How much will CDHC reduce spending?
Consumer-Directed Health Care: Early Evidence About Effects On Cost And Quality
By Melinda Beeuwkes Buntin, Cheryl Damberg, Amelia Haviland, Kanika Kapur, Nicole Lurie, Roland McDevitt, and M. Susan Marquis
Health Affairs
October 24, 2006
Demand for consumer-directed health care (CDHC) is growing among purchasers of care, and early evidence about its effects is beginning to emerge.
Studies to date are consistent with effects predicted by earlier literature:
There is evidence of modest favorable health selection and early reports that consumer-directed plans are associated with both lower costs and lower cost increases. The early effects of CDHC on quality are mixed, with evidence of both appropriate and inappropriate changes in care use. Greater information about prices, quality, and treatment choices will be critical if CDHC is to achieve its goals.
Effects Of High Deductibles And Personal Accounts
The best source of information about the effect of high deductibles on health care spending continues to be the RAND HIE. Exhibit 3 (see website) summarizes the results of several studies that have used HIE results to simulate the effect of moving the population from a plan typical of those now offered by employers to a plan with a high deductible. The studies by Emmett Keeler and colleagues (1996 and 1988) use a simulation model based on the HIE to assess changes in the number and costs of health care episodes that occur when a person exceeds the insurance deductible or the maximum limit, or both. Larry Ozanne (1996) estimated savings using the overall price elasticity of demand from the HIE. The other two studies in Exhibit 3 are based on actuarial pricing models that use a range of estimates of the elasticity of demand from the literature-including the HIE estimates. All told, the studies in Exhibit 3 suggest that moving everyone from a traditional plan to a high-deductible plan would result in a one-time reduction in use of about 4-15 percent. Another recent study also concluded that CDHC will have only modest effects because many with high spending would actually see a decrease in cost sharing under some consumer-directed plan designs.
The availability of personal spending accounts (HRAs or HSAs) coupled with a high-deductible plan may affect spending incentives and offset some of these gains. For example, if consumers view the accounts as earmarked for current spending, they might feel that there is no need to constrain spending despite the deductible, at least until they have exhausted the account. HSAs’ tax benefit makes current consumption of medical care below the plan deductible somewhat less expensive than current consumption of other goods and services; this mitigates the effects of a high-deductible plan.
Estimates are that personal health accounts might offset the 4-15 percent reduction in spending expected from a high-deductible plan by about half, so that high-deductible plans combined with personal accounts would reduce use by 2-7 percent (Exhibit 3). However, in addition to the tax-favored status of current contributions, the interest on HSAs is not taxed as earned, which could boost HSAs’ cost containment incentives. Still, experts believe that the reduction in spending by a person with an HSA would be less than the reduction with a high-deductible plan alone.
http://content.healthaffairs.org/cgi/content/abstract/hlthaff.25.w516
Comment:
By Don McCanne,MD
This is somewhat wonkish, but it is important, so try to bear with it.
The primary argument for consumer-directed health care (CDHC) is that it reduces health care spending. Since CDHC does decrease the use of beneficial health care services, it is appropriate to ask if the savings are enough to warrant instituting these financial barriers to beneficial care.
Since the RAND Health Insurance Experiment (RAND HIE) is the basis for using cost sharing to reduce total health care spending, it is important to understand the study. The RAND HIE evaluated the impact that cost sharing had on the utilization of health care services by employees and their families over a period of a few years. Since this is a relatively healthy sector of society, studied during a relatively healthy period in their lives, the results of the RAND HIE only have intrinsic validity for a similar healthy population. The results do not have extrinsic validity to our entire population, from birth to death, with their full basket of medical problems.
There is considerable evidence that cost sharing has little impact on those with higher health care needs: the 20 percent of the population that uses about 80 percent of the care. The impact would apply to the 80 percent who are healthier and use only about 20 percent of health care. Consistent with this is the fact that employer-sponsored plans fund only about 19 percent of total health care (excluding government employees).
This report indicates that “moving everyone from a traditional plan to a high-deductible plan would result in a one-time reduction in use of about 4-15 percent.” But other Health Affairs articles posted with this one state that high-deductible insurance alone is not enough; health savings accounts are an essential part of CDHC. According to this article “high-deductible plans combined with personal accounts would reduce use by 2-7 percent.”
Since that 2-7 percent reduction applies to only 20 percent of the spending, there would be only a 0.4-1.4 percent reduction in total health care spending. That would represent a one-time benefit that would be consumed by roughly two months of health care inflation.
Let’s get real! Dump this nonsense about CDHC and let’s get on with reform that really would work. A single payer system would not only slow the increase in health care costs, but it would also bring us greater value in our health care spending.