The debate over health care reform implementation in Massachusetts has become focused on the critical issue of defining the level of “minimum creditable coverage”, the minimum level of insurance generosity that will satisfy the individual mandate. This is not a decision that can be avoided; without such a definition, the mandate has no teeth.
But this decision has become needlessly controversial because the debate has moved away from the fundamental goal of insurance: to insure individuals against unexpected medical risk.
This definition of insurance has nothing to do with the typical American conception of health insurance. Most Americans think of health insurance as medical prepayment: you pay an up-front premium and in return all of your medical expenses are covered (what experts refer to as “first dollar coverage”). But such a system has an inherent flaw: any time something is free, it will be overused. This should not be a controversial statement to anyone who has ever gone to an all-you-can-eat buffet. Having paid at the door, you always end up eating more than if you were paying for each item your ordered.
But isn’t medical care different from food? Don’t individuals only use medical care when they really need it? The answer to this question is clearly no. There is substantial evidence of overuse of medical care by the insured. The classic piece of evidence for this proposition is the famous RAND Health Insurance Experiment (HIE) in the 1970s. In this experiment, individuals were randomly assigned to insurance plans that were more or less generous, ranging from first dollar coverage to policies where indivduials paid 95% of the cost of their medical utilization. Once individuals had spent $1000 (about $4000 in today’s dollars), however, they were fully insured – so no one was going uninsured in these plans.
The lessons of the HIE are clear, yet have been conveniently misinterpreted by parties on both sides of the debate. I review these lessons in a paper prepared for the Kaiser Family Foundation, available at http://www.kff.org/insurance/7566.cfm. First, medical care is price sensitive: those who paid nothing for their care used about one-third more than those who paid almost the full cost at the point of service. Second, on average, the extra medical care consumed by those who received care for free had no beneficial impact on health: individuals in the first dollar coverage plan were no more healthy, on average, than those in the full cost plan. Third, there is some evidence (although it is not very precise) that there were some health benefits for low-income, chronically ill populations; most of this benefit was found in screening for chronic illness and maintaining treatments for that illness. The 25 years of research since the results of the HIE were reported have done nothing to overturn these central conclusions, although no study has so carefully studied the health impacts of insurance generosity.
At the same time, there is a large literature in health services research which shows that having insurance, relative to having none, is important for health outcomes. The resolution between these seemingly conflicting results is that it matters whether individuals have some insurance, but, given insurance coverage, for the typical person it does not really matter how generous that insurance is. Once again, coming back to the buffet analogy, it is clearly harmful to not allow individuals to eat – but less critical that you allow them to eat as much as they want.
These results have two clear implications for health policy. First, it is vital that we provide health insurance coverage to the uninsured as a means of improving their health. Second, that insurance need not be as generous as first dollar coverage. There is no clear benefit to covering all medical costs, and a clear cost in terms of encouraging excessive use of medical care. Insured individuals should therefore bear some of the costs of their medical care utilization, but with a limit when costs rise to a sizeable share of income. In addition, insurance should provide reduced cost sharing for prevention and maintenance of chronic illness.
This suggests that the structure of the minimum creditable coverage plans that are being discussed makes a lot of sense. All of the plans being considered provide some up front medical care that individuals can use to get preventative care and be evaluated for more serious medical disease. If individual are found to be chronically ill, they can then buy up to more generous plans that are more appropriate to their health status.
Ideally, insurance plans would be more flexibly designed to accommodate the lessons of the HIE, for example offering different levels of out-of-pocket costs by income level or by illness level. There is some exciting work being done now on designing such “value-based insurance plans”, whereby co-payments are targeted to the needs of the particular individual being insured. But such plans are still in their infancy, so that today the choice remains between offering first-dollar coverage or a plan where individuals pay more of their costs up front. The evidence is clear that the latter design provides real insurance, in the true sense of the word.
