# Consumer-driven health plans (quasi-free-market) work **URL:** \ **Category:** Great Debates\ **Created:** [August 12, 2009, 3:25pm UTC](https://boards.straightdope.com/t/consumer-driven-health-plans-quasi-free-market-work/506185 "2009-08-12T15:25:56Z")\ **Posts on this page:** 11\ **Page:** 1
**Author:** ![athelas](https://avatars.discourse-cdn.com/v4/letter/a/5e9695/32.png) [@athelas](https://boards.straightdope.com/u/athelas)\ **Post date:** [August 12, 2009, 3:25pm UTC](https://boards.straightdope.com/t/consumer-driven-health-plans-quasi-free-market-work/506185/1 "2009-08-12T15:25:56Z")
[Here](http://www.marginalrevolution.com/marginalrevolution/2009/08/consumer-drive-health-care-plans.html): > [@](#): > > For about the last 10 years the United States has been experimenting with consumer driven health care plans. CDH plans typically combine a high-deductible insurance policy with a health savings account or health reimbursement account. So under these plans you pay for most health expenditures out of pocket; the “insurance” is insurance by the original meaning of the term, and covers catastrophic care. > [@](#): > > CDH plans now cover well over 8 million individuals, up considerably from 4.5 million in 2007 and these types of plans continue to grow rapidly. So what have been the results? > > Cost-savings in the first year of instituting a CDH plan relative to a traditional plan ranged from 12% to 21%, remarkably large figures. Moreover, costs appear to grow more slowly under CDH plans than under traditional plans. > > The knock on CDH plans has always been that they could cause people to avoid preventative case. Not only does this appear to be false it’s the opposite of the truth. Generally, all of the studies indicated that cost savings did not result from avoidance of inappropriate care and that necessary care was received in equal or greater degree relative to traditional plans. All of the studies reported a signficant increase in preventative services for CDH participants. Especially interesting is that some of the studies found that CDH plans resulted in better compliance with evidence-based care. Conservatives have [long argued](http://www.hoover.org/publications/digest/3459466.html) that the rise of third-party payment, where the consumer doesn’t directly bear the costs of what they’re consuming, is a main driver of healthcare cost inflation. After all, if my company’s paying for my business trip, I’ll order the filet mignon. These high-deductible plans simulate a free-market environment, and empirically demonstrate the cost savings that can be realized, without damaging health. This is the direction we need to move in, not _exacerbating_ the third-party payment problem by adding the government in as insurer. ---
**Author:** ![athelas](https://avatars.discourse-cdn.com/v4/letter/a/5e9695/32.png) [@athelas](https://boards.straightdope.com/u/athelas)\ **Post date:** [August 12, 2009, 3:31pm UTC](https://boards.straightdope.com/t/consumer-driven-health-plans-quasi-free-market-work/506185/2 "2009-08-12T15:31:15Z")
[Singapore](http://econlog.econlib.org/archives/2008/01/singapores_heal.html) [has](http://econlog.econlib.org/archives/2008/05/quality_health.html) a similar plan on a national scale, which should counter arguments that selection effects skew these results. > [@](#): > > The Singapore government spent only 1.3 percent of GDP on healthcare in 2002, whereas the combined public and private expenditure on healthcare amounted to a low 4.3 percent of GDP. By contrast, the United States spent 14.6 percent of its GDP on healthcare that year, up from 7 percent in 1970… > > The state, using taxes, funds only about one-fourth of Singapore’s total health costs. Individuals and their employers pay for the rest. In fact, the latest figures show that Singapore’s government spends only $381 (all dollars in this article are U.S.) per capita on health—or one-seventh what the U.S. government spends. > > Singapore’s system requires individuals to take responsibility for their own health, and for much of their own spending on medical care. As the Health Ministry puts it, “Patients are expected to co-pay part of their medical expenses and to pay more when they demand a higher level of service. At the same time, government subsidies help to keep basic healthcare affordable…” > > The reason the system works so well is that it puts decisions in the hands of patients and doctors rather than of government bureaucrats and insurers. The state’s role is to provide a safety net for the few people unable to save enough to pay their way, to subsidize public hospitals, and to fund preventative health campaigns. > > The price mechanism and keen attention to incentives facing individuals are relied upon to discourage excessive