Patient Power is Winning
This is Drew Altman, writing in the Kaiser Family Foundation’s Pulling It Together newsletter:
The nature of health insurance itself is being redefined and moving gradually but seemingly inexorably in the direction conservatives have long advocated: more consumer “skin in the game” through higher patient deductibles:
- In our recent survey of people in the non-group insurance market, we found that the average deductible for an individual policy is now $2,498, and for families it’s $5,149. These are very high thresholds by any standard. Consider, for example, that a family with median income facing such a deductible would be spending almost 10% of their annual income just for their deductible before their insurance kicked in.
- The percentage of workers facing high deductibles — $1,000 or more for single coverage — has been growing rapidly. It doubled from 10 percent to 22 percent between 2006 and 2009, and increased from 16 percent to 40 percent in small firms.
I can’t tell whether Altman is happy or sad about this development.
This is actually good news.
Tom, he’s probably sad, but he’s missing a point that John Goodman has made more than once at this blog. The most important changes in response to patients spending their own money is not on the demand side of the market; it is on the supply side.
When people are spending their own money, the providers start competing on price. And when they compete on price, they also compete on quality.
I concur with the assessment that this is good news. We have known for a long time that the more skin that people have in the health care game the more carefully they watch their expenditures. This coupled with the availability of more information on policies and treatments might help to bring some semblance of sanity to our purchase of health care, which seems to be accomplished now largely with other people’s money.
“Consider, for example, that a family with median income facing such a deductible would be spending almost 10% of their annual income just for their deductible before their insurance kicked in.”
That’s their annual income. But, health care is something that we’re supposed to be saving for over multiple years. How often do I meet my $5,000 deductible? Almost never. Maybe I’ll meet it once or twice in the next ten years.
So, do the math as to what percent of my total income my deductible eats up, assuming that I’m saving money over the course of several years.
High deductible plans return health insurance to the actual function of insurance.
Virginia, the nation as a whole is spending almost 20% of its personal income on health care. It’s better if these costs are transparent, rather than hidden. And better if patients manage the money, rather than an impersonal bureaucracy.
You can either spend it on the deductible or on higher premiums, take your pick. If you have a median income and can’t free up 10% of it for emergency expenses, then you need to examine your lifestyle.
I think Prof. Altman is trying to appease conservatives, but it won’t work. As long as prices are fixed by 3rd-party bureaucracies, shifting the share of health-care dollars spent on premiums towards out-of-pocket (OOP) is not going to have a satisfactory effect on consumer-direction.
Yes, it will have some effect. In the RAND Health Insurance Experiment, prices were determined by 3rd-parties, and the higher OOP costs dissuaded some patients from using medical services, reducing costs. Plus, today’s consumer-driven plans also have prices set by 3rd parties, and they are reducing costs, too.
However, real consumer-direction cannot come until the marginal consumer and the marginal supplier of medical services form prices. Although there is no direct price-fixing of the supply side under ObamaCare, one can reasonably anticipate that it will evolve like the Massachusetts reform: Bureaucrats will determine insurance premiums, and will soon have to fix prices of medical services, too.
Under ObamaCare, they can do this very easily by simply importing the Medicare fee-schedule into ObamaCare’s exchanges. Only time will tell how the bureaucrats and politicians respond to the next phase of the health-care crisis which they have caused.
Nevertheless, net-net, ObamaCare will surely harm consumer-direction, even if it will result in higher OOP costs.
Apparently Drew Altman hasn’t heard that ObamaCare passed. No more high deductibles or out-of-pocket costs. It’s third-party coverage for every little thing whether you want it or not.