insured adults with no deductible. These problems are magnified among lower-income adults with higher deductibles.

An estimated 55 percent of low-income adults in HDHPs reported medical bill problems or accrued medical debt, compared with 27 percent of adults with higher incomes and lower deductibles. And an estimated 59 percent of sick adults with high deductibles reported financial problems. Additionally, because bad debt increases administrative costs, it is also a major problem for physicians and hospitals.

The most significant effect of HDHPs would likely be a one-time shift in spending from premiums to patient out-of-pocket outlays. While employers and employees typically share premium costs, employees are fully responsible for out-of-pocket costs, unless employers contribute to health savings accounts.

In a market where health insurance premiums are rising 9 percent a year, this one-time shift would show up as either no increase in the premium for a year or a slight reduction, after which premiums likely would continue to increase as usual. (5)

The major beneficiaries of HDHPs coupled with HSAs will be healthier, higher-income insured taxpayers, who can afford to fund their accounts and to take on the financial risk posed by high-deductible health plans. In effect, the policy represents a tax cut of $6 billion to $16 billion over 10 years (Congressional Budget Office and Administration estimates, respectively) for those with higher incomes. (6)

Although enrollment in HSA-eligible HDHPs is still low, these plans are already attracting a disproportionately large share of people who have higher incomes and are in excellent or very good health.

Perhaps most perniciously, high-deductible plans encourage further risk segmentation in the health insurance market. If sicker people enroll in comprehensive plans while healthier people enroll in high-deductible plans, premiums for comprehensive plans will spiral upward. Thus, comprehensive health insurance will become significantly less affordable to those who need it most.

Promising alternative strategies

Placing greater financial burdens on the sickest and poorest Americans is not the right prescription for what ails our health care system. It's time to move away from the hype surrounding HDHPs and HSAs and move forward with real solutions. As a nation, we should focus on more promising strategies for expanding coverage, improving affordability and lowering costs. These strategies include:

* Expanding group insurance coverage, with costs shared among individuals, employers and government. This could be done by expanding employer-based coverage, eliminating Medicare's two-year waiting period for coverage of the disabled, letting adults over 55 "buy in" to Medicare, and building on Medicaid and the State Children's Health Insurance Program (SCHIP) to cover low-income parents, young adults and single adults.

* Making health care more affordable--not less affordable--to families. Limits should be placed on family premiums and out-of-pocket costs as a percentage of income (for example, 5 percent of income for low-income families.)

* Requiring greater transparency with regard to provider quality and the total costs of care. Medicare needs to take the lead in making information on total cost and quality by provider and by patient condition publicly available. In addition, all patients should have access to their own integrated personal health records.

* Paying for performance to reward health care providers who deliver high quality and high efficiency. Poor care--care that is delayed, inappropriate, duplicativ or flawed--is costly care. That's partly because our current reimbursement system recognizes quantity--not quality--of care. We need to make fundamental changes in how we pay hospitals and doctors so that we reward safe, quality care.

* Developing "value networks" of high-performing providers under Medicare, Medicaid and private insurance. Such networks would include hospitals, specialists and primary care physicians who rank high on quality and low on total cost of care. Incentives, such as lower cost-sharing requirements, could reward consumers who agree to use services provided by "value providers."

* Increasing the use of high-cost care management and disease management. Our current health care system is disjointed and poorly coordinated. Greater attention needs to be focused on managing the health of the 10 percent of Americans who incur nearly 70 percent of health care costs. Instead of treating and paying for episodic care when something goes wrong, the system should provide and pay for coordinated case management over time for patients with chronic conditions like diabetes or congestive heart failure.

* Improving access to primary care and preventive services. Only half of U.S. adults receive all recommended preventive care. A bundle of high-value, evidence-based preventive and primary care services should be identified, promoted to consumers and exempted from insurance deductibles.

* Encouraging greater investment in health information technology. Only one in four physicians uses electronic health records, demonstrating that the benefits of modern information technology are far from being realized. Some private insurers have begun to build rewards for information technology into their payment systems. Medicare and Medicaid should consider following suit.

