Tag: "consumer driven health care"

High-Deductible Health Insurance Crushes Health Spending

A new working paper published by the National Bureau of Economic Research (NBER) shows how much high-deductible health plans reduce spending:

We study consumer responsiveness to medical care prices, leveraging a natural experiment that occurred at a large self-insured firm which forced all of its employees to switch from an insurance plan that provided free health care to a non-linear, high deductible plan. The switch caused a spending reduction between 11.79%-13.80% of total firm-wide health spending ($100 million lower spending per year). We decompose this spending reduction into the components of (i) consumer price shopping (ii) quantity reductions (iii) quantity substitutions, finding that spending reductions are entirely due to outright reductions in quantity. We find no evidence of consumers learning to price shop after two years in high-deductible coverage. Consumers reduce quantities across the spectrum of health care services, including potentially valuable care (e.g. preventive services) and potentially wasteful care (e.g. imaging services).

(Z.C. Brot-Golberg, et al., What Does a Deductible Do? The Impact of Cost-Sharing on Health Care Prices, Quantities, and Spending Dynamics,” NBER WP No. 21632, October 2015.)

Jeb Bush Health Reform: Innovation and Patient-Centered Care

Bush2(A version of this Health Alert was published by The Hill.)

By avoiding sound bites and respecting voters’ ability to understand issues, Governor Jeb Bush’s health-reform proposal demonstrates strong leadership. Repeal and replace Obamacare? Sure, Bush is for that, but no Republican politician should win points simply by regurgitating what many citizens fear has become little more than a slogan.

Jeb Bush’s Health Plan

BushJeb Bush’s health plan is out – and it is very good. Bush leads with fundamental reform of the Food and Drug Administration. “It should not cost $1.2 billion to $2.6 billion nor take 12 to 15 years to advance a medicine from discovery to patients, but that is the case under the Food and Drug Administration’s current regulatory mess.”

In recent weeks, we’ve read stories about drugs that have been around for decades, for which prices have been hiked sky-high. These price hikes are carried out by executives taking advantage of obscure FDA rules that impede competition.

Employee Benefit Costs on a “Winning Streak”?

Mercer, a leading firm of consulting actuaries, tells us that the cost of employee benefits in 2016 will grow slowly – a “winning streak”:

Early responses from a major Mercer survey still in the field show employers predicting that health benefit cost per employee will rise by 4.2% on average in 2016 (see Fig. 1) after they make planned changes such as raising deductibles or switching carriers.


A closer look indicates no real reduction in the rate of cost growth of employee benefits.

Why Is There No Car Care Crisis?

employer coverage 300(A version of this Health Alert was published by RealClearPolicy.)

Our health care is in “crisis.” We seem to have achieved the remarkable result of spending too much money while not ensuring access for enough people. Every politician says so, and most citizens agree. Indeed, no presidential candidate can be viewed as credible without proposing a health reform “plan.”

Hillary Clinton has sworn to protect and uphold the Affordable Care Act against all right-wing conspirators; Bernie Sanders has long advocated a government-monopoly, single-payer system; and Republican contenders will continue to roll out plans to “repeal and replace Obamacare” that will immediately come under attack by conservatives and libertarians as “Obamacare-lite.”

Let’s put the crisis in perspective. According to actuaries at the federal government, spending on health care per person in 2014 was $9,176. Yet according to the American Automobile Association (AAA), the average cost of operating and maintaining an average sedan in 2014 was $8,876 — almost exactly the same as health spending. Of course, not everyone owns a car, but most of us do. According to IHS Automotive, an industry research firm, 253 million cars traveled America’s roads last year. According to the Census Bureau, there were 239 million of us aged 18 through 84; that’s slightly more than one car per person in prime driving years.

Jindal’s Attack on Walker’s Health Plan is Off-Base

Yesterday, I addressed Governor Scott Walker’s health plan in largely positive terms. Governor Bobby Jindal, a competing Republican presidential contender, has launched a broadside against Walker’s plan, describing it as a “new federal entitlement.”


The charge is way off-base. Governor Jindal proposed a health reform back in 2014, via his America Next policy shop. The point of contention is that Governor Jindal’s proposal would not offer everyone a refundable tax credit. Instead, it would eliminate the exclusion of employer-based health benefits from taxable income and replace it with a standard deduction.

