By John C. Goodman, president, National Center for Policy Analysis
Outlook 2008
Health care spending is by far the most serious U.S. domestic policy problem. Health care spending is on course to crowd out every other government program at the local, state and federal levels, as well as everything else in the average business and family budget.
This problem will become progressively worse year by year until 2011, when the first of the baby boomers become eligible for Medicare. At that point, the severity of the problem will begin to soar.
All too often, health policy analysts take the problem as a given—a natural and inevitable characteristic of health care delivery. Given this assumption, they seek solutions from the outside—usually in the form of government efforts to force the system to change. To control costs, the conventional solution is to push down provider incomes artificially or to restrict access to new technology.
Yet the source of the problem is the fact that most of the time people do not bear the full costs of their bad decisions or realize the full benefits of their good ones. People who wastefully overuse heath care resources usually pay only a small fraction of the cost of that waste. Conversely, people who usually economize and avoid waste reap only a small fraction of the savings from economizing.
Slowly but surely, this is beginning to change as more and more health consumers begin participating in consumer-directed health care (CDHC) plans. Americans have had seven years of experience with a medical savings account (MSA) pilot program, five years experience with health reimbursement arrangements (HRA) and four years with health savings accounts (HSA). These plans are increasingly popular, as employers seek to reduce their health care costs and employees seek to take greater control over their health care.
According to a recent survey by Hewitt and Associates, a global human resources company, more than 20% of companies offered, or planned to offer, a high-deductible health care plan (HDHP) with an HSA by the end of 2007, and almost half are considering offering one at a future date. While just three% of employees elected these plans in 2006, most companies anticipate that enrollment will grow to 20% in the next five years.
The movement of companies and their workers into CDHC offers the best hope for restraining runaway health care costs. A four-year analysis from Aetna found that when patients have more control over their health spending, costs go down and quality goes up. Aetna compared enrollees in their CDHC plan, called HealthFund, with enrollees in traditional preferred provider plans (PPO). They found that HealthFund enrollees consistently had lower medical costs, maintained or improved levels of chronic and preventive care, and increased their use of generic medications, consumer tools and information.
Those organizations with PPO plans saw their three-year medical costs increase 27%. Employers that offered both a HealthFund plan and other insurance saw a three-year increase of about 20%. By contrast, for the full replacement plans—where all workers were required to switch to HealthFund—the three-year increase in medical costs was only 3%.
And this savings did not come from patients skimping on needed care; quite the opposite, actually. HealthFund enrollees sought care for chronic conditions at a higher rate than PPO enrollees; they were also more apt to use preventive care and generic drugs.
Also, in contrast to assertions of critics, the lower costs associated with HealthFund was not due to younger patients, or a disproportionate amount of males or families without children, according to the Aetna study. Those enrolled in HealthFund were nearly the same age, on average (31.6 years old vs. 33.4 years) as PPO enrollees, and they were balanced closely in terms of male/female ratio and family size. HealthFund enrollees were also more apt to use online tools to better manage their conditions.
The demographics for the HealthFund are not at all unusual for CDHC plans. Although critics of these plans often assert that they only benefit the young, a representative cross-section of people are signing up for HSAs. In fact, nearly 60% of adults in these plans are 40 years of age or older (see figure).
Critics could cite two recent Government Accountability Office (GAO) reports that appear on the surface, to bolster their claim. The GAO found that the average enrollee in new HSA plans offered under the Federal Employees Health Benefits Program is younger than the average enrollee in traditional plans. However, this finding is based on all enrollees, including retirees, who are not eligible for HSA plans. Excluding retirees, the average age of current federal workers enrolled in both types of plans is not significantly different: 44 to 45 years for HSA plans, versus 47 years for PPO plans.
The Aetna study is not an isolated bit of good news. Whether it’s a study of Medisave accounts in Singapore, MSAs in South Africa, or MSAs, HSAs or HRAs in the United States, all the surveys tend to come to the same conclusion: faced with financial incentives, people make common sense decisions.
New data from Definity Health, which surveyed 250,000 HDHP enrollees (working for 99 employers) and compared their behavior to 10 million people in traditional PPO plans, found: HDHP enrollees get as much or more preventive care than people in PPOs. They get 16% more cervical cancer screening, 10% more cholesterol screening and 16% more prostate cancer screening. And among the chronically ill (diabetes, asthma, coronary heart disease and congestive heart failure), HDHP patients receive as much, and often significantly more evidence-based care than PPO patients.
Any employee probably can point to dozens of examples of inefficiency. However, because most health care is paid for by third parties (employers, insurers and governments), patients have no financial incentives to use health care wisely under traditional insurance. But with an HSA, consumers benefit from using health care more wisely, since the money they save is their own.
Blue Cross of California found that when its CDHC plan replaced traditional health plans, the rate of generic drug substitution for more expensive brand-name drugs rose 92%, and total pharmacy costs fell 15%. Aetna found that their CDHC plan enrollees reduced emergency room visits by 3%.
Ultimately, the most important problems in our health care system began with perverse incentives faced by individuals—patients, doctors, nurses, hospital managers and others. Correcting these problems means changing those incentives—this begins with freeing the patients.
John C. Goodman, called the “father of HSAs” by the Wall Street Journal, is the founder of the National Center for Policy Analysis, a non-profit public policy research institute. He is the author of ten books, including Patient Power: Solving America’s Health Care Crisis, and the just-released Handbook on State Health Care Reform. For more information, visit www.ncpa.org, or call 972-386-6272.