Ways to Save, Part 5: Consumer-driven health care

As part of our mission to help you save money by beating back your health-care costs, we’re running a series  giving practical consumer advice about the marketplace. Here’s the first post about saving money (we suggest that you always ask the price in advance); here’s the second (even in an emergency, ask!);  and the third (do you want to decide solely on price?); and the fourth (aren’t medical prices regulated?); following is the fifth.

We start each part with a statement, and then explore it. In this case, we are a bit skeptical.

As always, our posts should in no way be construed as offering medical advice. We are strictly about pricing.

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The new movement toward “consumer-driven health care” will change the entire equation, and bring consumers to the fore, thus reducing costs.

Consumer-driven health care is a fairly new phrase, dating to the late 1990’s or so, and describing generally high-deductible insurance plans often coupled with a Health Savings Account (HSA) or a Health Reimbursement Arrangement (HRA). The high-deductible plans usually carry lower premiums, but can mean that the insured person is responsible for the first $5,000, $10,000 or whatever sum of money described as the deductible.

Those pre-funded spending accounts are the chief difference from the now-common PPO plan, in which the patient-consumer using an in-network provider pays a fixed co-pay — say $20 — and the remainder of the cost is covered by the insurer.

It’s the fastest-growing part of the insurance marketplace: More than 10 million people are enrolled in high-deductible  plans with health savings accounts this year, as compared to 6.1 million in 2008, according to a recent survey by America’s Health Insurance Plans, an industry trade group.

The idea of such plans is to make the patient-consumer more responsible for health costs. This, supporters say, will drive down premiums and eliminate unneeded care, making people directly responsible for, and


aware of, their health-care spending. But critics say that people on such plans will avoid necessary care, and that because health-care prices are hard to find, the consumer won’t have  the tools to make good decisions. They also point out that people tend not to reject doctors’ recommendations, so if doctors recommend something then patients are likely to say yes, whether it’s actually needed or not.

In many cases, the annual outlay will be less under such a plan: the way to calculate it is to add up the lower premium and your annual expenses from a preceding year, guess what you think the next year’s expenses will be, analyze what the plan covers, who’s in the network, hypothesize about the unexpected, then hold your hands over a pile of papers and guess. Here’s a New York Times piece by the terrific Walecia Konrad about such plans.

The Princeton economist Uwe Reinhardt has done some excellent work on hospital pricing, and on consumer-driven care.

“Until now, the U.S. health care ‘market’ has been analogous to an imaginary world in which, say, employers offered to reimburse their employees 80 percent of the ‘reasonable cost’ of all attire deemed ‘necessary’ and ‘appropriate’ on the job but, under the contracts negotiated with department stores by the fiscal intermediaries administering this ‘Clothes Benefit Program,’ employees had to enter department stores blindfolded,” Mr. Reinhardt writes in “The Pricing Of U.S. Hospital Services: Chaos Behind A Veil Of Secrecy,” Health Affairs, 25, no.1 (2006):57-69.

“Only months after a shopping trip would the employee receive from the fiscal intermediary a so-called Explanation of Benefits (EOB) statement, explaining how much the employee had to pay for whatever he or she had stuffed, blindfolded, into the shopping cart on that shopping trip. Framed in bright red on that EOB would be the statement: ‘Pay X amount.’ X would represent 20 percent of what the intermediary would have judged, ex post, to be ‘reasonable prices’ for those garments in the shopping cart deemed by that intermediary, ex post, to have been ‘appropriate’ attire for the particular employee’s circumstances. It also would include 100 percent of the prices charged by the stores for items in the cart that were deemed by the intermediary, ex post, as ‘not necessary’ or ‘inappropriate’ and that were therefore not covered by the Clothes Benefit Program.”

He goes on to say that the foregoing passage describes the current payment system for health care, and adds that the movement for consumer-directed health care is gaining steam, with employers, insurers and policymakers seeking to force patients to act responsibly.

The reaction to this idea from Paul Krugman in The New York Times was harsh:

“How did it become normal, or for that matter even acceptable, to refer to medical patients as ‘consumers’? The relationship between patient and doctor used to be considered something special, almost sacred. Now politicians and supposed reformers talk about the act of receiving care as if it were no different from a commercial transaction, like buying a car — and their only complaint is that it isn’t commercial enough.”

I disagree with Krugman. Patients are consumers, and they sometimes need to act that way. I have heard enough stories about doctors and patients failing to communicate well over costs, that it seems obvious to me that some acknowledgement of the fact that money changes hands as some give care and some receive it is mandatory.

But the consumer-driven health care movement has me reaching for my wallet.

When I wind up in a high-deductible plan, which is a centerpiece of CDHC, will I be charged the sticker price for a procedure, or the “negotiated rate”? In other words, If my lab test bill was $393 and the “negotiated rate” that the insurance company pays the lab is $39.25, do I pay $393 or $39.25?

If I am charged $1,419 for a drug that a hospital could buy for $2.49, which price do I pay under “consumer-driven health care”? (Here’s my blog post about that.)

Will my premiums go down as a result of my choice for a high-deductible plan? Austin Frakt, who blogs over at The Incidental Economist, says high-deductible premiums will actually rise faster than other premiums.

Beyond that, with consumer-driven health care, there must be transparency on price and performance, or consumers won’t be able to make choices based on clear, public data.

Here’s Reinhardt again:

“This ‘consumer empowerment,’ as it is sometimes called, can only occur, however, if prospective patients actually have easy access to user-friendly, reliable information on at least three dimensions of their care: the prices charged by competing providers of health care; the costliness of practice styles adopted by these various providers—that is, the prices times the quantities of services and supplies they package into the treatments they render; and the quality of these providers’ services. If such a transparent information infrastructure now exists anywhere in the United States, it would be the rare exception.”

He concludes: “forcing sick and anxious people to shop around blindfolded for cost- effective care mocks the very idea of consumer-directed care.”



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As always, our posts should in no way be construed as offering medical advice. We are strictly about pricing. Our stated mission is to bring transparency to the health-care marketplace. Your decisions about treatment, providers and anything else belong strictly to you.

We’re starting this series with this list of topics. Send us your suggestions to info@clearhealthcosts.com!

1.    Ask the price in advance.

2.    Even if it’s an emergency, ask the price in advance. (Some people think you shouldn’t ask the price in advance.)

3.    Do you really want to make medical decisions based solely on price?

4.    Hospital and other rates are regulated by somebody, aren’t they? So there’s not really a great deal of variance. Wait, they’re not regulated?

5.    The new movement toward “consumer-driven health care” will change the entire equation, and bring consumers to the fore, thus reducing costs. (Keep a hand on your wallet.)

6.    Get someone’s name, and keep it–in general, keep careful records.

7.    Know what your plan covers.

8.    Read the small print. Ask questions if you don’t understand.

9.  Read the doctor’s bill. Ask questions if you don’t understand.

10.  Read the explanation of benefits from the insurance company. Ask questions if you don’t understand.

Send us your suggestions to <a href=”mailto:info@clearhealthcosts.com”>info@clearhealthcosts.com</a>, and thanks!