Employers as Doctors

Unless you spend a lot of time around health policy wonks, you’ve probably never heard of the term “value-based health insurance benefits.” In fact, you may not even know that it’s the hottest new fad in the field. It’s the theme of the November issue of Health Affairs and you may have missed my thoughts on it at the Health Affairs Blog.

Here is my layman’s summary: If you are like most people, you are not a very good consumer of health care. Odds are, you will fall for the latest fad advertised on TV or follow the advice you get at the bridge club instead of buying the care that has been scientifically shown to be better for you.

So as a corrective, a lot of employers are finding ways to “nudge” you into better decisions through financial incentives. Say you have a chronic condition and need to take certain medications. Your employer might drop your deductible down to zero (or may even pay you to take them) to encourage your compliance. But for services where there appears to be wasteful overuse (such as MRI scans), the employer might impose a hefty $500 deductible.

Doctor, Mr. MD
Tell me what’s ailing me.


This idea intrigued me, so I turned to a rather lengthy article in the Washington Post, which informed that value-based insurance benefits are incorporated into the new health reform law, “including the requirement that new insurance provide free recommended preventive services such as mammograms and colon cancer screenings.”

In the world of big business, this idea is all the rage. One in every five employers employing at least 500 people is already doing it. Four in five employers who employ at least 10,000 workers say they are interested.

So if big business is for it; the government is mandating it; and health policy wonks like it; how could anyone possibly obj-……..

Whoops… wait a minute… Mammograms?…haven’t I seen a slew of articles over the past year or so questioning the value of mammograms — suggesting that Americans get too many, concluding that the costs are often greater than the benefits, even questioning whether they are a useful breast cancer detection tool? In case you haven’t been keeping up, see here, here, here and here.

I wish I could say this was a mere oversight. An error on someone’s part. Alas. It is not. Turns out that the “value” in value-based insurance benefits does not necessarily mean high-quality, low-cost, evidence-based care, despite all the rhetoric. There are other values at play here and they may not be values you share.

For example, despite a mountain of evidence that so-called preventive care does not pay for itself — especially when provided to otherwise healthy people — the new health law mandates that a whole laundry list of services be provided for free.

I’ve offered a political explanation of this phenomenon before, in response to the puzzling fact that other countries seem to overprovide to the healthy and underprovide to the sick. Unregulated doctors and hospitals are likely to spend more than half the health budget on 5% of the population. But if you are the Minister of Health, you cannot afford to spend half your money on 5% of the voters — many of whom will die before the next election or will be too sick to make it to the polls and vote anyway. Redistribution from the sick to the healthy makes political sense, even if it makes no medical sense.

Employers have a different type of perverse incentive: it is in their financial self-interest to attract the healthy and avoid the sick. From their point of view, it makes sense to provide free mammograms, Pap smears, PSA tests, etc. What else are healthy people going to spend health dollars on? Wellness programs that emphasize no smoking, weight control and physical fitness are going to attract what kind of employees? Answer: the ones who don’t smoke and who are thin and fit. At the same time, it also makes sense to charge employees more for their sleep apnea care or for the plethora of treatments available for ailing joints. If the employer is lucky, maybe these will become some other employer’s problems.

As an economist, I like the idea of economic incentives being incorporated into public policy. Here are some interesting examples collected by the Washington Post:

  • In Scotland, the National Health Service actually pays people to quit smoking.
  • The payment is even higher for pregnant mothers who quit.
  • In Tanzania, a World Bank program pays young men and women who test negative for sexually transmitted diseases.
  • In Greensboro N.C., young girls are paid not to get pregnant.
  • In Minnesota, at-risk women are paid to get mammograms.
  • In another experiment, low-income African American patients were paid to make depression therapy appointments.

These efforts may not prove cost effective. A series of studies show short-term gains, but no long-lasting benefits from paying patients to lose weight or to stop smoking.

I’m willing to allow competition and free markets to sort out what works and what doesn’t, what’s sensible and what’s not. In the meantime, be alert that the providers of value-based insurance benefits may have values different from yours.

Comments (22)

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  1. Ken says:

    Good post. The sort of thing I can only find at this blog.

  2. devon herrick says:

    I like the idea of value-based benefit design. But I prefer the design be the product of experimentation by health insurers trying to figure out what works rather than a mandate by government bureaucrats following the latest fad.
    Discovery Health in South Africa had an MSA plan with cost sharing that varied for chronic conditions. Discovery didn’t want enrollees making the decision to forgo medications for chronic conditions; whereas, it was appropriate for enrollees to face cost sharing for other conditions. A good example of this would non-sedating antihistamines and (Cox-2) pain relievers. Patients can spend nearly $1000 annually on Clarinex or Celebrex. Or they can spend $25 annually on OTC antihistamines or pain relievers.

  3. Vicki says:

    Agree totally. I don’t want my employer to be my doctor.

