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Consumers Role in Cost Containment

Consumers Role in Cost Containment. Michael Chernew June 28, 2011. Economic Basics. In most markets, spending is determined ultimately by consumers Demand expresses preferences Demand holds sellers accountable Consumer ‘search’ is crucial Health care markets are distorted

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Consumers Role in Cost Containment

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  1. Consumers Role in Cost Containment Michael Chernew June 28, 2011

  2. Economic Basics • In most markets, spending is determined ultimately by consumers • Demand expresses preferences • Demand holds sellers accountable • Consumer ‘search’ is crucial • Health care markets are distorted • Insurance masks price • Consumer search is often (not always) difficult • Prices (and other information) are unknown • Decisions are often made during health crises • Providers have market power

  3. Advantages of a Consumer Role in Health Care • Can control public spending while allowing consumers to choose options they prefer • Can support supply side initiatives (e.g., payment reform) by aligning patient and provider incentives

  4. Consumer Incentives in Health Care • Incentives to choose plans • Employer • Individuals • Incentives to choose provider networks • Incentives to choose treatments

  5. Incentives to Choose Plans: Employers • Characterizes current system for private coverage • Not particularly effective at controlling costs • Employers respond to employee desires • Employees demand wide networks and are often shielded from full premium • Individual employers have little market power • Employers hesitant to influence clinical decisions

  6. Incentives to Choose Plans: Individuals • Individuals pay incremental costs of high cost plans • They could pay full cost, the key is that the consumer contribution reflects the incremental cost • Information on plan performance and networks is made available • Premiums are risk adjusted • Requires some market infrastructure

  7. Issues • Managed care/ managed competition has lowered spending and markets with more managed care have somewhat slower spending growth (if provider market is competitive) • Savings have not been big enough • Consumer backlash • Hard to interpret: consumers were not typically paying incremental costs • Success of managed care/ managed competition depends on plan vs provider market power • Critical mass of people in managed care/ managed competition may be needed for success

  8. Incentives to Choose Providers (tiered networks) • Many insurers have tier plans • Tiered cost-sharing incentivizes use of less costly, higher value providers

  9. Tiered Network Evidence • Consumer response to network incentives seems modest (but evidence is scant) • One large manufacturer instituted a financial incentive to choose higher quality-scoring hospitals • One union group responded to the incentive for medical diagnoses, the other did not • Neither union responded to the incentive for surgical admissions Scanlon, Lindrooth and Christianson (2008), HSR.

  10. Incentivize Patients at Point of Care • High deductible health plans • No first dollar coverage means patients face full price of services • May reduce moral hazard associated with insurance coverage but… • … may also reduce clinically effective and important care

  11. Evidence on HDHPs • HDHPS have lower average spending: • 14% reduction in spending for families with a deductible of $500 or more • But also have lower rates of preventive care: • Significantly less likely to receive child immunizations • Less likely to receive mammograms, cervical cancer screening, and colorectal cancer screening • No significant difference in diabetes A1C measurement Buntin, Haviland et al. (2011), AJMC.

  12. Value Based Insurance Design • Align cost sharing with value • Adopted by many large employers • Commonly only lower copay for high value services

  13. Types of VBID • Level of targeting • Services • Services for specific patient groups • Willingness to raise cost sharing for low value services

  14. Will VBID Save Money • If copays are only lowered it is unlikely VBID will save money • Cost offsets are not big enough unless very well targeted • If combined with copay increases or coupled with other consumer strategies, VBID could save money • VBID certainly supports alignment of payer and patient incentives, so it may be needed as part of other payment reform strategies

  15. Summary • Consumers must be involved in cost containment • Getting incentives right is hard because markets are imperfect • Ongoing work and experimentation by many in the state are working to develop successful strategies

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