Consumer-Driven Health Plans: More Choice Is Not Always Better
Bownds, Lynne, Journal of Economic Issues
The emerging stage in the evolution of health care finance and delivery in the $370 billion a year health insurance industry in the United States is the "consumer-driven" health plan. Consumer-driven plans include those in which enrollees can designate individual or customized benefit packages and providers and pay any cost beyond a fixed contribution by their employer. Also included are plans that establish health spending accounts into which employers contribute pretax dollars that are to be used to pay for health care purchases. Medical savings accounts (MSAs), defined contribution plans (DCPs), and tax credits fall into this category. It is estimated that these types of plans currently have approximately 1.5 million enrollees and could account for up to 50 percent of the market within five years (Gabel et al. 2002).
These types of plans have become an essential part of the business strategy of major insurers as well as start-up companies and are being marketed as the revolution that will solve the perennial problem(s) of increasing costs and decreasing coverage inherent in the health care delivery system in America. Marketing claims, largely targeting employers with more than a hundred employees, suggest that these plans are the next "magic bullet" and the much sought-after solution to the failing health care system, much as managed care was in the early 1990s. Proponents of the plans suggest that this method will not only decrease costs to employers but will also reduce their involvement in the management of the health care of their employees by shifting the decision making to the employees themselves. The major thrust of marketing campaigns is that consumers will have control of their own health care decisions--they will have "freedom of choice" This approach capitalizes on the opportunity created by managed care back lash, in which lack of choice is one of the most frequent complaints. But, more importantly, the freedom of choice theme represents further opportunity for more complete commodification of health care and the potential for further segmentation in health care markets as previous market-based reforms have done.
This family of health plans is a method for managing the demand side of health care by shifting financial incentives from insurance companies to patients, that is, consumers of care. This implies increased cost sharing by employees and results in shifting of financial risk from insurers to consumers of services. The purpose of this paper is to reinforce the argument that more choice in health care as it is being offered will not result in better outcomes for all consumers of health care and that it has the potential to make many consumers worse off. An unquestioned belief is that more choice is always better, but words can be deceptive: a case in point is marketing-driven "choice." In the following text some of the conditions that are required for competitive markets to work according to their theoretical promise are examined. Then, their relevance to health care is discussed, and, finally, specific examples of choice in health care decision making are given.
Freedom of Choice in Economic Theory
The focus is on choice, first as a theoretical concept and second in the context of matter-of-fact practicalities of health care markets. Rational or purposeful choice by individual agents is the foundation upon which modern neoclassical economics is built. Since problems with the health care system have been defined primarily as budgetary, attempts at fixing the system have relied on tools of economics, often accompanied by little understanding of the tools themselves, particularly about assumptions underlying economic models of behavior in markets. What is often implied is that a system of economic freedom embodied by individual freedom of choice is "a necessary condition for political freedom" (Friedman 1962). This thinking lends credibility to marketing claims about any product that offers freedom of choice. …