  4. Linda Gorman says:

    Have to love the logic of the value-based people. They implicitly claim that employers who are expert at manufacturing widgets or arguing legal cases or running airlines are also experts about buying health care for me simply because they…wait for it…pay me every month.

    Guess this means that health care isn’t rocket science after all.

  5. Brant S Mittler MD JD says:

    John, so which economists, jounalists, and health care consultants are patients supposed to believe in when deciding what tests to have done and what medications to take? What’s clear is that the doctor-patient relationship is DOA. You can’t trust your doctor anymore. Can you trust your employer’s economists?

  6. John Goodman says:

    Brandt, as you know, trust is one of the components of professional service that one expects in a real marketplace. \When dealing with lawyers, engineers, accountants, etc., honesty and trustworthiness is part of what we are buying. The problems in medicine arise because normal market forces ahave been systematically suppressed.

  7. Jim Morrison says:

    A thoughtful post, John

  8. Neil H. says:

    I saw an earlier version of this post at the Health Affairs blog. It’s amazing that we have to wait for someone like John Goodman to come along with a little common sense.

  9. Erik says:

    Most employers over 500 employees are self-insurance and use Stop-Loss/ACO policies. They can and will design benefits which will do one of two things; 1) provide for the welfare of their employees; or 2) save the company money by limiting benefits. Smaller employer groups may use an HRA to design their benefit limitations.

    Self-insured groups are the policies targeted by PPACA to provide fairer cost-sharing with no annual limits. That is why McDonald’s needed a waiver. They do not provide adequate insurance to their employees who cook and serve your food.

    Also, if preventative medicine is not cost effective, why do my children have to submit to a series of immunizations (preventative medicine) in order to go to school? Who is making money of this obvious scam? Right?

    And, Since when do conservatives endorse a welfare program that pays a person to do what should be considered personal responsibility?

  10. artk says:

    Erik, you’ve got it all wrong. Conservatives know that by increasing childhood mortality immunizations are not cost effective. All those old age medical expenses are avoided. After all, as long as its the children of the poor, the deaths don’t matter..

  11. Brant S Mittler MD JD says:

    John, I agree that trust is the most important part of the professional relationship. But for the last 30+ years there has been a steady barrage of doctor bashing “news” and “research” portraying doctors as greedy, incompetent, and downright dishonest. Why should anyone trust his or her doctor? Aren’t employers and their consultants more trustworthy?

  12. P Jones says:

    Health care is the responsibility of the individual. That is, in the sense that caring for someone’s health and attempting to prevent failure of it, works best if done by the individual. When that fails, and medical treatment is required, the best source for determination of that treatment is the Doctor and the patient, together. The worst source of authority for medical decision is the government, and the next worst would be the insurance companies and employers (both acting from an economic viewpoint).

    But, economics is the driving dilemma behind the “health care” debate; and the government is in it, and the debacle is growing. Simple logic suggests that the nation cannot afford to provide cradle-to-grave “health care” as envisioned by bureaucrats and activists. Even with the elimination of waste, fraud, frivolous lawsuits, and other efficiencies, health care must begin to be a smaller part of the cost of life in America. That, inevitably, will be an individual decision, whether made voluntarily or by lack of availability.

  13. John Goodman says:

    @ Erik

    I thought I explained in response to a previous post of yours that immunizations are cost effective. Most preventive care is not, however.

    McDonalds got a waiver because The Obama administration didn’t want the embarrassment of seeing 30,000 employees lose their health insurance right before an election. In 2014, however, the required family coverage will cost almost $6 an hour, for employees earning only $10 to $15 an hour. To be able to afford it, these workers will have to take a 50% pay cut.

    @ artk

    After defending you in an earlier post, I’m having regrets. Are you saying conservatives want poor chikdren to die? What kind of alternative universe do you live in?

  14. Kent Lyon says:

    All of this points to the superiority of a universal system of medical savings accounts and a universal first party payor system, with the individual empowered with resources to pursue ones own values, not those of employers, bureaucrats, or anyone else. That’s the logical extension of these ideas.

  15. Erik says:

    I’m sorry but you cannot pick and chose the items that support your argument and ignore those that don’t. Either preventative medicine is good medicine or it is not. I believe it is good and cost effective in the long run and there have been several recent studies which agree with that position.

    As far as McDonald’s is concerned, they are choosing profits over the health of their labor force period. You’re numbers are meaningless as McDonalds has increased prices yet not wages or benefits, Why? Profit. They are one of the best performing corporations in this country and to not keep a healthy labor force is asking for the spread of a food borne illness. But of course it will be poor people who will get sick and won’t go to the doctor because they do not have health insurance so they suffer and McDonalds profits. Now THAT is market economy.

  16. steve says:

    “Whoops… wait a minute… Mammograms?…haven’t I seen a slew of articles over the past year or so questioning the value of mammograms — suggesting that Americans get too many, concluding that the costs are often greater than the benefits, even questioning whether they are a useful breast cancer detection tool?”

