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March 11, 2016 11:00 PM

Why consumer-based approaches are no panacea for U.S. healthcare

Harris Meyer
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    “If you don't have much cash, then the fact that you can make your $1,500 deductible pre-tax doesn't make much of a difference,” said Gary Claxton, vice president of the Kaiser Family Foundation.

    American politicians and policymakers often tout consumer-based approaches, such as price transparency, comparison shopping, retail clinics and high-deductible health plans with health savings accounts as answers to the nation's pressing healthcare cost and access problems.

    But recent evidence suggests that these types of market-based solutions have severe limits.

    Earlier this month, the Health Care Cost Institute reported that less than 7% of total U.S. healthcare spending in 2011 was paid by consumers for “shoppable” services, meaning those that can be scheduled in a market with some competition. “Overall, we come to the conclusion that the potential gains from the consumer price shopping aspect of price transparency efforts are modest,” the authors wrote.

    In addition, a study published in Health Affairs found that retail clinics have led to slightly higher per-capita spending because consumers use them for minor conditions that they typically would have treated on their own. Advocates of retail clinics have argued that the option offers lower costs and greater convenience. “This challenges the conventional wisdom that retail clinics save the healthcare system money,” Dr. Ateev Mehrotra, a co-author of the study, told Kaiser Health News.

    Meanwhile, Republican presidential candidate Donald Trump and other GOP politicians emphasize tax-free health savings accounts as a major part of their plans to replace the Affordable Care Act. They argue that the expanded use of HSAs would drive a more cost-efficient system by prodding consumers to shop, compare and negotiate with healthcare providers.

    But David Newman, executive director of the Health Care Cost Institute, said employers, insurers and providers are in a far stronger position to evaluate the price and quality of healthcare services and to control total spending than consumers are. Plus, most consumers simply aren't interested in price shopping for healthcare, unlike their eagerness to shop for cars and other products.

    “Last month I was diagnosed with skin cancer,” Newman said. “I haven't gotten on Google to check prices. I don't care about cost. I just want to have the surgery and be done with it.”

    Nevertheless, many employers have jumped on the consumerism bandwagon. Twenty percent of firms with health benefits offered employees high-deductible plans paired with tax-sheltered HSAs last year, and 15% of covered workers were enrolled in such plans, according to a Kaiser Family Foundation/Health Research & Educational Trust survey of employer health benefits.

    MH Takeaways

    Growing evidence suggests consumer-driven models are no substitute for strong cost-control efforts by payers and providers.

    But many employers make modest or no contributions to these accounts, and many Americans don't have spare cash to deposit in them.

    Workers in HSA plans on average received an annual employer contribution of $568 for single coverage and $991 for family coverage in 2015, about the same as they got in 2010, according to the survey. More than 40% of employers offering HSA plans made no contribution at all. That left workers on their own to pay the large deductibles in HSA plans, which averaged $2,196 for single coverage and $4,347 for family coverage.

    “If you don't have much cash, then the fact that you can make your $1,500 deductible pre-tax doesn't make much of a difference,” Gary Claxton, a vice president with the foundation, told Modern Healthcare.

    Not surprisingly, wealthier Americans are far more likely to take advantage of HSAs. A Health Affairs study last year found that high-income and older people established and fully funded their accounts at least four times as often as did low-income and younger people. That's even though lower-income people have a higher disease prevalence and are more likely to need those HSA funds to pay for care, the authors noted.

    Even some HSA advocates acknowledge the limits of the approach. Conservative health policy expert James Capretta recently wrote that relying solely on expanded HSAs won't work because it could lead to employers dropping coverage and more lower-income people becoming uninsured because they lack the money to fund HSAs on their own. He favors a broader reform approach, including refundable tax credits to subsidize insurance purchases.

    Newman noted that encouraging consumers to shop for healthcare runs counter to the drive by providers and payers to coordinate patients' care. “If I'm an accountable care organization and I'm responsible for their entire continuum of care, I don't want them out shopping,” he said.

    All of this suggests that traditional consumer market mechanisms won't suffice in healthcare, and that the government, insurers, employers and providers themselves have a major role to play in controlling costs and ensuring access to care. “At the end of the day, employers, insurers and providers know where the dollars go,” Newman said. “You have to look at them not to abdicate responsibility for reining in costs.”

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