Jonathan Gruber, Professor of Economics at MIT and member of the Connector Board
Dr Gruber,
You seem to be using your review of the RAND study a bit selectively, or maybe I don’t fully understand your comments above. (It’s been a long time since my last economics lecture in college.)
Your paper on the Rand study says that cost-sharing is “not particularly discriminatory”–it reduces use of effective and ineffective care equally. But you haven’t really addressed the consequences of the high levels of cost sharing in the Commonwealth Choice plans on reduction of effective care, particularly for people who are lower income or in poorer health. You note this effect does not have health consequences for the average person. But the average person uses very little medical care. What’s the impact of cost-sharing on people who are lower income-a category that includes most of the uninsured? How about the effect on those in poorer health? You start off by giving us the economist’s view that the purpose of insurance is to protect against unexpected medical risk–e.g. catastrophic expenses. Those in poorer health are, by definition, more likely to have higher medical expenses. Also, in the decades since the RAND study, we have many more effective treatments for many conditions but many are very expensive (including, I would note, many prescription drugs). Are the RAND results completely applicable today given the tremendous changes in medicine since the 1970s? Are the health consequences of not getting effective care today the same on lower income and less healthy people as they were back then?
Finally, the idea of health insurance as being “prepayment” is hardly a typical American conception—in fact it’s actually un-American! We pay a higher proportion of our medical expenses out of pocket than most other developed countries. Most other countries have minimal cost sharing at the point of service and often exempt those with low incomes or worse health from whatever cost sharing does exist. These countries regard high levels of cost sharing as detrimental for those who are lower income and in poor health, both for health and financial reasons. Cost-sharing at point of care is regressive and it deters many vulnerable people from obtaining needed medical care. These countries use other techniques to minimize the cost consequences of “moral hazard”—global budgets, controls on medical supply etc.
What is a typical American conception (or a soon to be newly established Massachusetts conception) is that we should require uninsured low and moderate people to buy health insurance with much higher levels of cost-sharing than most of us who already have insurance. The typical new Connector plan has much higher cost sharing than the health insurance most of us have: $2000 deductibles, 20-35% coninsurance, and $5000 in out of pocket costs (and even higher out of pocket costs for those who need drugs if they aren’t offered or don’t buy a plan that includes drugs). Only we in the US would regard this as “credible insurance.” Sure there’s “choice.” And that is a typically American conception. No other country thinks broad flexibility and choice of health insurance benefit designs is any thing other than confusing for consumers, a recipe for adverse selection, and an invitation for health insurers to try to compete by skimming off healthier people. Countries that do allow competition among health insurers have standardized benefit packages and risk adjustment schemes to protect against these problems.
The tone in the state is sounding eerily like a right-wing think tank when we applaud these new plans and say that all we need is “choice” and “disclosure” to protect consumers. We abandoned this approach for most other types of health insurance long ago in Massachusetts.
So here’s a thought: if these new benefit packages are so good, let’s offer at least a few of them to state employees (who include 4 members of the Connector board, the head of the Connector, and all the legislators who passed this law). Let’s make the benefit design for higher paid state workers comparable to what we will require for moderate income uninsured people. A plan with a $2000 deductible and a $5000 out-of-pocket limit would potentially require an uninsured person or state worker who earns $50,000 a year to pay 10% of his/her income for health care. The Globe reports that the salary for the head of the Connector is $225,000 a year. So, the comparable plan for him should have a $9000 deductible and an out-of pocket limit of $22,500.
Would we think this plan is credible insurance?
I disagree with Mr. Gruber. It really comes down to a few basic human and social values and what health policy those values lead one to, be you an economist, a nurse, a stock broker, maid, or a Governor.
One set of values lead to treating health insurance as a commodity in the “marketplace”, a major facet of the approach in MA at present. Another set of values lead to treating it as a social good with both individual and shared responsibilities.
Why are we Americans so easily mislead on such hugely important issues?