Physician leadership is critical to bringing about needed changes. A number of physician organizations, such as the American College of Physicians, are already calling for improved health care coverage. Among the areas where physicians can and should make their voices heard:

* Working to obtain better evidence on care that is necessary and appropriate.

* Shaping payment reform by helping to implement pay-for-performance programs and other incentives that reward physicians and hospitals for providing all appropriate and necessary care.

* Achieving consensus on performance measures to be used in such pay-for-performance programs.

* Ensuring professional maintenance of certification aligned with performance goals.

* Sharing best practices and dissemination of innovations.

* Re-engineering practices to achieve greater efficiency and higher quality.

* Partnering with other providers to improve care coordination, disease management and transitional care.

* Developing standards for advanced primary care practices, group practices and integrated delivery systems.

* Fostering the growth of group practices and integrated delivery systems that provide all physician and hospital care within a single organization.

* Championing expanded and improved coverage.

A great deal is at stake here. While many dedicated and skilled physicians, nurses and other health care professionals and administrators must be credited for their excellent work, our health care system is nonetheless fragmented and fraught with waste, inefficiency, poor quality and high rates of error.

Although we spend more on health care than any other nation in the world, our dollars have not translated into better health Americans do not live as long as citizens of several other industrialized countries and disparities are pervasive, with widespread differences in access to care based on insurance status, income, race and ethnicity. And the uninsured problem continues to worsen. Some 46 million Americans have no health insurance and another 16 million are underinsured. (7)

Increasing cost-sharing under the guise of consumer-directed health care is not the way to solve these problems. Nor is it fair to place already vulnerable people--the sick and the poor--at even greater risk for poor health and financial hardship. It is time to acknowledge that all of us have a stake in improving our health care system so that it provides safe, effective and efficient care for everyone.

It is critical that physicians and especially physicians who are executives be heard on this issue. High-deductible health plans erect barriers to needed care and undermine the ability of patients to adhere to recommended care--whether it is filling a prescription, seeing a specialist or having an expensive diagnostic procedure.

Increasingly, physicians will be held accountable for ensuring that their patients receive high quality, appropriate care--yet at the same time public policy is making it more difficult for patients to obtain those services.

Our policies must not encourage patients to forgo the very care that can ensure their survival and long-term health and quality of life. We need to ensure that all essential care is financially accessible to all patients.

Karen Davis is president of The Commonwealth Fund. Prior to joining the Fund in 1992, she was professor of economics and chairman of the Department of Health Policy and Management at The Johns Hopkins Bloomberg School of Public Health. She can be reached at [e-mail]

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References:

1. Claxton G and others. "What high deductible health plans look like: findings from a national survey of employers, 2005." Health Affairs Web Exclusive, September, 14, 2005.

2. Glied SA and Remler DK The Effect of Health Savings Accounts on Health Insurance Coverage. New York, NY: The Commonwealth Fund, April 2005.

3. Frogner BK and Anderson GF. Multinational Comparisons of Health Systems. New York, NY: The Commonwealth Fund, April 2006.

4. Fronstin P and Collins SR. Early Experience With High-Deductible and Consumer-Driven Health Plans: Findings From the EBRI/Commonwealth Fund Consumerism in Health Care Survey. New York, NY: The Commonwealth Fund, December 2005.

5. Henry J. Kaiser Family Foundation/Health Research and Educational Trust. Survey of Employer-Sponsored Health Benefits. Menlo Park, CA: Kaiser Family Foundation, 2005.

6. Davis K, Doty MM and Ho A. How High is Too High? Implications of High Deductible Health Plans. New York, NY: The Commonwealth Fund, April 2005.

7. DeNavas-Walt C, Proctor BD, and Lee CH. Income, Poverty, and Health Insurance Coverage in the United-States: 2004. Washington, D.C.: U.S. Government Printing Office, 2005; Schoen C, Doty, MM, Collins SR, and Holmgren AL. "Insured but not protected: how many adults are underinsured? Health Affairs Web Exclusive, June 14, 2005.