I criticized the proposal when it was issued. True, it is an easier switch than a refundable tax credit. On the other hand, a deduction does nothing for low-income households – which means the welfare state continues to exist. Jindal himself proposed throwing $100 million more at states to fund their medical safety nets.

Price Transparency Laws Don’t Work

HSAIn a functioning market, you know what you owe before you buy a good or service. That is not the case in health care, as we know. Because of increasing deductibles, the failure of price transparency is becoming increasingly irritating to patients.

Some believe a solution can be legislated. This has occurred in New York and Massachusetts; and one of my favorite state legislators, Senator Nancy Barto, has tried to legislate it in Arizona.

Effective January 2014, Massachusetts law requires health providers to provide a maximum price for a procedure within 48-hours of a prospective patient asking. Well, it has not worked, according to a ”secret shopper” survey of professionals conducted by the Pioneer Institute:

The Cost of Over Insurance: National Health Expenditures Rising Again

(A version of this Health Alert was published by Forbes.)

Actuaries at the Centers for Medicare & Medicaid Services, the government agency that runs those programs, have released their estimates of national health spending for 2014 through 2024:

Health spending growth in the United States is projected to average 5.8 percent for 2014–24, reflecting the Affordable Care Act’s coverage expansions, faster economic growth, and population aging. Recent historically low growth rates in the use of medical goods and services, as well as medical prices, are expected to gradually increase.

The health share of US gross domestic product is projected to rise from 17.4 percent in 2013 to 19.6 percent in 2024.

It is a little too easy to say that this outbreak of higher health spending is just due to Obamacare. To be sure, Obamacare has increased health spending with only marginal improvement in access to care. However, the population is aging, too; and the actuaries also take account the positive relationship between economic growth and health spending. The actuaries expect the economy to be relatively strong over the next decade, and estimate the rate of growth of health spending will exceed the rate of growth of Gross Domestic Product by only 1.1 percent. This is less excessive than in most recent decades. Yet, it is still excessive, and a change for the worse.

PwC: Medical Cost Trend 6.5 Percent In 2016; 4.5 Percent After Benefit Changes

PwC’s Health Research Institute has released its 10th annual report on Medical Cost Trend for the employer-based market, forecasting low growth in medical cost trend of 6.5 percent. However, after benefit changes such as higher deductibles and co-pays, PwC forecasts net growth rate of just 4.5 percent.  (The report also notes growth of 300 percent since 2009 in the number of employers offering high-deductible plans.)

PwC lists both “inflators” and “deflators” contributing to this growth. Deflators include:

  • The “Cadillac tax” on high cost benefit plans. Although not kicking in until 2018, it is already influencing plan design.
  • Virtual care. This encompasses telehealth and mobile health, which NCPA has endorsed.
  • New health advisers, who help patients make better choices.

Inflators include specialty drugs and cyber security. (This is the first I learned that security breaches were driving up costs. PwC estimates that the cost of a major data breach is $200 per patient record, versus $8 to prevent it.)

What is most unique about the PwC report is its conclusion that the rate of growth of health spending has been trending down since as far back as 1961 (although with a lot of variance, as shown in Figure 1.)

Physician Payments, Patient Out-of-Pocket Payments Up a Little in 2014

The Robert Wood Johnson Foundation and athenahealth (NASDAQ: ATHN) have released their analysis of physician payments in 2013 versus 2014. athenahealth is an extremely innovative provider of cloud-based electronic medical records (EMRs) to physicians, and has a very complete set of data on their clients payments from all payers.

The result? Not much change from 2013 to 2014, the first year of full-throttle Obamacare:

Primary payments—those made by insurance carriers—to office-based physicians rose moderately between 2013 and 2014. Payments declined for orthopedics and surgery while increasing for primary care and obstetrics-gynecology. Patients’ payment obligations rose for all specialties, and deductibles were the largest category of increased patient spending.

(K. Hempstead, et al., “Tracking Trends in Provider Reimbursements and Patient Obligations,” Health Affairs, vol. 3, no. 7, July 2015, pp. 1220-1224)