Mr. Gruber is making a false argument here and I implore readers not to be fooled. Read the article by Dr. Steve B “What are Mandatory Health Plans?” and scroll down to the section “Things that make such Mandatory plans Inherently Hopeless”. Use this link http://www.dailykos.com/story/2007/2/22/0490/09518
Fiscal responsibility is essential and so is social responsibility in this vital public policy area. Instead of the gobbledygook that Mr. Gruber confuses us with, here’s a better answer to the question he poses: “What is Health Insurance”:
“Health care is an essential safeguard of human life and dignity and there is an obligation for society to ensure that every person be able to realize this right.” – Cardinal Joseph Bernardin, Chicago Archdiocese (stated long before he was diagnosed with pancreatic cancer, from which he died a few years ago. Of note, he did not get it from “not taking care of himself”, as is the case with many many illnesses).
Improved Medicare For All on the state level and eventually on the national level is what we must work toward. Campaigns are underway toward these goals.
My values combined with my understanding of healthcare clinical and policy issues gained through working in in the field for 30 years, and personal experiences (having a sister with schizophrenia), have led to a passionate embrace of health insurance & healthcare as a social good. Poll after poll after poll indicate that a large majority of Americans share these values and this view for universal health care. Including the residents and voters of Massachusetts.
Last year our elected leaders had an opportunity to address the real lynchpins to achieving sustainable universal coverge: cost controls by using streamlined financing and using policies that proudly treat healthcare as both an individual and a public good.
They failed. That’s hard to say but speaking the truth is paramount, especially when lives are at stake, isn’t it?
By the way, treating HC Insurance as both an individual and a social good (using some form of a national plan) is what EVERY OTHER industrialized country and its People have also embraced and they enjoy much better care at much lower costs. OECD data show that France has the best quality and value in their HC system and they spend ~$273 per person per month for it!!
Why do we Americans continue to settle for so much less value for our healthcare dollars?
Learn more and get involved in making positive change at http://www.MassCare.org/about or at http://www.HealthCare-Now.org for national reform.
Dr. Gruber: If you take your value-based insurance plan analogy to its fullest extent, then I guess billionaires and millionaires really shouldn’t have any health insurance at all. But they do and they always will. Your elitest attitude when it comes first dollar coverage is very disturbing. I am sure that you never had to decide if you were going to pay your monthly health insurance premium or put food on the table for your family. Of course not, Economic Professor’s at MIT don’t have comon working people’s financial problems. I guess your attitude toward the 18,000 people that die each year because they do not have health insurance* is simply, let them eat cake.
*Instutute of Medicine, Insuring America’s Health, Principals and Recomendations, Copyright 2004, National Academy of Sciences page 46, paragraph 2″
“But such a system has an inherent flaw: any time something is free, it will be overused”
Not so, in my experience…and, neither the “first dollar coverage” nor the buffet are free: you pay, you use what you need. I agree that often in the US we over-consume, but some of us are trying to change that.
Dr. Gruber states that the RAND Health Insurance Experiment (RAND HIE) has been “conveniently misinterpreted by parties on both sides of the debate.” He then takes one side, stating that the lessons are that “medical care is price sensitive,” that “on average, the extra medical care consumed by those who received care for free had no beneficial impact on health, but that “there were some health benefits for low-income, chronically ill populations.” It would be incorrect to characterize this as a misinterpretation, because these statements are, “on average,” true.
But there is another side as to the importance of the findings of the RAND HIE, which also should not be characterized as a misinterpretation.
It is crucial to understand the nature of the population studied. The subjects were a gainfully employed workforce and their families, who were observed for a few years. Thus this was a study of relatively healthy workers and their healthy families during healthy years of their lives. Being employed, they had discretionary income sources that could be used for health care cost sharing.
