A system that perpetuates poor access to care for the have-nots will only drive that [uninsured patient] bill higher

February 12, 2008 | Will Consumer-Driven Medicine Really Cut Health Care Costs?

One of the most common justifications for consumer-driven medicine is reduced health care costs. The reasoning here is two-fold:

1. Since they’re high-deductible and low premium, consumer-driven health plans require more out-of-pocket spending. Consumers are more cost-conscious when they have to actively shell out for purchases. As a result, they will user fewer health care services—and thus overall health care costs will fall.
2. If consumers are in the driver’s seat, competition in an open market will drive prices down. For-profit providers will want to offer the best deal to get the most business. Consumers will also have better information thanks to the commoditization of medicine, which will translate medical jargon into universally comprehensible knowledge. Smarter consumers translate into less over-payment for services.

This is standard-issue free market orthodoxy at its finest. Unfortunately, this isn’t the whole story. In fact, there’s an even stronger argument to be made that consumer-driven health plans could lead to higher health care costs.

The Wrong Patients Forgo the Wrong Care

Research by the RAND Corporation’s health insurance experiment shows that when you shift costs to the consumer, patients forego both wasteful and effective care. And this is particularly true of the patients who cost us most in the long run—those suffering from chronic diseases.

A 2007 paper from the National Bureau of Economic Research looked at retired California public employees on Medicare, and its findings contradict some of the basic assumption of the consumerist movement.

The study’s authors--from Harvard, MIT, and the University of Oregon-- found that chronically patients who are asked to shoulder more of their health care costs deferred, neglected, or opted-out of doctor’s visits and drugs when the price got too high. This short-term cost reduction led to long-term catastrophe, as their hospitalization rates were significantly higher than other patients suffering from chronic diseases. Immediate savings ultimately led to a greater—and otherwise preventable—use of more expensive care. Oops.

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Consumer-Driven Medicine Turns Healthcare into a Commodity

In a market-driven health care system, businesses try to maximize revenue and minimize cost. The quickest way to do that is to market what’s already out there, rather than waste time on true innovation.

Retail health clinics, for example, want to “cross-sell” by encouraging patients to pick up other products that the store sells on their way in or out of the clinic. Why? Because it’s a low-cost way to increase profits: shuttle patients from the clinic to the prescription counter, no muss no fuss.

A similar reasoning prevails in the prescription drug industry. A January study from York University found that the U.S. pharmaceutical industry spends almost twice as much on promotion as it does on research and development. Again, it’s easier to troll for new customers than to build a better product. ...
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More Inequality

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Consider health savings accounts, which favor high-income earners because they are tax-free (richer people save more by not paying taxes). More money in the savings account means more purchasing power. More purchasing power means more health care options—not to mention more providers falling at your feet to get your dollars.

... In a market-driven system, health care prospects improve as you move up the income ladder. But if those at the bottom don’t see a real boost, we have a problem—socioeconomic status is a major predictor of health. Ultimately it’s the poor who need access to health care that lies beyond their means.

... the disadvantaged suffer more when they consume less care than do the affluent. And when patients have asked to have “more skin in the game,” it is the poor who are most likely to forgo needed care. In 2003, the Center for Budget and Policy Priorities cited research from the RAND corporation that found “low-income adults and children reduced their use of effective medical care services by as much as 44 percent when they were forced to make co-payments, a much deeper reduction than occurred among those with higher incomes.”

... Currently, the price tag of health care for the uninsured is over $40 billion. A system that perpetuates poor access to care for the have-nots will only drive that bill higher.