Stealing a long bit from Forbes interviewing Amitabh Chandra on his research in how high deductible health plans change behaviors:
The switch caused a spending reduction of 12%— so HDHPs certainly save money. A 12% saving is really large. If the result is general, it implies that moving everyone to such plans would save about $300 billion annually!
But once we peeked under the hood, what we saw really troubled us. First, we found no evidence of consumers learning to price shop after two years in high-deductible coverage. None. So strike one. We also found that consumers reduce quantities across the spectrum of health care services, including potentially valuable care (e.g. preventive services) and potentially wasteful care (e.g. imaging services). So they don’t know what care is valuable and what isn’t. Strike two. We then leverage the unique data environment to study how consumers respond to the complex structure of the high-deductible contract. We find that half of all reductions come for the sickest consumers, while they are under the deductible, despite the fact that these consumers have quite low end of year prices as a result of their sickness. In other words, consumers respond to prices but they’re responding to the wrong prices— they’re don’t fully understand the complicated structure of the HDHP. Strike three.
What this teaches me is that simply calling a patient a consumer doesn’t make buying healthcare like buying cars. In healthcare, the consumer (i.e. the patient) is sick, tired, confused, distracted— they want their doctor or their insurer to help them manage the health-care that they need. Making them deal with a high-deductible plan is double jeopardy: first, they get hit with an illness. And then we hit them financially and cognitively. It’s not fair. And it doesn’t work.
Late last week, I posted a Twitter link on how healthcare is fundamentally a Pareto industry. Most people barely touch the healthcare system in any given year. More importantly, even more people who are visibly effected by all the insurance market reforms of PPACA are minimally connected to the healthcare system. Medicare and Medicaid both eat up a significant proportion of the most expensive high utilizing 20% of the population. Medicare gets old people who have the expensive chronic condition of being old while Medicaid is a significant payer for certain high cost conditions plus long term care. So in the non-Medicare, non-Medicaid population, an even higher proportion of people just don’t touch the system more than three times a year or more than $1,000 in spending per year.
The shock doctrine of HDHP does not produce better shoppers and instead leads to indiscriminate volume reductions. That leads to all sorts of other payment reform methodologies. Reference pricing on bundles makes clear choices between providers and rewards marginal cost awareness. Bundle pricing reduces decision complexity so instead of trying to price seventeen services for a simple surgery, the bundle collapses all pricing into a single price that can be compared. And on the back-end, it leads to group risk pooling at the provider group level with shared savings and ACO arrangements.
HDHP were an interesting experiment that we need to get away from. It does not meet its objective to better care at lower prices because we are information limited and make horrendous decisions under stress and uncertainty.