October 20, 2015


Is a genuine market in health insurance even possible? (Jeff Spross, October 16, 2015, The Week)

In 2013, a firm shifted 52,000 employees and a number of their dependents onto a new health plan. The old plan was extremely generous, with lots of providers and covered services, and no deductibles. The new plan kept the providers and services, but added a $3,750 deductible. Since a deductible is a form of cost-sharing -- you and your insurer share the cost of your care -- fans of markets in health care are generally fans of high deductibles. The idea is that if your insurer covers all of your costs, you won't shop for care in any meaningful way, and then competitive market pressures can't do their thing. But if you share your costs, you'll be price sensitive, and you'll shop.

More importantly, the insurance plan also provided everyone with $3,750 in cash in a health savings account. So while the consumers were made more price sensitive, their own financial security wasn't threatened by the price sensitivity. They could spend the $3,750 on care, or they could save it for a rainy day, all without fear of encountering a price they couldn't shoulder.

The people on this plan were given a price-shopping tool "that allowed them to search for doctors providing particular services by price as well as other features (e.g. location)." That's also really important, because price transparency in the American health care system is wretched. Price tags for the same procedure vary all over the map, and it's next to impossible to get hospitals, doctors, and other providers to quote you a price upfront for major procedures.

The system is so sclerotic that the basic institutional and cultural infrastructure for just telling people the price of something was never put in place. And you can't really shop without that.

Finally, it's worth noting the employees on this plan were "relatively educated, high-income consumers" -- i.e. white-collar folks with the know-how to sift through complex ideas and paperwork.

So this looks like a pretty good test of whether we can get markets in health care. Sophisticated consumers were made price-sensitive but not put at financial risk, and were given a tool to shop for providers and procedures. So did it work?

Not really.

Per-patient spending definitely fell -- about 15 percent in one year -- but not because anyone shopped. People just...didn't go to the doctor. 

People deciding to keep their money instead of consuming health care is how you drive health care spending down--and build retirement wealth.

Posted by at October 20, 2015 6:58 PM

blog comments powered by Disqus