The intrinsic validity of this study can be applied to similar healthy populations with reliable incomes, but it does not have extrinsic validity in a system of “universal coverage.” A system that would cover everyone must take into consideration the entire market basket of health problems, from conception to death. Even if sectors are segregated based on age (Medicare), income (Medicaid), employment (employer-sponsored coverage), or whatever, the remaining uninsured have a multitude of problems which result in their being uninsured in the first place. The RAND HIE conclusions would apply “on average” only to the employer-sponsored group, but not to these others, and certainly not to the uninsured.
There is also considerable question as to the overall impact on total health care spending. Although the 80 percent of us who are healthy would reduce utilization, we consume only 20 percent of health care. A modest reduction of only one-fifth of our health care bill would not have a major impact. The 20 percent of individuals who use 80 percent of health care, the group that was not studied in the RAND HIE, have little opportunity to selectively decline health care that seems necessary because of their health care problems.
Besides, is the RAND HIE “on average” conclusion satisfactory? Individuals in the RAND HIE with hypertension had a 10 percent higher death rate when cost sharing was required. The families of those who died receive little consolation in the fact that these deaths did not change the statistics of the overall beneficial outcomes of this healthy population.
Is health care about the majority of us who are healthy, or is it about prevention and management of disorders that can lead to disability or death?
Since we are not static beings, how can we possibly determine which of us will remain healthy and be well served by a private insurance plan which has an affordable premium because it doesn’t cover expenses that we won’t be facing anyway? But the real question is the reciprocal. Which of us will develop major medical problems that will require affordable access to health care made possible only by selecting a more comprehensive plan, but with premiums that we can’t afford?
So what is the real lesson of the RAND HIE? Cheap insurance works for healthy people. Period.
Since the RAND HIE was completed in the 1970s, there has been a plethora of studies in the health policy arena. The studies on cost sharing have clearly indicated that erecting financial barriers to care maim and kill people with health care needs.
The fundamental flaw with using private health plans to expand coverage to everyone is that private plans work only for healthy subsets such as employer-sponsored group plans. If those with health care needs are to be included with reasonable levels of coverage, the premiums become unaffordable.
Healthy individuals are now segregated into low risk pools (e.g., employer-sponsored) which, regardless, have become so expensive that they are now barely affordable. If we are to have universal coverage, these healthy individuals must also contribute to the pools covering the high-cost, high-risk individuals, even though that isn’t affordable either. Rather than compounding the nightmare of administrative inefficiencies, it would be much simpler to combine everyone into a single risk pool that is equitably funded and therefore affordable for everyone.
Single payer would do it. But in his efforts to make the antiquated private plans work, Dr. Gruber states, “… we can’t insist everyone who has no insurance get the policy that optimizes their health.” Further, “Let’s get them into the system and get them real insurance, and then maybe they’ll be interested in buying something better.” (The Boston Globe, March 5)
Why don’t we start out with something better? Real insurance. Single payer.
Don McCanne, M.D., Senior Health Policy Fellow, Physicians for a National Health Program
I don’t know what the average salaries of MIT economics professors are, but let’s say for the sake of this argument that you’re making $140,000/yr.
Now stand up from your perch at the Institute for a moment, and imagine a scenario under which you’re coerced by the Commonwealth of Massachusetts to send about $9,100 of your salary, per month, to a private insurance company. And the DOR demands the right to withhold $107,000 every year at tax time if you don’t.
Well, that’s what it would feel like to those middle aged residents who earn only a few thousand above 3x the poverty line every year.
Prof. Gruber, like many other American economists, should remove his chauvinist blinders and take a look at the rest of the world where there has been a real world “experiment” going on for years, one that is far more extensive than the very limited Rand HIE. Countries around the world offer what we would call “first dollar coverage”, that is, little or no financial barrier to seeing a doctor. The results: (i) no overuse of medical services and (ii) lower spending than the US. The conclusion might be that eliminating cost-sharing would actually save us money!
I read Prof. Gruber’s comments with interest but also with indreduliy generated by the apparent myopia of a professor of economics at MIT.
