Medical Erroris a documentary producer and health services researcher. His most recent documentary, “Financial Insecurity: America’s Crisis in Health Care and Retirement,” aired on PBS this summer. Conservative lawmakers and many business leaders are touting health savings accounts as the silver bullet to fix America’s dysfunctional health care system (as Jonathan Cohn chronicles in “Crash Course,” page 18). But, while widespread use of health savings accounts is untested here, there is a country with a decade’s worth of experience with similar consumer-driven health plans: South Africa. The experience there should serve as a cautionary tale for anyone who thinks these accounts will solve America’s health care crisis. In South Africa, consumer-driven health care has had some decidedly unhealthy effects.South African health care has some similarities to care in the United States. Medicine is often just as advanced (remember, South African doctors performed the world’s first heart transplant in 1967). And, like the United States, South Africa is a developed country without national health insurance. Instead, consumer-driven plans with medical savings accounts (equivalent to health savings accounts in the United States) are held by over half of South Africans with private health care. (Private health care there covers nearly 15 percent of the population, including almost all highincome South Africans, regardless of race. Everyone else is forced to rely on the underfunded public sector.) These consumer plans have their roots in the final days of apartheid, when health insurance, like many sectors of the South African economy, was rapidly deregulated because business leaders feared the incoming African National Congress government. Until then, South Africans obtained private health coverage through employersponsored or profession-based insurance plans that were tightly regulated by the government. But, after 1994, South Africa quickly acquired one of the least regulated insurance markets in the developed world. Today, some 150 “medical schemes” (the telling term South Africans use for insurers) vie with one another to attract members. In the frenzied atmosphere following deregulation, schemes began to offer something new: a medical savings account not tied to any particular employer and coupled with a high deductible insurance plan. But, at first, not everybody could join. Those with a high risk of claiming benefits--generally, people over 55--were barred from participating. The result was an unprecedented restructuring of the insurance market. The young and healthy migrated to the new consumer-driven plans and away from traditional employer-based schemes. Meanwhile, the old and infirm were left in traditional insurance schemes. Discovery Health, the pioneer of consumer-driven plans, grew to become the largest medical-scheme administrator in the country. (Through a subsidiary called Destiny Health, the company is now active in the United States.) In at least one way, the plans have been a success: They are enormously popular, a phenomenon the insurance industry attributes to people’s preference for managing their own day-to-day medical expenses. Additionally, the costs for visits to general practitioners, which are typically paid out of medical savings accounts, have been held somewhat in check. These two factors have led conservative and libertarian groups in the United States, such as the Texas- based National Center for Policy Analysis, to write glowingly about the South African experience. At a macroeconomic level, however, there is less cause for celebration. Private health care costs have hardly been contained. In fact, the opposite is the case. Between 1996 and 2001, the cost of specialty care increased 43 percent, and the cost of hospital care rose 65 percent. This represents a marked increase from the inflation rates for the five years prior. There have also been substantial increases in plans’ administrative costs (which include profits). Meanwhile, the number of South Africans lacking health insurance-- which is the bulk of the population--has continued to grow rapidly. Consumer- driven health plans have also done too little to address South Africa’s most pressing health problem: HIV. Before this year, many medical schemes covered only badly needed antiretroviral treatments as part of their medical savings accounts, and they stopped providing the treatments when funds dried up. (In January, the government mandated minimum coverage for HIV.) Government regulators in South Africa, known as the Council for Medical Schemes, are intensely concerned about the effect of the consumer-driven plans. In their view, the plans’ true raison d’etre is to allow insurers to cherry- pick healthy people. Medical savings accounts are a method for insurers to “cream skim” the healthy, because these plans work best if you will have little need to go to the doctor. The South African story, then, is a move from a noncompetitive insurance environment to a competitive one, but the competition wasn’t by hospitals to provide the best or cheapest care, but rather among insurers to get the healthiest patients. Consumer-driven plans are central to this process, because they are ideal for “risk-selecting” the young and fit, who have flocked to the new plans. Not in need of expensive medical care, the healthy could watch their account balances grow, leaving the truly sick behind in traditional plans. This particular type of competition--to attract the healthy--in turn led to price increases, because insurers had little incentive to control the prices medical providers charged. After all, it was no longer their problem. It was up to the patient to worry about costs, and the patient hardly had the same bargaining power as the insurers once did. According to a key South African regulator, Alex van den Heever of the Council for Medical Schemes, “Competition based on the shifting of risk and cost to members only reduced the incentives of health insurers to directly manage health care service providers.” The South African experience with consumer-driven health plans and medical savings accounts may soon be drawing to a close. In 2002, the country’s Department of Health conducted an inquiry into the South African health system that, though nonbinding, has been influential and is expected to lead to change. Its conclusion: Savings accounts should be phased out of medical schemes. As its authors wrote, “The focus of health policy needs to be on risk-sharing and cost containment. None of these key health policy objectives can be achieved through medical savings accounts” (italics in original). South Africa’s experiment with consumer-driven health plans raises important questions for policymakers in the United States currently contemplating widespread implementation of health savings accounts. It suggests that such accounts can indeed foster greater competition and transform a health system-- but not in the ways their proponents intend. Partly in response to the troubling health care trends brought about by the dominance of consumer-driven medical schemes, South Africa is now in the process of reregulating the health care industry and moving away from medical savings accounts. South Africa gives us a chance to look before we leap--and hopefully step back from the edge.
By david adler