How to pay for only the health care you want

The following originally appeared on The Upshot (copyright 2014, The New York Times Company) and is jointly authored by Austin Frakt and Amitabh Chandra.

One reason health insurance is expensive is that most plans cover just about every medical technology — not just the ones that work, or the ones that are worth the price. This not only drives up costs, but also forces many Americans into purchasing coverage for therapies they may not value. But there’s no reason things couldn’t be different, and better for consumers.

Consider the latest technology for treating prostate cancer: the proton beam. It’s delivered with a football field-size machine costing well over $100 million. Per treatment, this therapy costs at least twice as much as alternative approaches, but is no more effective. Many health plans cover it and other therapies of low or uncertain value because they pay for anything that physicians deem medically necessary even when evidence suggests otherwise. And, without even knowing it, Americans pay for it in higher premiums.

It doesn’t have to be this way. If plans could compete on the basis of the therapies they cover, consumers could decide what they wish to pay for. This sounds complicated, but it need not be.

Health plans could define themselves at least in part by the value of technologies they cover, an idea proposed by Professor Russell Korobkin of the U.C.L.A. School of Law. For example, a bronze plan could cover hospitalizations and visits to doctors for emergencies and accidents; genetic diseases; and prescription drugs that keep people out of hospitals. A silver plan could cover what bronze plans do but also include treatments a large majority of physicians find useful. A gold plan could be more inclusive still, adding coverage, for instance, for every cancer therapy shown to improve patient outcomes (no matter the cost) as long as it was delivered at a leading cancer center. Finally, a platinum plan could cover experimental and unproven cancer therapies, including, for example, that proton beam.

This way, nothing would be concealed or withheld from consumers. Someone who wanted proton-beam cancer treatment coverage could have it by selecting a platinum policy and paying its higher premiums. Someone who did not want to pay higher premiums for lower-value care, in turn, could choose a bronze or silver plan. This gives a different, but more useful, meaning to the terms “gold,” “silver” and “bronze” than they have in the new insurance exchanges today.

The idea of ranking plans by value of care they cover has some limitations. One impediment is that it’s not in a specific plan’s interest to fund the research to discover the value of health care technology. Such information is a public good — meaning once learned, it can be known and used by all plans. But public investment in research can avoid this problem. Additional funding for studying what works in health care and what does not would help enormously, as would regulatory changes to allow plans to use the fruits of that research to exclude low-value technology from coverage.

A second concern is that as people become sick, they will prefer plans that cover more treatments, including experimental ones. As sick people disproportionately choose more generous plans, their expenses and premiums will have to rise. This phenomenon, known as adverse selection, is familiar in most health insurance markets, including those for employer-sponsored plans, private plans that participate in Medicare and in the Affordable Care Act’s new marketplaces. One common way to address it is to permit individuals to switch plans only once per year, during an open enrollment period. This locks people into their choice for some time, so they can’t suddenly upgrade their plan after getting sick. If a once-per-year enrollment period proves insufficient in this case, a longer period could be imposed.

Structuring health plans according to value would give Americans the ability to buy whatever health care technologies they choose — including, if they want it, unproven and expensive care — without forcing others to pay for that choice. This would help address the key, though under-recognized, problem in American health care today: Not that Americans spend a lot on health care, but that they spend a lot without always getting good value for the money.

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