Of course many things in life are “price sensitive”. What determines price sensitivity? The price itself and its relationship to the resources available to the individual and the priority the individual places on what they are considering purchasing.
For someone with limited resources, the choice between using those resources for personal health care costs (no matter how necessary) will be modulated by other needs, which may include food, housing, needs of family members (health care and otherwise). For many it is a daily balancing act. The impact of that balancing act will depend on their health at the time. If they are healthy and decide not to use resources for prevention, the consequences will likely be far down the road and not apparent in the Rand study. If they have a serious illness, the consequences may be immediate.
An current example that perhaps best epitomizes Prof. Grubers argument and philosphy is the push to health savings accounts. In this case, all health care is cost sensitive with a strong stimulous to spend almost nothing unless it becomes necessary. Perfect for the healthy but likely to leave many who become ill without the resources to get necessary care even if they now want it. Does Prof. Gruber believe that insurance companies will line up to sell them a more expensive (but affordable) coverage at this juncture? Certainly not, and the once healthy person has now fallen victim to his instinctual cost sensitivity.
I happen to be a VA physician who finds it comforting to work in a setting where decisions about care (both that sought and that offered) are generally not based on cost sensitivity. Do our patients seek or get “unnecessary” care? Some do, but generally not more than my friends and acquaintances treated in other settings.
Two observations:
1. The provision of care in our system is certainly price sensitive. Providers are highly sensitive to providing what pays more. The burgeoning cost of newer imaging modalities and procedures drives demand without clear commensurate benefit. Don’t blame the patient who is choosing an insurance plan. How are they to decide whether these tests and procedures will save their life or just cost a lot.
2. The VA is not without cost to patients. Even patients with very limited resources are often required to pay copayments for prescriptions and to pay for their transportation. Most days I I see patients I encounter at least one who is agonizing over the $8 copayment (per month for each medication) or the cost of driving 200 miles or asking a relative to miss work to take them to see me. Sometimes they decide they can’t afford it. Often it leads to worsening health or hospitalization.
Cost sensitivity, as Prof. Gruber advocates, is fine for healthy people who are often a more risk for getting unnecessary care but has no role in a system for ill patients with contrained resources.
Dr. Gruber’s points seem to have been substantially obscured by the smoke and confusion that a weblog such as WBUR’s will always generate. We all want healthcare to help us live without disease and to repair accidental damage to our bodies until we die. And we don’t want to pay much for this. But the cult of individual rights, and unfettered consumerism that inform our identity as Americans keep emphasizing “life, liberty and the pursuit of happiness” first, making it very difficult to get to healthcare for all at a low cost.
Dr. Gruber recites the classical definition of insurance: “to insure individuals against unexpected medical risk.” There is no controversy here. The definition appears in millions of dictionaries. To argue about the definition is not useful. Perhaps the use of a different term is in order.
One critic of Dr. Gruber and his ideas cites “social responsibility” as important. The society (or the state) has an obligation to provide healthcare and although cost is important, it is not to be a primary concern. Other critics take Dr. Gruber to task for using his all-you-can-eat buffet simile, but who among us does not balk at the price of a lobster dinner, ordering the salmon or hamburger if we must pay out of our own pockets. We are all economic animals but Dr,. Gruber is, after all, an economist.
Massachusetts is one small state in the nation comprising only 2% of its population, about 6,000.000 people. If we could simply dictate that healthcare costs will decrease by 50% tomorrow, we could easily use the savings to cover everyone in our state. But if we did that, we would have a substantial portion of the 6,000,000 uninsured people living in California on our doorstep in short order. This is why we cannot make a significant dent in costs by ourselves.
A year ago, when the political forces aligned to produce House Bill 4850, consensus was built around addressing access rather than the cost of healthcare. House and Senate, a republican governor and now a democratic governor all agreed on this approach. This is almost unprecedented. A gathering of political will having a magnitude and direction as great as this happens rarely in a representative democracy. The very nature of its origins insure not only that it will dissatisfy some, but that it has an implicit moral value that is unassailable.
