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More Skin in the Game--for Seniors?

Paul Ryan's budget proposal would, among other things, push many seniors out of traditional Medicare and into high-deductible private insurance plans. But what do high-deductible policies mean for beneficiaries? My latest Kaiser Health News column addresses that question:

Conservatives think traditional health insurance provides too much financial protection from medical expenses. They also think that the Affordable Care Act will make this situation worse. That's one reason they want to repeal it.

The problem, according to the conservatives, is that insurance dulls the average person's consumer instincts. When medical care is cheap or free, people don't bother to shop around for the best prices -- and they don't think twice before seeing the doctor. In other words, they end up with too much care at too high a price. Insurance and government programs spread that cost around, so that eventually all of us end up paying more in the form of higher premiums or taxes over which we have little individual control.

The solution, as this argument goes, is to redesign insurance so that it forces people to pay more out-of-pocket expenses. And, within reason, it's not a bad idea. Most economists, even those on the left, would agree that excessive coverage leads to higher health care spending.

But redesigning insurance in a way that actually lowers spending and, by the way, promotes good health, is a lot more complicated than merely giving people "more skin in the game," as conservatives like to put it. A new study by researchers affiliated with the Rand Corporation suggests why.

The study, published in the American Journal of Managed Care, compares trends in medical spending by two groups of people -- one group with traditional insurance and one with newly purchased high-deductible coverage. It appears to be the largest study of its kind, and the three authors did their best to adjust for factors like age, occupation and underlying medical conditions. The result? People with high-deductible plans spent substantially less on their medical care.

That's good news. Or is it? Giving people more skin in the game has distributional consequences. It shifts the burden of medical expenses onto those people with the most serious medical problems, which is, arguably, what insurance is designed to prevent. In addition, discriminating medical consumers are not always intelligent medical consumers. People may decide to skimp on useful medical care rather than the superfluous kind.

Sure enough, that seems to be what happened in the Rand study. In families with high-deductible plans, kids were less likely to get immunizations and adults were less likely to get cancer screenings. Not only did this seem to jeopardize the beneficiaries' health, it also called into question the cost savings. After all, as the authors pointed out, it was possible the failure to get preventative care in the first year would lead to bigger, more expensive medical problems down the road.

This was not a surprising finding. The original, gold-standard study on high deductible insurance, also from Rand, found that people couldn't discern between useful and unnecessary care. More recent studies have suggested that higher co-payments on prescription drugs discouraged seniors from taking medication to control high-blood pressure.

What makes this latest examination particularly arresting is that the high-deductible plans involved in the study actually made special exceptions for preventive care, effectively making it free. So why did patients skimp on that care anyway? One possible explanation is that people with higher cost-sharing plans were confused about what their plans covered. Another is that, because of the associated costs, they avoided regular physician visits, which would have been the impetus for the preventive care they needed.

"These services are often initiated when you to go the doctor," says co-author Neeraj Sood, who is a professor at the University of Southern California's Schaeffer Center on Health Care Policy and Economics. "It's possible you didn't go to the doctor because of the high-deductible policy."

This doesn't suggest higher cost sharing is a bad idea. It does suggest higher cost sharing must be imposed delicately -- with full coverage of preventive care, extra protection for the chronically ill and better education about what plans actually include. It also suggests that, in the long run, controlling the cost of medical care can't simply be about changing consumer behavior. It needs to change provider behavior as well.

"Doctors and hospitals are better at figuring out where it's possible to cut down care without sacrificing health," Sood says. "Patients have a more difficult time figuring out appropriate care."

And what does that tell us about the Affordable Care Act? Contrary to the conservative wisdom, it tells us that the law moves health care in the right direction. The tax on benefits should discourage excessive insurance, while regulations on private benefits and changes to Medicare should promote preventive care. And that's in addition to the myriad Medicare payment experiments designed to encourage more efficient care by doctors and hospitals.

The health law could do a better job in all of these respects -- the benefits tax could be bigger, the payment reforms more aggressive and so on. The law could also do (a lot) more to insulate the chronically ill from onerous bills. But, once again, that's an argument for improving the law, not for repealing it.

This column is a collaboration between TNR and Kaiser Health News. KHN is an editorially independent news service and is a program of the Kaiser Family Foundation, a nonpartisan health care policy research organization, which is not affiliated with Kaiser Permanente.