Impact of "Consumer-Driven" Health Care on Consumers
High deductible medical insurance plans shift healthcare costs from those who are healthy and wealthy to those who are sick and low income.
United States Congress
Joint Economic Committee
February 25, 2004
Impact of "Consumer-Driven" Health Care on Consumers
Testimony of Gail Shearer, Director, Health Policy Analysis
Washington Office of Consumers Union
One way to reduce the employer premiums for health insurance, and to make
payments more predictable, is to switch to a "defined contribution" approach
to health insurance... In the employer health insurance market, a key
distinguishing feature of its effort to move toward a defined contribution
model is high-deductible coverage. As indicated by the title of the Joint
Economic Committee hearing, the term that insurers and employers have coined
to name this new trend in the marketplace is "consumer-driven health care."
Consumers Union... is troubled by this trend in the marketplace. In our
testimony, we plan to explain why we believe this type of coverage is
misnamed, misguided from a policy perspective, and a dangerous distraction
from the health insurance crisis that faces 43.6 million uninsured consumers
and tens of millions of underinsured consumers.
The focus of the President's Economic Report chapter on health insurance is
more on the alleged problems of over-insurance rather than the problems
associated with the lack of insurance and underinsurance. The chapter could
be a primer for a Health Economics 101 course on the virtues of an
unfettered free market for health insurance: the reader learns about
different consumption choices that consumers make when they have insurance.
It posits that patients might over-consume services if they face too little
Nowhere in this chapter is there recognition of the reality that faces
millions of Americans every year: For the most part, people are not
uninsured out of choice, but because they can not afford to pay health
insurance premiums. Every day, uninsured and underinsured Americans are
dying because of the lack of insurance.
When the marketplace shifts to one characterized by pricing to risk, as
suggested by the President's Economic Report, this leads to escalating
premiums for the very people who can least afford them - people who face
serious health challenges.
The Administration's proposals, which boost "consumer-driven" health care,
by design, shift more costs to those who are sick. The result will
ultimately be a health care system that distributes costs of health care
even less fairly than it does today.
Based on survey data from the Medical Expenditure Panel Survey (MEPS) and
adjusted to 2000 levels (by the Lewin microsimulation model), the average
health care costs of those with employer based coverage was $2,628 in 2000.
However, the average masks a large degree of variation: those in the lowest
fifth of spending incurred on average $30 of health care expenditures, while
those in the top tenth of spending incurred costs of $16,710. This variation
of risk goes to the heart of the need to find a way to spread costs broadly
in order to keep costs affordable to those at the highest risk level.
Yet the Economic Report of the President suggests that instead of spreading
risks broadly so that health coverage will be affordable to those with
existing conditions, "pricing to risk" is a primary goal of the health
insurance marketplace. This approach sacrifices any notion of community and
sharing of our neighbor's burden, in favor of marketplace efficiency.
Expansion of medical savings accounts (MSAs) under the new name of Health
Savings Accounts (HSAs) adds a new wrinkle to "consumer-driven health care"
plans by making the contributions to the health reimbursement account tax
deductible. This new tax policy, combined with high deductible health
coverage, is likely to appeal disproportionately to the healthy and wealthy.
Because of the variation of risks, and different selections made by people
of different health status, high deductible plans can not exist in the
long-term in a marketplace that offers low-deductible plans as well.
Ultimately, low-deductible plans will be driven out of the market, with
"premium spirals" driving out comprehensive coverage.
"Fundamentally, those who would likely win from shifting to MSA/catastrophic
arrangements are the healthy who will 'take back' some of their 'excess'
contributions that effectively help to subsidize others."
"The great savings will be for the employees who have little or no health
care expenditures. The greatest losses will be for employees with
substantial health care expenditures."
A recent study of "consumer-directed health benefits" concluded that the
young and healthy are potential winners, and that older people are less
likely to choose high deductible plans.
In sum, high deductible coverage, combined with the new tax shelter, drive
up premiums for those wanting low deductible coverage, are likely to lead to
elimination of low-deductible coverage, strain the federal treasury, and
will lead to shifting of costs to those who are sick while benefiting the
healthy and those in high tax brackets.
As the President's Economic Report clearly points out, high-deductible (and
"consumer-driven") health care plans are designed to increase out-of-pocket
costs for those who have health care expenditures.
Focusing on transforming our health care marketplace into a high-deductible
marketplace is a dangerous distraction from the urgent national goal of
extending affordable, quality health coverage to all.
For the full testimony:
From Don McCanne's <quote-of-the-day@m...>
Comment: High-deductible coverage, health savings accounts, defined
contributions, and plans with Spartan benefits and greater cost sharing are
all methods of "empowering the consumer" in the health care marketplace. In
health care, an "empowered consumer" means that he or she feels the pain of
health care costs. Current trends are intensifying this pain by "pricing to
risk." Those with greater health care risks are being required to pay higher
prices if they "choose" to have access to health care. Those who cannot
afford the higher prices will "choose" to have impaired health care outcomes
(though no other real option is being offered).
Gail Shearer's testimony should be downloaded and distributed widely. The
nation needs to understand why we should reject current policies that
provide the healthy and wealthy with the option of not participating in the
risk pools that help to fund care for the sick and poor.
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