Winston Churchill was fond of needling Americans and once quipped that we always do the right thing—after we have exhausted all the alternatives. Massachusetts Healthcare Reform may not be the “right thing”, but it is the “thing” we are trying right now.
This MA legislative “gathering of political will” yet again took the easy and authoritarian way out. (Tail between its legs, can you think of any other ways the Commonwealth distinguishes itself in such a manner, uniquely, from other states in the union?)
The only difference is that this money grab was so flagrant, that nobody would dream (and many are still unexpecting and unaware) their legislators would have done something like sell their own citizens down the river to corporate interests for permanent–and rising–dollar amounts so immense to many that they’ll have no alternatives but to show up for dinner at St. Francis house in the remaining 30 or 40 years of their lives–just so leaders can celebrate the regional physical-plant landscape and skyline.
They’re kept scrambling just to make ends meet–just like the wealthier and more powerful want (when you’re worried about bills and rent and food and tattered clothing, you’re not making power plays). One consequence is a lot of people still don’t know about this law. (Who needs to read that part of the daily news? After all they’re only thinking they send people to office to reject lobbyist ploys, not participate in them.)
Hospitals and schools don’t pay the rent when Fidelity moves operations to Texas. When there’s no more construction work. When Downtown Crossing closes up shop. When NIH funding slows to a trickle.
Your kings-and-queens-come-here-for-care self observation is a myth. If UT Southwestern Medical Center is de-intersecting Arab toddlers’ heads in customized body-cast jigs in marathon 40-hour operations, the rhetorical game is up: You can’t say your services are more advanced than the Cleveland Clinic; or Ben Taub or Cook County trauma; or the M.D. Anderson Cancer Center; or Sloan-Kettering. The list goes on. (Heart transplants? Not invented here.)
All you’ve done is stratify your economy wholesale. Not only is the status quo unaffordable, blood can’t be wrung out of a stone; people just don’t have this money. (Plenty of working people don’t even own cell phones.) It’s not enough they’re already paying for procedures on uncomfortable dings (and responsible maintenance not covered by most plans), but now they’re expected to do that crippled by hundreds of $/mo. more extracted from their bank accounts.
You can’t eat your home values either: storm clouds are forming on the mortgage horizon. (Guess whose local corporate and state pension plans are almost exclusively in those investments.)
Many will not stay around. This is not the Catacombs. Other states beckon–and they don’t worship at the altar of Harvard and its acolytes.
GIVE US YOUR TAX CHEATS …
Kingsdale counsels tax cheat. During the WBUR show “Your Call” with Bob Oakes John Kingsdale is heard counseling an admitted tax evader on his options for getting cheap health insurance. Slide the player’s time to 43:40 and prepare to get sick if you’re an honest taxpayer. Ironically, if the tax cheat simply under reported his income YOU get to fund his free insurance. http://www.wbur.org/news/2007/66925_20070504.asp
If Dr. Gruber is correct that if anything is perceived as “free” it gets overused, then every country with universal health care should exhibit more evidence of over-utilization (which they do not) and they should concurrently be grossly more expensive than ours – which they are not. We are not the most expensive in the world because we are the sickest, but because our costs are out of control. He will probably say that is because of “rationing” – an easy and misguided slam. We have waiting lists through pre-authorization requirements, through the need to pay deposits before receiving expensive surgery, and through the billions of dollars most of us pay out-of-pocket.
Primary care is not limited in any country with universal care (and I have lived in two), and there is evidence that in the US use our emergency rooms a lot more because many of us do not have access to primary care. We have much more over-utilization of many high end services than most countries. The debate about health and costs would be better served if we choose to ask why this happens in our country and how people can come together to actually solve this problem.
I couldn’t agree more.