    Stick to economics. Your knowledge of medicine is lacking in this area.


  17. John Goodman says:

    Eric: What kind of statement is this?

    “Either preventative medicine is good medicine or it is not.”

    Search this blog, going back to it’s beginning. I’ve never used the words “good” or “bad” in connection with “preventive medicine.”

    As reported here more than once, about 20% of preventive procedures pay for themselves and about 80% do not. From that I conclude that in an insurance pool, it’s in my self interest to encourage everyone to get the 20%, but to let everyone make his own decisions and pay with his own money for the 80%.

    As also explained at this blog more than once, just because a procedure doesn’t pay for itself, doesn’t mean you shouldn’t get it. If a test result helps you sleep better at night, if it makes you more assured, if you view it as a reasonable “investment” in health, by all means get the test. But pay for it yourself.

  18. Dr. Robert Kramer says:

    There is so much waste and graft in our system that maybe physicians could run a better ship than what we currently have. However, I must take issue with your statement of the limited or no success in prevention measures. Measles, mumps, rubella, chicken pox, polio, hepatitis B, H influenza bacterial meningitis, pneumovax, herpes, meningococcal disease, rotavirus are disease that kids in medical school now will never see. The doctors who developed the pap smear, mammography, and the PSA all were dedicated scientists who felt that they were contributing to the public health of the country. The fact that now their science is in question shouldn’t blame the medical profession. Sometimes it takes a long time for exact science to disprove what was thought to be written in stone, reflects the progress of scientific investigation. After all, medicine is not an exact science. And probably will never be. We learn by our errors, because if we never made an error research would stultify and progress would cease.

    Of course there is the good, bad, and the ugly as shown recently with the fraudulent machinations of Dr Wakefield in the UK, which was planned to make him lots of money. This was not an honest attempt to improve the general knowledge about the MMR-Autism connection, but to intentionally defraud the public
    for his own gain, without caring about all the parents of autistic children who thought they were finally given a reason for their kids misfortune,

    Well, that’s enough for today. Maybe you need a physician providing you with information you might not have access to.


  19. Erik says:

    Your stance on preventative medicine does not square with this article.

    “As an economist, I like the idea of economic incentives being incorporated into public policy”

    An example used was; pay at risk women for taking a mamogram (preventative); Yet further up in the article you question whether mamograms are vialble and cost effective?

    I will admit I am shocked you are promoting medical welfare.

  20. John Goodman says:

    Here is Jason Shafrin on Oregon’s experiment in value-based purchsing:


  21. Kent Lyon says:

    Brandt and Dr. Goodman are having an interesting exchange on trust of physicians. I am a physician an endocrinologist. I have just been threatened by my employer (a private hospital company) with termination based on the fact that, although I see more patients a day than my peers, I wind up producing less revenue per patient (statistically referred to as an RVU below 1.0 or 100%–I come in at about 0.7 or 70%). My employer is demanding that I increase that RVU statistic. The reason my stat is low is because I am a highly experienced (30 years of clinical practice) endocrinologist, and am clinically able to keep costs down for patients, while providing a much higher level of care, simply because of vast clinical experience. Nevertheless, my experience will be for naught if I don’t start nickling and diming my patients to get my RVU numbers up and my revenue flow up. I have the premiere endocrine practice in our region, and have referrals from hundreds of miles around the area. I practice in a smaller community with large cities in a 1.5 to 3 hr driving radius, but a lot of people prefer coming here rather than fighting the difficulties in the large cities. If I am fired, the community will be dramatically underserved and a lot of my patients will fare poorly with primary care physicians (for example, thyroid cancer patients, brittle diabetes patients, patients with rare endocrine problems, etc.. Surgical specialists with whom I work on difficult cases that require surgery will be hard-pressed to deliver adequate care without my endocrinology back-up). The hospital refuses to even consider the vast revenue they receive from the ancillary services that I utilize (efficiently). So, unless I start overcharging patients, doing tests that I know are of limited or no utility, just to increase revenue, I am toast. In a real market situation, I would thrive, with increased value and reduced cost to patients. In the current non-market, or at best, quasi-market situation, I am penalized, and possibly eliminated, just when I am providing most value to the community. This is why only a first party payor system of healthcare financing would control costs. Third party payment systems destroy market systems, destroy the pricing power of markets, and produce continual pressure to raise prices and drive over-utilization (current healthcare reform exacerbates this problem, not improve it). I wouldn’t blame anyone for not trusting me given this type of incentive and pressure. We’d have to go back to payment out of pocket to return to a system in which physicians could be trusted. Only when the patient is paying the bill does the physician have the appropriate incentives to treat the patient appropriately.

  22. John Goodman says:

    Dr. Lyon, thanks for your comment. This is the sort of thing people need to know about.