CASE STUDY 1: THE PROBLEM OF HIGH DEDUCTIBLES AND CONSUMER DIRECTED HEALTH CARE IN U.S. HEALTH INSURANCE

READING 1. - OVERVIEW: BASICS OF THE PHILOSOPHY OF CONSUMER – DIRECTED HEALTH CARE AND HEALTH INSURANCE PLANS:

KEEP IN MIND THAT THERE IS NOT A CONSENSUS ABOUT MANY OF THE VIEWS WE ARE READING ABOUT AND WILL BE DISCUSSING.

THERE IS A FUNDAMENTAL DIFFERENCE BETWEEN ADVOCATES OF CONSUMER DIRECTED HEALTH CARE (CHDHC) AND THOSE WITH A MORE SOCIALLY ORIENTED APPROACH TO THE DEMAND FOR PERSONAL HEALTH CARE SERVICES AND THE IMPORTANCE OF BROADLY AVAILABLE GROUP HEALTH INSURANCE.

QUITE SIMPLY, CDHC ADVOCATES BELIEVE THAT PERSONAL HEALTH CARE GOODS AND SERVICES ARE PREDOMINANTLY WANTS, NOT NEEDS – IN OTHER WORDS, SPENDING ON THOSE GOODS AND SERVICES IS LIKE SPENDING FOR A LAPTOP OR IPAD, OR A CAMERA. THEY THINK IT IS LARGELY DISCRETIONARY, NOT NECESSARY, EXPENDITURE.

A. Advocates of Consumer Directed Health Care .

The influence of these Advocates is currently seen in the prevalence of and membership in Federally approved and compliant Consumer Directed Health Plans, and in the general increase in ALL kinds of employer-based health insurance plans which require high deductibles, and high levels of out-of-pocket individual and family health services expenditures. Employer and insurance company emphasis on these kinds of health insurance plans and arrangements shows the extent to which Moral Hazard is a major concern for the health insurance industry and for the U.S. Health Care system.

Moral hazard  is the danger that an insured party will lack the incentive to guard against risk when they have insurance to protect them against most or all of that risk. It is the idea that a party protected in some way from risk will act differently than if they didn't have that protection. We encounter moral hazard every day—tenured professors becoming indifferent lecturers, people with theft insurance being less vigilant about where they park, salaried salespeople taking long breaks, and so on.

Moral hazard is usually applied to the insurance industry. Insurance companies worry that by offering payouts to protect against losses from accidents, they may actually encourage risk-taking, which results in them paying more in claims. Insurers fear that a "don't worry, it's insured" attitude leads to policyholders with collision insurance driving recklessly or fire-insured homeowners smoking in bed.

Advocates of Consumer Directed Health Care believe that group health insurance encourages people to purchase health goods and services they do not need, and encourages people to avoid personal responsibility for proper nutrition, seeking preventive care, and living in a healthy manner. This is because each health plan enrollee cross-subsidizes the other, and insurance substantially reduces the expense involved in accessing and using Personal Health Care Services,

These advocates are less likely to see Personal Health Care Goods and Services as necessities which are essential for the well-being of individuals and families, and are critical to the health, productivity, proper functioning and social inclusiveness and solidarity of a democratic society.

They are much more likely to think that:

· A high portion of Personal Health Care Goods and Services is discretionary (wants) rather than necessary (needs);

· Americans are over insured;

· Americans do not pay enough out of pocket for their Personal Health Care Services: and that

· If people choose (given their limits of income and wealth) not to purchase these services, they are just making a rational choice, and not jeopardizing their own welfare and that of their society.

· Moral Hazard is the principle problem with using large group health insurance to pay for Personal Health Care Goods and Services. Consumer demand for these goods and services is encouraged by the collective sharing of risk among members of group health insurance plans. The way to solve this problem is the imposition of varying types and levels of cost-sharing and out-of-pocket expenditures on health insurance plan members.

They focus on excessive demand for Personal Health Care Services, and are much less concerned about issues of access, affordability, and high prices generated by the increasing concentration of health care providers on the supply side of the U.S. Health Care system.

B. CDHC Advocates – Other Core Assumptions :

1. The Personal Health Status of Individuals and Families is very much a function of Personal Responsibility and Self-Discipline: Routine and disciplined attention to proper exercise, diet, and self-care is seen as equal to or better than an investment in the purchase and use of large group Health Insurance. Such disciplined attention to individual and family lifestyles, which is assumed to be a matter of applied willpower, will have a large long-term and medium-term impact on the levels of National Health Expenditures, and on the health status of the U.S. population as a whole.

2. Freedom of Choice, and a wide variety in the choice of self-care and health insurance options available to individual and families, are in and of themselves highly valued.

Individuals and families should have a broad range of choices as to how they will access and use health insurance, or whether they will focus more of their time and resources on exercise and proper nutrition to achieve optimal health status for themselves and the community as a whole.

Related to this is the notion that even employer-based Group Health Insurance should be offered not through limited numbers of large group plans, but through plans which are more narrowly tailored to the expected needs and preferences of employees. If you are younger and healthier, you should not be cross-subsidizing a sicker population – you should be in a healthier insurance group which experiences lower premiums.

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