Consumer-Directed Managed Care
Health Affairs
November/December 2004
Consumer-Directed Health Plans And The RAND Health Insurance Experiment
By Joseph P. Newhouse
What Was The RAND Experiment?
The RAND HIE (RAND Health Insurance Experiment) randomized families to health insurance plans that varied their cost sharing from none (“free care”) to a catastrophic plan that approximated a large family deductible with a stop-loss limit of $1,000 (in late-1970s dollars), which was scaled down for the low-income population. If one uses the rate of increase in per capita medical spending to convert late-1970s dollars into 2004 dollars, a $1,000 deductible then would be more than a $6,000 deductible is today.
The HIE participants in the large-deductible (95 percent coinsurance) plan used
25-30 percent fewer services than those in the free-care plan; on average,
they had just under two fewer face-to-face physician visits per person per
year and were 23 percent less likely to be hospitalized in a year. Substantial reductions in use were found among all income groups. But the heat in the hoary debate over the appropriate role for patient cost sharing was not the magnitude of any savings, but whether any reduction in use induced by increased cost sharing was among “necessary” or “unnecessary” services and therefore whether it adversely affected health. Those on the political left generally espoused the view that the services were necessary; those on the right, that they were unnecessary.
On this score, the results of the HIE had something for both sides. For most
people enrolled in the RAND experiment, who were typical of Americans covered by employment-based insurance, the variation in use across the plans appeared to have minimal to no effects on health status. By contrast, for those who were both poor and sick-people who might be found among those covered by Medicaid or lacking insurance-the reduction in use was harmful, on average. In particular, hypertension was less well controlled among that group, sufficiently so that the annual likelihood of death in that group rose approximately 10 percent. This adverse effect occurred in spite of the reduced cost sharing for low-income families, a feature generally not found in today’s plans.
http://content.healthaffairs.org/cgi/content/abstract/23/6/107
Comment: The RAND Experiment is of great importance because it is cited as
the rationale for creating consumer (patient) sensitivity to health care costs. This principle is the primary mechanism of controlling health care costs in the consumer-directed model of health care reform. We now have the advantage of having witnessed the debate, tempered by time, of the real impact of the RAND conclusions. Professor Newhouse provides us with an allegedly objective assessment of the RAND experiment from this historical perspective.
And what were the results? Most people, who are healthy and employed, remain
healthy even with cost sharing. But for those who are poor and sick, the reduction in use was harmful to their health, even resulting in death.
Although cost sharing does not have much of a negative impact on healthy people, it really does not decrease total health care spending much since most people are healthy and have much less need to access the health care delivery system. Keep in mind that 80% of individuals use only 20% of all health care services, and the reduction in utilization caused by cost sharing is a relatively small percentage of that 20% of total costs.
But what about the poor and sick? Cost sharing does reduce spending, but that reduction is in essential health care services. Significantly impaired health outcomes are absolutely inevitable.
Presenting the results of the RAND Experiment as an objective debate between
two sides that have an equal claim to the debate turf provides objectivity that is about as cold and calculated as the surveyor of battle scenes who report collateral damage in terms of statistical body counts. To suggest that the cost sharing debate has something for both sides ignores the fundamental issue that there is only one side to providing affordable health care access to those with significant medical needs.
Unfortunately, Professor Newhouse doesn’t stop there. Although he acknowledges the “counterrevolution against managed care,” he states:”How will the increased initial cost sharing mesh with managed care? I see them as complementary. One result of the RAND HIE was that the variation in cost sharing affected the likelihood of seeing a physician or other health professional about a medical problem, but it had only a small effect on the costliness of an episode once care was sought. By contrast, the tools of managed care aim primarily at the costliness of an episode.”
And…
”… higher initial cost sharing may make the instruments of traditional managed care more effective.”
Thus we enter the age of the grand experiment with Consumer-Directed Managed
Care. The body of health policy literature has already written the outcome:
suffering and death for those with greater health care needs.
Wouldn’t it be better to spend more of our $1.8 trillion on those who need health care?