A couple weeks ago, I wrote about an experience I had at work with a patient wanting to stay in the hospital for two extra days just so he could spend a few hours with his daughter from out of town before going to a skilled nursing facility where no visitors would be allowed. The cost of staying in the hospital those couple extra days was probably at least $4,000 total, but the patient and his family were (rationally) ignoring that cost because they weren’t going to have to pay for any of it directly themselves.
The solution I proposed to such system-level irrational spending was to have the person making the purchase decision bear at least part of the cost of that decision. That way, if they choose something more expensive, it will be done with a consideration for the additional cost that choice entails.
As context for my proposed solution to such a problem, remember three things: (1) every system is perfectly designed to get the results it gets, (2) the design of a system generates a set of incentives, and (3) incentives are what drive the results of every system. So does no one have an incentive to get the people making purchase decisions to bear at least part of the price differential?
This is how I look at it:
Anything that lowers the total cost of care (while at least holding quality constant) is desirable for whoever is bearing the burden of that total cost of care. And the parties who bear that burden are the insurer and the patient, to varying degrees.
But since the patient typically doesn’t have much of an idea about what their out-of-pocket cost will be or how those costs will be impacted by choosing a different procedure or a different provider, they are not in a position to do anything about it.
The insurer, on the other hand, has the capacity to know–or at least give a reasonable estimate of–the cost of something. Therefore, we need to look to insurers for the necessary changes.
But think about this proposal from an insurer’s perspective . . .
The young energetic intern pitches such a plan to the executives, “Hey, how about we offer a new and innovative insurance plan that gets rid of the typical deductible and instead makes enrollees pay a 50% coinsurance on each service they receive (subject to their out-of-pocket max, of course). We could set the total price of each service (and, therefore, their coinsurance portion) at our negotiated rates with each provider. And we’ll make an app that will allow them to compare prices beforehand.”
The room’s executives would immediately see all the problems with such a plan. “This is too complicated for people! They will hate it and never want to get an insurance plan from us again.” “We can’t divulge our negotiated rates, all the providers who find out they are getting paid less will be angry and demand more from us.” “What about things that are not shoppable?” “If a single bad publicity event comes out of this experiment, it will severely damage our reputation and we’ll lose market share as a result, so we stand to lose more than we could gain.” “We’re going to have to make premiums extra low for such a plan to be able to convince people to try it out, but there’s no way to easily communicate how this plan is different, so a lot of people will just choose it because it’s cheap and says it has a $0 deductible and then they won’t be prepared to pay all their coinsurance costs.” “What about out-of-network coinsurance rates?” “Nobody’s ever done something like this before, so it’s too crazy to try unless we are likely to make a killing on it, which we aren’t.”
I talked about these same issues in my Why Insurers Don’t Innovate post a year ago. And not all of them are immediately solveable. But if we could address at least a majority of those executives’ concerns, I believe we would start seeing some enterprising insurers try this out.
The big thing would be solving the novel complexities that such a plan would create and then finding a way to convey this information to potential enrollees, either in the health insurance marketplace or in employer benefits explanations. And we would have to hope that many people would be willing to use an app to check healthcare prices in compensation for paying a much lower premium.
There would be lots of challenges to solve, and apparently no insurer has yet determined that the potential benefits are worth the potential harms. But I have hope that this will happen and be successful sooner or later. Maybe if the first enterprising insurer to try it can identify some first-mover advantages and create some barriers to imitation, they would stand to gain a lot more.
Also, remember there’s the static-world benefits to patients making value-sensitive decisions (they get better deals on the care they buy), and then there’s the dynamic-world benefits (the market starts to evolve toward delivering higher value). This kind of insurance plan design change, as it starts and then spreads, will enact a big change in providers’ incentives. In other words, the system will be fundamentally changed, which will result in much higher value care being delivered as it evolves in response to that change.