As health policy studies go, the RAND Health Insurance Experiment is the gold standard. Conducted 25 years ago at a cost of $50 million (close to $300 million in today's medical marketplace), this study sorted families into health plans with different deductibles as well as an HMO, and carefully monitored the results.
The findings: (a) patients are responsive to out-of-pocket costs (the more they have to pay, the less health care they buy); (b) changes in the amount of spending have no apparent impact on health care outcomes in most cases; and (c) judging from the difference in behavior between HMO doctors and fee-for-service doctors, physicians are also very responsive to economic incentives.
So what does this mean? That's not clear. My view is very different from the economists who did the study. Since I am chairing this session, I'll go first.
My Take: In showing that both patients and doctors respond to economic incentives, the RAND study completely debunked the idea that health systems can be understood without reference to economic models. Two very important policy implications follow. First, the study put the final nail in the coffin (at least for several decades) of naive national health insurance (NHI), a la Michael Moore. If health care were completely free, spending would soar, with no improvement in health status. (NHI, by the way, was a very popular idea at the time and a principal motivation behind the entire experiment.) Second, the study opened the door to a myriad of market-based solutions to health policy problems. We could have full-service diabetes centers vigorously competing for diabetic patients, each managing his own risk-adjusted Health Savings Account. In fact, we could revolutionize the chronic care industry, creating specialized markets for sick people. These possibilities, which are almost endless, would not be possible, however, if patients and doctors did not respond to economic incentives.
The RAND take: None of the thoughts in the preceding paragraph appear in the "selective memories" of the original researchers, recently published by RAND. "Selective" is the right word. They do not even mention national health insurance (despite the rising clamor for it on the left). Nor do they mention the technocratic view of health care they so totally eviscerated (even though this is still the dominant view among the laity). As for cost sharing, their prose is full of caution–pointing to dangers for the poor and the sick and to more recent studies showing what can go wrong. There is no mention of the creative ways in which cost sharing is being used in chronic care — either in private plans or in Medicaid.
Clearly we need a better division of labor. If the experiment is ever repeated, let Joe Newhouse and his colleagues conduct the study. Let Regi Herzlinger and me explain the importance of the results.
More on this in a future Alert.
For some very, very "Selective Memories" by RAND researchers, Emmett B. Keeler, Joseph P. Newhouse and Robert H. Brook, go to: