• Capretta and Moffit on “repeal and replace”—Giving patients greater market incentives to care about cost

    As noted in my last three posts, conservative health policy analysts James Capretta and Robert Moffit have now provided one of the best available roadmaps to Republican proposals to replace ObamaCare.  (I have modified my title to indicate more clearly that I’m responding to their article, which is not a specifically articulated or endorsed proposal from official GOP sources.)

    I noted six critical passages that deserve attention. I’m going to go slightly out of order and consider principle #2:

    2. For market forces to work, consumers must be cost-conscious. Those who decide to consume goods or services must face tradeoffs that require them to prioritize the various uses of their money.

    One (okay, I) can become so passionate from one’s political perspective that one loses sight of the valid insights of others. One must guard against this danger. In at least one way, Capretta and Moffit are definitely correct.

    When consumers feel no connection to prices and costs, they—we—have too little reason to support useful measures to tighten our health care system. As David Cutler notes, this was a leitmotif of the managed care revolution of the 1990s. Cost growth slowed, and nobody died. Still, millions of consumers hated these developments, and it’s easy to see why. Managed care brought some inconvenience and new constraints. Meanwhile, the real economic benefits of improved cost control remained effectively invisible to most people….

    To give one simple example, if we want employers and health plans to have real bargaining power negotiating with costly academic medical centers, individual consumers need to see some real pocketbook benefit of joining a plan that does not include these prestigious facilities in its basic network.  If most of the costs and savings are concealed from me, the consumer, I have no incentive to join a plan that uses cheaper providers.

    Selective use of copayments and deductibles to discourage specific inefficiencies is also warranted. American consumers spend billions of dollars on heavily-advertised name-brand medications when effective substitutes are available, often at much lower prices. It’s reasonable to expect consumers to make more economical choices in these areas. I am genuinely curious how sophisticated and affluent people with health savings accounts will make certain decisions—say about hip or knee replacement—when their own money and health are on the line. Greater patient cost-sharing and greater transparency in some areas may also alter our broader patient culture, whose norms often push too hard in the direction of low-value expensive care.

    Where market forces will not work–indeed might do great damage—is at the actual point of care for the sickest patients or for people of low income. The RAND Health Insurance Experiment identified much wasteful care. Yet it also identified many disturbing ways that patients—especially poor and sick patients—failed to receive key high-value services ranging from vision to hypertension care—when they faced significant cost-sharing. If one wanted to discourage pursuit of low-value services through patient incentives, I would couple this with value-based insurance design approaches to ensure that patients weren’t simultaneously discouraged from seeking more appropriate care.

    Aaron Carroll has noted the extreme skew in American health care spending. About half of our health expenditures arise among five percent of the U.S. population. Many high-intensity patients are elderly or disabled. Others experience multiple chronic or complex conditions. Many of these patients are neither capable nor desirous of acting on the basis of economic incentives in the provision of their medical care.

    Many patients are also poorly-placed to bear additional financial risks. People need basic protections against punishing out-of-pocket medical payments for treatment not fully covered through their insurance.  Under Capretta and Moffit’s proposed plan, would patients be guaranteed coverage that limits individuals’ financial risks as effectively as ACA does? If so, how? I am nervous that Republican plans will save money by shifting costs and financial risks onto patients who cannot bear the load. Out of pocket costs have been rising for families, particularly those dealing with chronic illness.

    I myself am an experienced health services researcher. My family has very good insurance. Our income makes it reasonable to impose deductibles and copayments if this would improve the quality and economy of our medical care. Yet when my wife was in the cardiac ICU, I sat in the waiting room, white-knuckled, confused, and frightened while key decisions were (badly) made in my wife’s care. I relied upon the expertise, ethics, and judgments of the emergency department physicians and cardiologists. To the extent that I was actively involved in decision-making, I probably made things worse.

