Time to try something really different

Although I subscribe to and watch essentially every posting in The Incidental Economist, this one on value-based payment for Medicare is worth reposting and viewing. It is only 4:48  long.

Video: The Many Attempts to Improve the Value of Medicare

Upshot article by BU colleague Austin Frakt last month in the New York Times contains the cites and links for the above:

Value’ of Care Was a Big Goal. How Did It Work Out?

This video, which finds a lack of meaningful cost savings  or quality improvement, is consistent with my general view of health insurance innovations in the US:

Every 5-7 years the US health insurance industry has to come out with a new approach to address out-of-control costs and preempt true reform. These have included:

  • HMO – narrow networks
  • HMO – IPAs (Independent Physician Associations) HMOs with no teeth
  • PPOs (weaker than HMOs, but more palatable to consumers)
  • POS (Point of service) plans (combining the above two
  • CDHC – Consumer-driven health care (more choice with higher cost-sharing)
  • HDHP – High deductible plans with health savings accounts
  • Pay for performance
  • Accountable Care Organizations
  • Tiered cost-sharing
  • Value-based purchasing.

With the exception of narrow network HMOs like Kaiser (A supply-side innovation), none of these have ultimately proven to save more than 1-2 percent of costs or slow down cost growth.

The main reason for this is that all of them rely upon competition, demand-side incentives, and consumer choice driving down costs. But we have very weak competition and very poor consumer information. Plus consumers rarely change choices even when information is available.  It is true that shifting a huge financial burdens onto consumers, like high deductible strategies, can save 3-5 percent on total costs, but most people (including the wealthy) would be willing to pay this amount to avoid this level of time and financial burden. The true attraction of these approaches is as a selection tool to attract healthy people into your plan.


Note that CDHC and HDHP which rely on tax-exempt savings accounts are only attractive to wealthier people for whom the tax deductibility has value. Low-income people don’t benefit from these tax-favored plans, it only adds complexity to their already difficult lives.


All of the above strategies also increase costs by raising administrative complexity and costs for consumers, employers, health plans and providers of all types.


Why are new ideas adopted every five to seven years? Because that is how long it takes to try out new reforms and determine that they are not working.


True cost containment will take leadership and a willingness to use supply-side reforms and regulation, which is what Europe and almost other high countries use to control costs.


There are many challenges of dramatic restructuring and regulation such as is implied by “Medicare for All” but it is going to take something dramatic to lower cost growth to be meaningfully less than the rate of general inflation. To continue current trends will only worsen health and income inequities, worsen public burdens of government-sponsored care, and hurt US competitiveness with the rest of the world. It is easier to be critical rather than constructive, but it is time to discuss more fundamental reforms.




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