Consumer-Directed Health Care

DEBATE CONSUMER-DIRECTED HEALTH CARE You won’t hear many health experts claim that the American healthcare system is functioning perfectly in terms of core considerations such as cost, access, and quality. The question that arises with the advent of any new policy approach seeking to improve the system is obvious: Does the change represent a step forward or backward? Professors Kristin Madison, of Penn, and Peter Jacobson, of the University of Michigan, take up this question in regard to the latest innovation in health care policy—consumer-directed healthcare (CDHC). Professor Madison argues that while CDHC is not a panacea, “[e]ven if its shortcomings prevent its full diffusion through the American health care system, CDHC will still . . . help[] to establish a foundation for future reforms in health care finance and delivery, [and] has the potential to improve the health care system in the long run.” Professor Jacobson’s response? “CDHC is a direct attack on the idea that health care differs from other market commodities because of its moral aspirations . . . . For those who believe that equity should be a fundamental attribute of health care delivery, CDHC represents a huge step backwards.” Nonetheless, Professor Madison is convinced that CDHC will be a lightning rod that stirs the American health care system out of its complacency and “forces us to confront the tradeoffs inherent in any health care system in a resource-constrained world.” Professor Jacobson is not content to wait and see how the American public reacts to CDHC: “If the policy focus is on CDHC, equity will be subordinated. If universal coverage dominates, CDHC proponents are probably right that cost and quality issues will be subordinate. For me, it’s an easy choice—helping those without insurance to have a minimal acceptable level of care.” (107) 108 UNIVERSITY OF PENNSYLVANIA LAW REVIEW PENNumbra [Vol. 156: 107 OPENING STATEMENT Is Consumer-Directed Health Care a Step Forward or a Step Backward for Health Care Policy? Kristin Madison † Consumer-directed health care (CDHC) has become a common topic of conversation among those interested in health care law and policy issues. Definitions of CDHC vary, but they share a common core: the notion of increasing consumers’ control over their own health care. Consumer-directed care can be contrasted with care directed by physicians or others who deliver health care services, on the one hand, or employers and insurers who finance and manage payment for services, on the other. The term CDHC de-emphasizes the role these third parties play in the health care decision-making process, reinforcing instead the parallels between the purchase of health care and the purchase of everyday consumer goods and services. Consumers ordinarily exercise full decision-making power with respect to their purchases outside of the health care context and bear the full financial burden of their decisions; in a CDHC setting, enrolleepatients ordinarily exercise some decision-making power over their care and bear at least some of the associated financial burden. Practically speaking, CDHC is often implemented through a combination of a high-deductible health plan (“HDHP”), such as a plan under which an individual must pay for the first $2,000 of care received, and a tax-favored, portable health savings account (“HSA”), in which individuals or their employers deposit funds that the individuals can direct toward purchasing medical care. According to the America’s Health Insurance Plans Center for Policy and Research, by January 2007, enrollment in HDHP/HSA products exceeded 4.5 million individuals. While the HDHP/HSA combination is only one possible form of CDHC, it is the most widely recognized form. CDHC’s structural characteristics and rapid growth have prompted much discussion about its effects. One major advantage of CDHC (beyond the greater amount of choice it offers participants) is the likelihood that it will increase some patients’ sensitivity to health care costs, decreasing demand for low-value services and possibly † Professor of Law, University of Pennsylvania Law School, and Senior Fellow, Leonard Davis Institute of Health Economics. 2007] CONSUMER-DIRECTED HEALTH CARE 109 spurring greater levels of competition, which may in turn reduce health care expenditures. If quality joins cost as a criterion patients use in choosing health care providers and services, CDHC may lead to higher health care quality. In addition, by increasing the likelihood that individuals will bear some of the financial costs of treatment necessitated by unhealthy behaviors, CDHC may encourage healthier lifestyles. Drawbacks of CDHC include the high burden it imposes on those who lack the information, education, mental or physical ability, emotional capacity, or financial wherewithal necessary to make good choices about their care. Bad choices can produce both worse health outcomes and higher costs than would result under more conventional health plans. CDHC critics also highlight concerns about its effect on insurance pools: if HDHP/HSA plans attract healthy individuals looking for tax-favored savings vehicles, they may leave sicker enrollees in traditional plans, raising plan premiums and forcing the sickest to shoulder a higher proportion of their own costs. Evidence of these effects is just beginning to emerge, and continued collection and evaluation of this evidence is essential to assessing CDHC’s desirability. Perhaps the most important long-term implications of CDHC stem not from its direct effects, however, but instead from its indirect influences on health care finance and delivery. Even if its shortcomings prevent its full diffusion through the American health care system, CDHC will still constitute a step forward for health care policy in the United States. By helping to establish a foundation for future reforms in health care finance and delivery, it has the potential to improve the health care system in the long run. CDHC’s Long-Run Effects CDHC’s first potential long-run effect is to change the way that people think about health care and health care coverage. Once fully insured, individuals have reason to seek out any care they expect to benefit their health, regardless of the care’s cost; insurance insulates them from the cost of care. By contrast, an HDHP enrollee may have to pay the full cost of his or her care. Besides providing incentives to consider whether care is necessary and to find low-cost sources of care, the payment obligation reminds enrollees that care is not free and in fact costs considerably more than the $20 copayment or the 20% coinsurance rate that an enrollee in a more traditional plan might pay. Every time a patient dips into an HSA, the account balance drops, emphasizing the connection between the choices patients make and their financial consequences. 110 UNIVERSITY OF PENNSYLVANIA LAW REVIEW PENNumbra [Vol. 156: 107 In the long run, these CDH (...truncated)