By Bruce Vladeck, Ph.D
Kaiser Health News, August 2, 2011

The usual laundry lists of proposals for Medicare savings are already being circulated throughout official Washington. Most of these ideas have been around for years, and have never gotten past the talking stages because of political opposition or because they are simply bad ideas. But one especially pernicious proposal appears to have increasing traction among both politicians and policy analysts: the prohibition of first-dollar coverage in Medicare supplemental insurance, whether purchased in the individual markets or provided as a retiree benefit.

This proposal is based on a simple and seemingly self-evident syllogism. Medicare beneficiaries with supplemental insurance that provides them with first-dollar coverage by paying their deductibles and co-payments use more services than the small minority of beneficiaries without such coverage. Hence, forbidding such coverage would reduce use, thereby saving Medicare a pile of money.

American policymakers, and the health economists who enable them, are obsessed with issues of consumer demand, and the notion that health care is so expensive because Americans are so eager to consume it. In fact, insured Americans already have the highest out-of-pocket liabilities in the developed world, and use fewer services initiated by consumers. In the absence of supplemental coverage Medicare beneficiaries would have still higher out-of-pocket liabilities than other insured Americans, which is why essentially every beneficiary who can afford it seeks extra coverage. But while overuse of some services in some communities is inarguably a part of the Medicare cost problem, there is no compelling evidence that consumer-generated demand is a significant part of the problem. Whatever the political rhetoric, Medicare beneficiaries simply aren’t banging down the doors of physicians’ offices demanding extra MRIs and surgical procedures.

Quite the contrary: during the past decade, Congress has eliminated cost-sharing for most Medicare preventive services in response to concerns about the underuse of such services, and because of evidence that out-of-pocket costs were a significant deterrent, especially for less affluent and minority beneficiaries. More generally, while the evidence has been clear since the RAND experiments of the early 1970s that out-of-pocket costs reduce health care use, it’s also been clear that their effect is inversely related to disposable income: the less income a person has, the greater the effect of copayments and deductibles, not to mention the greater likelihood of poor health.

That’s why Medicaid historically forbade deductibles, and now permits them at only nominal levels. More importantly, the growth in out-of-pocket costs for health care consumers during the last decade or so has provided an abundance of illustrations of the basic fact that consumers deterred from seeking health care for economic reasons are just as likely to forego needed services as “discretionary” ones, and that that phenomenon is further correlated with income. Faced with higher out-of-pocket expenses, consumers may get fewer Botox treatments or buy fewer laxatives, but they also skip visits for management of their heart disease and diabetes, and don’t fill their prescriptions for hypertension medication.

The reason health insurance exists in the first place, after all, is to relieve individuals who are not medical experts of the need to figure out whether they can afford any particular medical service. In a rational world, policymakers worried about unnecessary or inappropriate use of specific services would just refuse to pay for those services. But in the contemporary American political environment, they might be accused of “rationing” or “death panels,” so they stay away. Instead, they appear to be willing, once again, to impose the consequences of their inability to control costs on those least able to bear them.

http://www.kaiserhealthnews.org/Stories/2011/August/02/different-takes-080211-vladeck.aspx

Comment: 

By Don McCanne, MD

Unreasonable consumer demand is not a significant source of our high health care spending. Measures that deprive patients of beneficial health care services by imposing penalties designed to suppress consumer demand are not only inappropriate, but are truly heartless.

Proposals To Forbid First-Dollar Coverage For Medicare Beneficiaries

By Bruce Vladeck, Ph.D
Kaiser Health News, August 2, 2011

The usual laundry lists of proposals for Medicare savings are already being circulated throughout official Washington. Most of these ideas have been around for years, and have never gotten past the talking stages because of political opposition or because they are simply bad ideas. But one especially pernicious proposal appears to have increasing traction among both politicians and policy analysts: the prohibition of first-dollar coverage in Medicare supplemental insurance, whether purchased in the individual markets or provided as a retiree benefit.

This proposal is based on a simple and seemingly self-evident syllogism. Medicare beneficiaries with supplemental insurance that provides them with first-dollar coverage by paying their deductibles and co-payments use more services than the small minority of beneficiaries without such coverage. Hence, forbidding such coverage would reduce use, thereby saving Medicare a pile of money.

American policymakers, and the health economists who enable them, are obsessed with issues of consumer demand, and the notion that health care is so expensive because Americans are so eager to consume it. In fact, insured Americans already have the highest out-of-pocket liabilities in the developed world, and use fewer services initiated by consumers. In the absence of supplemental coverage Medicare beneficiaries would have still higher out-of-pocket liabilities than other insured Americans, which is why essentially every beneficiary who can afford it seeks extra coverage. But while overuse of some services in some communities is inarguably a part of the Medicare cost problem, there is no compelling evidence that consumer-generated demand is a significant part of the problem. Whatever the political rhetoric, Medicare beneficiaries simply aren’t banging down the doors of physicians’ offices demanding extra MRIs and surgical procedures.

Quite the contrary: during the past decade, Congress has eliminated cost-sharing for most Medicare preventive services in response to concerns about the underuse of such services, and because of evidence that out-of-pocket costs were a significant deterrent, especially for less affluent and minority beneficiaries. More generally, while the evidence has been clear since the RAND experiments of the early 1970s that out-of-pocket costs reduce health care use, it’s also been clear that their effect is inversely related to disposable income: the less income a person has, the greater the effect of copayments and deductibles, not to mention the greater likelihood of poor health.

That’s why Medicaid historically forbade deductibles, and now permits them at only nominal levels. More importantly, the growth in out-of-pocket costs for health care consumers during the last decade or so has provided an abundance of illustrations of the basic fact that consumers deterred from seeking health care for economic reasons are just as likely to forego needed services as “discretionary” ones, and that that phenomenon is further correlated with income. Faced with higher out-of-pocket expenses, consumers may get fewer Botox treatments or buy fewer laxatives, but they also skip visits for management of their heart disease and diabetes, and don’t fill their prescriptions for hypertension medication.

The reason health insurance exists in the first place, after all, is to relieve individuals who are not medical experts of the need to figure out whether they can afford any particular medical service. In a rational world, policymakers worried about unnecessary or inappropriate use of specific services would just refuse to pay for those services. But in the contemporary American political environment, they might be accused of “rationing” or “death panels,” so they stay away. Instead, they appear to be willing, once again, to impose the consequences of their inability to control costs on those least able to bear them.

http://www.kaiserhealthnews.org/Stories/2011/August/02/different-takes-080211-vladeck.aspx

Unreasonable consumer demand is not a significant source of our high health care spending. Measures that deprive patients of beneficial health care services by imposing penalties designed to suppress consumer demand are not only inappropriate, but are truly heartless.