    Of course, that was an emergency. Patients might make more sensible decisions managing chronic conditions over time. Even so, we would be foolish to expect too much in this arena. My intellectually disabled brother-in-law has required numerous hospitalizations and costly treatments. Over the past several months, we have watched his doctors struggle to understand and treat a nasty infection in his big toe that may or may not have spread into his bones.  The care process has not been particularly well-handled. It remains unclear, medically, what is going on. My wife and I are not in any position to micromanage his care or to be particularly cost-conscious in this process.

    Our most important challenge is to address economic incentives facing the supply-side in our $2.8 trillion medical economy. Through Pioneer ACOs, exchanges, and other mechanisms, the Affordable Care Act seeks to create meaningful competition among hospitals and insurers to provide improved quality and economy of care. It’s a complicated task.

    It’s also a heavy political lift. Above the fold, the parties argue about the size and progressive role of government. Below the fold, a different kind of trench warfare is waged. This requires allies in both parties to confront entrenched interests in the medical economy. The political lift is made heavier still by the partisan overlay that now accompanies every aspect of health care reform, including many ACA provisions Republicans might otherwise support.

    This week’s JAMA includes a nice commentary by George Loewenstein, Kevin Volpp, and David Asch. They note many ways physicians respond to perverse incentives in ways that raise costs and do not benefit patients. Oncologists administer more–and more costly–chemotherapies when given financial incentives to do so. Fee-for-service medicine creates obvious incentives for overtreatment, and for under-provision for forms of help and advice that are not typically reimbursed.

    We should recognize that medical markets will never operate as the markets for simpler, less normatively-freighted consumer goods do. Of course, we should encourage patients to use medical resources efficiently. The primary task remains to change the incentives and market conditions under which care is provided, nudging the supply-side and uniting the demand-side of care.


    • I just read Harold’s account — referenced in this post — of his own down-the-rabbit-hole journey through the health care maze during his wife’s cardiac emergency (
      Lessons From the ER). I encourage everyone who has not done so to read it.

      • The irony of the story is that my insurance worked out very well in paying the bills for (what turned out to be) dangerously misdirected and poorly-coordinated care. I think insurance ended up covering 90% of the bill.

        • My reactions to your article are emotional and jumbled, but one detail that stuck me hardest: good health insurance may be a necessary but is not a sufficient condition for good health care. Neither are the patient’s intelligence, education, and sophistication.

    • Capretta and Moffit’s argument is so old at this point. Neither of them are doctors, and obviously they lack the basic people skills to understand that people who are sick cannot navigate the health market as if they were buying a car or vegetables. It’s just inane.

    • For the poor and the uninsured, choice is already a factor. I am on ss disability due to ms; yet, I cannot afford my ms preventative as the co-pay is 300 dollars a month. When I argued with the ins. co. about this and pointed out that if (and when) I get sick and need to be hospitalized, I will cost far more than 300 dollars a month. The reply? We will take the chance. Seriously.

      I know I beat this horse dead all the time but if we get the 95 percent of us who use 50 percent of the health care in this country to cut, cut, cut and take on more costs, that does nothing about that 5 percent. It begs the question of whether we should cut their care and/or their medical care providers’ bills. I wonder if Americans are willing to let the wealthy continue to pay less and let their sickest brothers and sisters die? I don’t know how much more, financially, one can expect the non-wealthy to contribute.

      • Good question. Very best to you in managing a difficult situation.

        • Thanks. I really don’t think people understand how much the 5 percent cost and what should be done: treat them or let them die, the faster the better. (snark) Sad.

    • I think we need to be cost conscious for we must realize and accept, rationally and emotionally, we are not in this alone.
      Covering care at 100% is inappropriate, regardless of the cost,, for the person rationally would think, in my opinion, he is in this aoine.
      He is in a fight, maybe for his llfe, and damn the costs.
      I cannot say how I would react if faced with such a situation..
      I can say, that if I react, as if I am in this alone, I would be reacting inappropriately.
      Don Levit