No Need For Dumbing Down On Health Insurance And Policy

Armen Hareyan's picture

Dumbing down is strategic in politics, but people deserve a real understanding of health insurance and healthcare policy solutions. Given that we spend about 16% of our national income on healthcare, don't we all have a financial stake in getting this right? Allow me (here in the blog, at least) to give my best attempt at understandable and thoughtful answers to complex questions.

1) Which is the answer, universal healthcare or employer-sponsored health insurance? Well, let’s look beneath both of them. How are they really paid for? In one case, we take a portion of citizens’ taxes. In the other, we take a portion of workers’ wages. So, there’s no difference there—citizens ultimately pay the bill. Who will make decisions about what is “covered” by the health insurance policy? Well, in one case, elected officials (or even worse, unelected government bureaucrats) will make those choices on our behalf; in the other case employers will make those choices on our behalf. There’s no real difference there, either. In both cases, citizens abdicate their choices to someone else (either the legislature or their HR Department).

What are the underlying incentives influencing government and employer sponsors? Well, legislators have an incentive to get re-elected and please their party, so depending on which party they belong to, the health plan will need to cater to the lobbyists who donate most (doctors, lawyers, pharmaceutical companies, midwives, you pick). You only have to look at the more than 1,800 mandates enacted by state legislatures (1) about what must be covered by each state and you can see what’s coming. Further, decisions about what is “worth” paying for will likely reflect public sentiment (because voters will want their own issue covered), rather than evidence.

On the employer side, companies did not go into business to provide benefits, so healthcare is an extra business expense. As such, their incentive is to provide as inexpensive and affordable health insurance coverage as they can without losing employees or harming productivity. For efficiency, neither government nor employers can provide a wide variety of options to meet the varying needs of individuals. Neither government nor employers will have the ability to facilitate individual choice at the point of care. That’s what happens when one size must fit all.

The point? Neither option is a picnic. Neither is the right answer. We would suggest an additional choice, where money is allocated to individuals in the form of a personal health account that can be used on premiums and preventive care, allows individuals to make health decisions that are best for them, and allows everyone to keep the money they don’t spend. This is the first step to creating a true market solution. However, until such an option gets placed on the table, it is important that we all understand the drawbacks inherent in both solutions being proposed now.

2) Do consumer-directed health plans (CDHPs) save money or not? Some say not at all, some say certainly. Who is right? Real answer: If you communicate, design, implement, and support them well, then yes, they save money. If you make the all-too-common mistakes when making them available, then no, they do not save money. In short, you are most likely to see health improvement and cost reduction when the high deductible is accompanied by a significant deposit in a health account that remains with the employee after separating from that employer, when there is plenty of lead time for education and information prior to enrollment, and when enrollment rules require new members to actively make a decision about their health plan options for the coming year. Sweeping statements about the success or failure of CDHPs ignore the facts.

Remember, several powerful stakeholders have financial incentives to root against the CDHP approach: health insurers lose revenue on CDHPs, and fans of universal healthcare lose momentum if CDHPs work. Thus, we get reports that consumer-directed plans do not work, and worse, that they are dangerous to consumers (who can’t be trusted to use the system wisely). In truth, these plans can be constructed to succeed or fail, and you simply have to ask about a plan’s features and context to know which will likely occur.

3) Isn’t the rise in healthcare costs due to aging and disease? No, it’s not that simple. The trend is not in debate; we are getting older. As we age, we get more chronic illnesses, and more illnesses mean more medical problems. But costs have risen much faster than either the aging or disease trend can explain. The vast majority of cost increases have come from new, expensive technologies and treatments that provide questionable health improvement value (2). Add economic incentives for providers to use expensive treatments, corporate policies that require people be sick in order to receive time off, and the moral hazard that occurs when a third party pays for services instead of each person paying, and we get accelerated spending.

When we focus on illness level as the most important contributing factor, we narrow the set of solutions. Ironically, most advertising for health improvement involves spending more money, rather than less. Few messages focus on the power of self-responsibility, the overwhelming use of unnecessary tests and procedures, the continued effectiveness of older, lower-cost treatment options, or the power that would be realized if consumers had reason to question cost and effectiveness.


4) Because benefit costs are higher for sick employees, isn’t improving employee health the best way to save money? Again, generalizing averages oversimplifies both problems and solutions. On average, a person who has diabetes has higher healthcare costs than a person without diabetes. Also, on average, a person who has four diseases costs more than a person who has no diseases. However, health is not the only determinant of health-benefit costs.

In fact, we would argue that employers have more influence over a far more important set of cost-managing factors than they have over the health status of their employees. The design of medical and paid-time-off benefits influences utilization directly. Sharing rewards and responsibilities for prudent use of benefits changes how employees perceive and use their benefits. Many studies have shown that being discontent at work or poor performance increase the likelihood that someone will file a short-term disability claim (3). We have seen dramatic increases in use of health and absence benefits during a time when employees plan to leave their jobs, even if they do not have health issues. And, we have seen significant reduction in benefits costs (and health improvements) in settings where employees receive additional pay for superior performance.

Adding health improvement programs may be simpler (or more popular) than fixing misaligned incentives in benefits and pay, but that doesn’t make them the most effective solution. This discussion does not simplify any issues, nor make decisions easier.

There certainly will be other people who are willing to condense this discussion to the point of inaccuracy: CDHPs have failed; universal healthcare is our best choice; chronic disease is the problem; and implementing more health programs is the best way to save money. There. It’s easy.

Perhaps people with a simple message will gain your trust because their solutions are easy. But I’m hoping a few readers would like to have a more comprehensive discussion about real solutions. Don’t get me wrong; I understand that oversimplification wins elections, but it doesn’t make it any easier for Americans to stay healthy, to have access to the type of health insurance they want, and to receive quality care when they need it most. Thank goodness I am not running for office. Wish me luck on dumbing everything down for business; I’ll need it.

Why this matters: In politics, business and life in general, it is natural for all of us to want an easy fix. None of us has time to understand the nuances of every issue—nor do we want to. This gives candidates and consultants in every field an opportunity to position facts to their advantage. The reality is almost no outcome has a single or simple cause, which means that solutions are rarely simple either. When it comes to improving health and reducing costs, companies and governments must consider a broad set of factors to reach their goals.

1. Bunce, V. C., and V. Prikazsky. 2006. Trends in State Mandated Benefits, 2006. Council for Affordable Health Insurance. (accessed October 24, 2008).

2. Angrisano, C. , D. Farrell, B. Kocher, M. Laboissiere, and S. Parker. 2007. Accounting for the Cost of Health Care in the United States. 94. McKinsey Global Institute, (accessed October 24, 2008).

3. Butler, R. J. , and H. Liao. 2002. Job performance failure and occupational carpal tunnel claims. J Occup Rehabil 12, no. 1: 1-12.

Reported by HHCF Blog.