The Politics of Healthcare and Healthcare Financing

The Politics of Healthcare and Healthcare Financing

Greg Shaw Department of Political Science Illinois Wesleyan University

Governments or Markets?Trust in gov’t

nearly as strong a predictor of the presidential vote as party ID (wow!)

Trust in CongressFear of

bureaucracy?

… but should this mean we put our trust in markets?

Unlimited consumer choice?

Is all shopping equal?

Are all shoppers equally competent?

The consumer-driven health care movement

When individuals more directly experience the true cost of the healthcare goods and services they might consume, they consume fewer services, and in a ways that most appropriately meet their needs

• Policy implications:◦ Design policies that more fully expose individuals to

the costs they generate◦ Raise co-payments: individuals will have more skin in

the game◦ Foster comparative shopping: voucher-ize Medicare?◦ Inform consumers of the cost: on the W2 form

employers must list the full price of the insurance premium

CDHC: The basic argument & implications

Unpacking the CDHC ArgumentLess consumption? Curtailing consumption for, but

not for under-users?◦ This isn’t a one-size solution

A high knowledge requirement: determining when and how to curtail consumption is hard◦ How good are your self-

diagnostic skills? Who is primarily responsible for

high consumption? Providers, product marketing, insecure consumers, or something else?

Do people defer healthcare purchases when in medical need or crisis? What about services for their kids?

More efficient consumption? Do patients know which

services to select?◦ Do you know the

difference in outcomes between physical therapy and spinal surgery?

Who makes these determinations? That is, when patients go shopping, who decides what goes in the cart?

How to determine where to focus one’s services: is my dermatological health more important than my gastrointestinal health? Where do I add most value? How to decide this for another person?

Can patients haggle effectively and shop comparatively?◦ Do we need a culture

shift?

Q: “Is this medically necessary?”

A: “ … we just routinely do this …”

… notice that there is no way to objectively determine an optimal level of healthcare service consumption

◦Some have argued that this implies everything is subjective, in terms of what services count as “basic” healthcare. Perhaps one can believe this to be true and simultaneously believe that there’s a basic level of care needed to sustain normal longevity and activity levels … but beyond mere survival …?

◦Pushing this argument implies that medical needs are entirely the products of one’s consumer tastes. If one believes this, one also likely believes that there is absolutely no minimum threshold for service provision; fixing a broken arm? … that’s only important if one has an (arbitrarily determined) taste for that particular service.

Before we go much further …

Yikes! Do you believe this?

This study is still the gold standard (large N, good design, cross-time, etc.)

Federally funded; designed to search for ways to save money on the then-still-fairly-new Medicaid program

1974-1982: a 3-5 year experience for 2,000 non-elderly participants

Operated in 6 sites to ensure demographic diversity Nationally representative sample, with exclusion of

persons earning more than $25K (or about $80K in 2006 dollars)

Random assignment to various co-payment levels: zero, 25%, 50%, and 95%

Participants were compensated, so that none was worse off financially relative to any insurance coverage that they had at the beginning of the experiment

$1,000 limit on out-of-pocket (even lower for the poor); full coverage after that

The RAND Corporation Experiment

Demand was somewhat elastic as a function of priceMoving from free to 25% co-pay corresponded to an

average reduction in consumption of 4.25%Consumption under the free plan was 45% higher than

in the 95% co-pay planNo demand elasticity for in-patient services for childrenDemand elasticity was higher among low-income

participants than among the economically better offDemand elasticity was greater for mental health

services, but otherwise differed little between categories of services

Most of the differences in consumption occurred in the number of initial contacts, not in the number of services obtained once a person visited a doctor or hospital

The RAND Study: Key Findings

Services were grouped into highly effective (trauma fractures, pneumonia), moderately effective (hemorrhoids, hay fever), and less effective (varicose veins)

Participants were not selective among these categories when seeking to reduce consumption: they strongly tended to reduce consumption across the whole range of services

No differences in inappropriate hospital admissions across the co-pay categories

Punch-line: cost-sharing is a blunt tool for controlling consumption

The RAND Study: Key Findings

Supporters pointed to this as conclusive evidence of demand elasticity as a function of price

Lingering questions about the health consequences for the sick - poor (reduced health status when not in the free category … in fact, the sick-poor faced higher mortality rates under cost-sharing, and many of those who lived dropped out, so the findings may understate the impact of cost-sharing on the sick-poor)

The HMO component of the study showed that managed care can reduce consumption approximately as much as can cost-sharing (this speaks as much to limits on providers as it does limits on consumers)

No evidence that higher co-pays reduced risky behavior (such as smoking, not wearing seat belts, alcohol, or less physical exercise); challenging part of the “too much insurance argument”?

This study may not speak to the elderly Medicare population well◦ Service consumption is much higher among the elderly

(they’re less likely to curtail consumption due to their limited resources)

The RAND Study: Implications

A Critique of CDHCPeople do not consume medical services in anything like

direct proportion to their incomes – buying healthcare services isn’t like buying cars or houses◦ The rich don’t consume as much as they can◦ People don’t seem to respond to cost-sharing when it comes to

their kids’ care◦ The poor don’t refrain altogether from consuming (though they

refrain more than do upper-income persons under cost-sharing)◦ People do not tend to be especially price-sensitive: once at the

doctor’s, they consume services in ways that don’t reflect their income

Radical information asymmetry between providers and patients

Approximately 70% of health care dollars are spent on 10% of the population in a typical year, and the healthy 50% of the population consume only 3% of the dollars: imposing cost-sharing on the healthy won’t save us much

A Critique of CDHCDifficulties with haggling: life vs. death, docs

dislike haggling, information asymmetry againCDHC is predicated on reasonably good health

and regular income: ◦ Depending on the version of the argument, this is:

Personally empowering; but also … Anti-risk polling regarding non-catastrophic services (we’re

all on our own) Anti-poor people (they’re on their own)

◦ How does this help individuals who are old and sick? (back to the 70% / 10% problem)

Evolving belief in health as a basic human right (not to be commoditized – think: EMTALA of 1986)

Firm limits on expenditures can control costs:◦The spread of HMOs (mid- to late-1990s)

corresponded with a partial bending of the cost curve

◦Medicare inflation was reduced with the introduction of the DRG in 1983

Insight: patients may not be the ones who can most effectively put the squeeze on expenditures; the organizers of payment systems seem to do this more effectively

Some reflections on costs

Toward an Alternative VisionMarkets produce lots of wealth

and lots of povertyRecognizing the strengths and

limits of the market model for healthcare financing◦Competition where it works, public

provision where it’s neededProviding coverage by other

meansA pragmatic approach: a healthy

workforce (and kids too!)