This volume presents an enormous amount of information that will take students of consumer-driven health care a very long time to read and digest. It will be tempting for both advocates and opponents of the movement for greater consumer control to browse through the work and pick out and trumpet those nuggets of information that suit their predispositions.
This would be unfortunate because the information that runs counter to our biases is the most important information to understand. Good policy can be developed only when we listen closely to honest criticism and respond accordingly–as difficult as that may be.
Still, the work presented here requires some context. Consumerism in health care is in its infancy. We do not yet know what the optimal approach is and we are in a period of experimentation and trial and error. Like most other new ideas, the initial models will need to be revised and improved. Prototype designs are almost never without flaw.
One of the marvels of any market-based system is the ability to make those corrections and revisions quickly as more information becomes available.
Too many health policy analysts take a governmental program approach to design questions–the model must be irrefutably effective before it is ever implemented. Once a program is “the law of the land” it is nearly impossible to change. Witness the protracted debate over adding prescription drug coverage to Medicare.
Fortunately, consumer-driven health care (CDHC) was born in the market and will be revised in the market. To the extent there has been governmental involvement (such as the IRS guidance on Health Reimbursement Arrangements), it has been extraordinarily flexible and permissive.
Vendors and employers are free to refine their products in accordance with changing conditions and growing knowledge. In that context, identifying problems is seen not as an attack on cherished ideas, but as a welcome opportunity to improve the product offerings. Criticism is valued as product feedback. A company that wants to succeed in the market is eager to hear what the problems may be.
Market approaches have some other advantages over a governmental orientation, as well. Government programs are essentially political. They are aimed at pleasing 50 percent+1 of the population. Opinion surveys are conducted to see how close a new idea is to achieving that goal.
Few companies in the private market think in those terms. If a new product or a new company feels it can reasonably attract even just 10 percent of a market, it views the prospects as very promising. Hertz is not the only success in the rental car business. Avis and National and Budget and Alamo and many others manage to succeed without being Number One.
Readers of the papers in this volume will likely conclude that the experience at Humana was not very favorable, the experience of the Definity-covered University of Minnesota was more favorable, and the large, unnamed Definity-covered employer was very favorable. What does that mean? Clearly different locations and different designs lead to different results. If CDHC were a government program, this might be worrisome–have we chosen “the right” model? But because CDHC is a market-oriented approach, it is not discouraging at all. Definity is doing something right and will build on it. Humana may revise its approach or drop the program altogether. It does not matter in the slightest. Humana is not disadvantaged because Definity is succeeding. And Humana’s problems do not detract at all from Definity’s Success.
Certainly there are things to be learned in both cases, and market-oriented companies will study these experiences closely. But no company–including Humana–is stuck with a problematic design. Humana’s product did not allow rollovers and the funds in the “allowance” could be spent only on in-network provides and for covered services. These features remove the most promising elements of consumer-driven health designs–consumer choice and the opportunity to save money for future needs. It is simple enough for Humana to incorporate those features in its next round of offerings.
Market-oriented companies also know that early adopters are different than the rest of the market. The people who are the first to sign up for a new product or service tend to be risk-takers. They accept risking the unknown for the privilege of trying something new. They also tend to be younger and better educated than the rest of the market. They volunteer to be “test cases” and product developers rely on them to refine their offerings. People oriented toward government programs may view this as a selection problem, but innovators expect this to occur in the first couple of years of new-product roll out. If the product is successful at this stage, word gets out and the new idea attracts a wider market segment.
The research presented here does not address the “early adopter” phenomenon very effectively. We are told that the enrollees in the Humana program tended to be actuaries and financial service personnel. These individuals are presumably better educated than most Humana employees, and they certainly know their way around a benefits program better than the average person. It is interesting, for instance, that the studies report no end-of-year rush to consume unspent dollars in the allowance, even though Humana included a use-it-or-lose-it provision characteristic of flexible spending accounts (FSAs). This contrasts with the Countrywide Financial experience that did have an FSA-type year-end rush, even though those employees were able to roll over unspent balances. It is possible that the self-selected Humana employees understood the dynamics of forfeited balances and did a better job of spending their money through the course of the year, while less-savvy Countrywide employees stuck to their FSA-induced spending habits.
Most of the studies report income disparities between CD-selectors and nonselectors. It will be interesting to see if this difference continues over the years, but it is also possible that income is a proxy for education. This should certainly be the case at the University of Minnesota where educational attainment should correlate closely with income. If it is true that early adopters tend to be more highly educated, we would need to control for differences in education before concluding there is an income effect unique to CD health.
We also think of early adopters as being younger, but that does not seem to be the case here. If anything, CD-selectors appear to be somewhat older than nonselectors (though age is another underreported variable in these studies). Is it possible that early adopters for electronic gadgets are different from those for health insurance programs? Perhaps younger people pay so little attention to their health care needs that a choice of benefits plan is of little interest to them.
Since we cannot yet distinguish between the behavior of early adopters and a more mature market for consumer-driven health, the research presented here is of limited (but not unimportant) value. Most of this work looks at baseline information in 2001, first enrollment in 2002, and renewals in 2003. That means there is only a single year’s worth of data. Given that the IRS did not issue guidance until June 26, 2002, the products were very tentative and in some cases did not incorporate the more attractive features of the approved health reimbursement arrangement (HRA) model. It was not at all clear at the start of 2002 that the IRS would allow year-to-year rollover and buildup of unspent balances.
Even more importantly, none of the pioneer models anticipated that postemployment access to the funds would be allowed. The prospect of saving money for future needs even after leaving one’s current employer could very well skew enrollment decisions from what this research presents. Lower-income workers in particular might find that prospect more attractive.
The body of research presented, then, is looking at a moment-of-time of an extremely fluid and dynamic environment. Much of the experience studied predates the IRS guidance. And, while Humana and Definity are both very serious and credible players, they are not the only vendors, nor the only models available. Destiny Health, for instance, takes a radically different approach to the market and to product design. It distinguishes between “discretionary” and “nondiscretionary” spending and applies the cash account only to the former, It also requires portability for account balances. Its market targets fully insured smaller companies, rather than the larger self-funded employers studied in this research, It would be worthwhile knowing the experience of this different design and different market segment.
It is impossible to know ahead of time if the Destiny model is superior to the Definity model or the Humana model (or the models from Aetna, HealthMarket, Lumenos, or dozens of other variations). Clearly, behind each design are a number of credible and serious people who believe their approach is superior to all others. It will not be academia that answers the question of which approach is best, but the market.