Transcript The Politics of Healthcare and Healthcare Financing Greg Shaw Department of Political Science Illinois Wesleyan University.

The Politics of
Healthcare and
Healthcare Financing
Greg Shaw
Department of Political Science
Illinois Wesleyan University
Governments or Markets?
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Trust in gov’t nearly
as strong a predictor
of the presidential
vote as party ID
(wow!)
Trust in Congress
 Fear of bureaucracy?
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… 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
CDHC: The basic argument & implications
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:
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◦ 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
Unpacking the CDHC Argument
Less 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 selfdiagnostic 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?
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Do patients know which services
to select?
◦ Do you know the difference in
outcomes between physical
therapy and spinal surgery?
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Who makes these determinations?
That is, when patients go shopping,
who decides what goes in the cart?
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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?
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Can patients haggle effectively and
shop comparatively?
◦ Do we need a culture shift?
Q: “Is this medically necessary?”
A: “ … we just routinely do this …”
Before we go much further …
… 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 …?
Yikes!
Do you
believe
this?
◦ 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.
The RAND Corporation Experiment
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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 Study: Key Findings
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Demand was somewhat elastic as a function of price
Moving 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 plan
No demand elasticity for in-patient services for children
Demand elasticity was higher among low-income
participants than among the economically better off
Demand 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
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The RAND Study: Implications
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Supporters pointed to this as conclusive evidence of demand elasticity as a
function of price
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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)
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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)
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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”?
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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)
A Critique of CDHC
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People 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
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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 CDHC
Difficulties with haggling: life vs. death, docs dislike
haggling, information asymmetry again
 CDHC is predicated on reasonably good health
and regular income:
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◦ 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)
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Evolving belief in health as a basic human right (not
to be commoditized – think: EMTALA of 1986)
Some reflections on costs
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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
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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
Toward an Alternative Vision
Markets produce lots of wealth and lots of
poverty
 Recognizing the strengths and limits of the
market model for healthcare financing
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◦ Competition where it works, public provision
where it’s needed
Providing coverage by other means
 A pragmatic approach: a healthy workforce
(and kids too!)
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