• Health Incentive Plans

    That the word “insurance” but not “incentive” appears in “health insurance plans” misses a key point and leads to some confusion. Perhaps the most accurate name would be “health insurance and incentive plans” but I’d settle for just “health incentive plans” as a reasonable alternative and one that puts the emphasis where it belongs.

    Of course, health insurance plans are insurance in that they transfer risk from the policyholder to the insurer. In most cases they really do insure against financial catastrophe due to a serious illness. High deductible catastrophic coverage-only plans serve this role and this role only. But they risk throwing the baby out with the bathwater.

    Most health insurance plans do more than insure against financial disaster. They provide coverage for minor costs of less-than-catastrophic events, many of them elective. Such coverage has appropriately come under criticism since it provides an incentive for overuse of unnecessary care, a moral hazard effect. If only the patient bore more (or all) of the cost of services for minor health events there would be a greater incentive (on the part of the consumer) to use care more judiciously.

    However, not all relatively low-cost care is frivolous. Some of it is genuine preventive care that preserves health and saves money in the long run. Take hypertension as an example. It can be asymptomatic, and yet is a major cause of cardiovascular morbidity for which control usually requires lifelong treatment with medications. Good adherence to medications is difficult for patients to maintain and is a challenge to successful management. Making hypertension medications inexpensive for patients removes a proven disincentive of use, namely cost.

    Charging copayments that vary with the efficacy and cost-efficiency of the service is an important concept in benefit design. A “benefit-based” or “value-based” cost-sharing system sets copayment levels lower for therapies proven effective and higher for costly benefits with little or no clinical value. Today health insurance plans do a poor job of aligning cost incentives with benefits of therapy.

    I don’t blame insurers. It is a genuinely hard problem, and there is a lack of data on what therapies are more effective compared to substitutes. Moreover, even when data exist attempts to change provider practice and consumer utilization patterns based on it can be controversial. Nevertheless, in time and with more research health plans and the health system in which they operate can, should, and must do a better job of aligning incentives with efficacy. Part of the solution is to think of health plans not only as insurance but as health incentive plans.

    • I suspect that the “incentive” portion of health insurance is due to the employer-based insurance system we have in the United States. Company spending on insurance premiums are tax deductible. Thus, employers, healthcare providers, and insures all have incentives to lobby the government to include as much as possible as “insurance”—even routine procedures such as trips to the dentist.

      I can see the need for government intervention in the market for health insurance (in the true sense of the term). The need for government intervention in the market for routine and preventative treatment is less obvious to me. Under a single-payer system, I could see subsidizing preventative care as consumers will not internalize the cost that their illness incurs on taxpayers, but anything more than a straightforward subsidy does not seem needed. (It is also worth noting that the system we have now drives UP the cost that the uninsured must pay for preventative care.) I would be interested to hear your thoughts on whether you think an optimal U.S. healthcare plan should treat catastrophic events differently than routine care.