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Chicken And Egg In Consumer-Driven Health Care – OpEd


An advocate of consumer-driven health care will often be challenged by this question: “So, when I am hit by a bus, or have a heart attack or stroke, or am suffering from dementia, you want me to go shopping around for medical care?”

Obviously not. Nevertheless, this is a serious challenge and invites the question: How much of our health spending can be meaningfully controlled by discriminating patients? Researchers at the Health Care Cost Institute (HCCI) recently addressed this. The HCCI has a unique advantage in producing such research, because it has access to a database of claims for employer-based plans run by a number of insurers.

The research categorized “shoppable” versus “non-shoppable” services. It found:

  • At most, 43 percent of the $524.2 billion spent on health care by individuals with employer-sponsored insurance in 2011 was spent on shoppable services.
  • About 15 percent of total spending in 2011 was spent by consumers out-of-pocket.
  • $37.7 billion (7 percent of total spending) of the out-of-pocket spending in 2011 was on shoppable services.

So, it looks like only 7 percent of health spending is subject to price-conscious patients spending their dollars wisely. The researchers concluded that “Overall, the potential gains from the consumer price shopping aspect of price transparency efforts are modest.”

That would be true if we were talking only about forcing price transparency on the current benefit design. However, that is a distraction. The current benefit design must be redesigned, but people who run health insurance will not or cannot see that. Why is only $37.7 billion of $225.4 billion “shoppable” medical care under patients’ direct control? Should it not be more like $225.4 billion – the whole lot?

Take homeowners’ insurance. You have a flood and you have to act fast. You may not be able to make a fully informed choice about mitigation services you need immediately. However, when it comes to replacing your furniture, would you not want to control every penny of the insurers’ payment? There is no way you would allow your insurer to control 85 percent of the money spent on replacing your property, chosen from suppliers selected by your insurer at prices fixed by your insurer.

Further, the HCCI researchers give the example of colonoscopy as a “shoppable” service. Colonoscopy is a service most health services researchers believe is very well-suited to shopping around. However, under Obamacare, colonoscopy for patients who benefit from it (those over 50) is considered so-called “preventive care.” Its entire cost is loaded onto premium, with no direct payment by patients. No rational patient would waste time searching out the best price for a colonoscopy.

The opportunity for price reduction in health services is huge. Unfortunately, those who operate within the boundaries of the status quo struggle to see this.

This article was published at The Beacon

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John R. Graham

John R. Graham is Senior Fellow at the Independent Institute and a Senior Fellow at the National Center for Policy Analysis. Formerly Vice President at the Advanced Medical Technology Association (AdvaMed), he previously directed health-policy research at the Pacific Research Institute and the Fraser Institute. In prior positions he served as Assistant Vice President at Kidder, Peabody Securities Company; Associate at Goldman Sachs and Company; Political and Military Analyst for the United Nations Operation in Somalia; Development Consultant for Covenant House Vancouver; and Captain in the Canadian Army. He received his Bachelor of Arts (Honors) in economics and commerce from the Royal Military College of Canada and his M.B.A. from the University of Cologne, Germany. He is also Senior Fellow at the Fraser Institute as well as Adjunct Fellow for the Mackinac Center for Public Policy.

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