consumption and to keep waste and costs in check by requiring co-payment by users. The state recovers 20-100 percent of its public healthcare outlay through user fees. A patient in a government hospital who chooses the open ward is subsidized by the government at 80 percent. Better-off patients choose more comfortable wards with lower or no government subsidy, in a self-administered means test. There are mandatory health savings accounts: “Individuals pre-save for medical expenses through mandatory deductions from their paychecks and employer contributions… Only approved categories of medical treatment can be paid for by deducting one’s Medisave account, for oneself, grandparents, parents, spouse or children: consultations with private practitioners for minor ailments must be paid from out-of-pocket cash…” So even the poorest people have co-pays, and the government provides only minimal care to the most needy. Conversely, under Obamacare, the government would assume most health expenditures, as Medicare and private insurance now do. (This should also put the lie to the idea that “every industrialized country has European-style UHC.” Singapore’s state-provided care may be universal, but it’s also highly proscribed, much more than the leftists who push for UHC would prefer. And they have far better efficiency than the heavily state-provided care in Western Europe.) ---
**Author:** ![DMC](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/dmc/32/18049_2.png) [@DMC](https://boards.straightdope.com/u/DMC)\ **Post date:** [August 12, 2009, 4:50pm UTC](https://boards.straightdope.com/t/consumer-driven-health-plans-quasi-free-market-work/506185/3 "2009-08-12T16:50:05Z")
I’m not sure how you define similar, as what Singapore has doesn’t seem that similar to your proposal. You might want to look up Medifund, Medisave, Medishield, and Elderfund. Several things catch my eye. One of them is that Singapore heavily regulates things such as prices. Also, almost half of the hospitals are government run. Big fan of that sort of thing? Additionally, while Singapore does an excellent job of keeping things on the cheap (again, through heavy regulation), and its “healthy” life expentancy is higher than the U.S., it’s lower than the countries most often used as UHC examples, such as France, Canada, Germany, the U.K., etc. ---
**Author:** ![UltraVires](https://avatars.discourse-cdn.com/v4/letter/u/ecccb3/32.png) [@UltraVires](https://boards.straightdope.com/u/UltraVires)\ **Post date:** [August 12, 2009, 5:28pm UTC](https://boards.straightdope.com/t/consumer-driven-health-plans-quasi-free-market-work/506185/4 "2009-08-12T17:28:32Z")
I generally like the free market, and I currently have a HDHP with an HSA and it works very well for me. I’m saving money hand over fist and building wealth. But, I can see how it is self-selecting. My family is fortunate enough to be blessed with good health so far. If you had an underlying medical condition, there is no way in hell that most people could self pay up to 5 to 10 thousand per year to meet a deductible. And, you take young, healthy people like us out of the insurance pool leaving only sick people to pay for everything: the insurance model fails. I think that it could work if EVERYONE from age 18 on up had the exact same plan that I have, saved, and didn’t touch the money in the accounts. But with poor people and the elderly on govt. care, a large portion of the remainder of people in traditional insurance, and people with no insurance, the small handful of us with HSAs don’t really work. They probably do more harm than good. ---
**Author:** ![Frankenstein\_Monster](https://avatars.discourse-cdn.com/v4/letter/f/ccd318/32.png) [@Frankenstein\_Monster](https://boards.straightdope.com/u/Frankenstein_Monster)\ **Post date:** [August 12, 2009, 7:47pm UTC](https://boards.straightdope.com/t/consumer-driven-health-plans-quasi-free-market-work/506185/5 "2009-08-12T19:47:58Z")
**The purpose of UHC is to pay for the health care of the poor and the sick.** I don’t see how the OP’s proposal addresses this need. ---
**Author:** ![UltraVires](https://avatars.discourse-cdn.com/v4/letter/u/ecccb3/32.png) [@UltraVires](https://boards.straightdope.com/u/UltraVires)\ **Post date:** [August 12, 2009, 9:07pm UTC](https://boards.straightdope.com/t/consumer-driven-health-plans-quasi-free-market-work/506185/6 "2009-08-12T21:07:05Z")
> [@Frankenstein\_Monster](#): > > **The purpose of UHC is to pay for the health care of the poor and the sick.** I thought that the purpose of UHC was to provide healthcare for EVERYONE? Even the rich and the healthy? ---
**Author:** ![begbert2](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/begbert2/32/3357_2.png) [@begbert2](https://boards.straightdope.com/u/begbert2)\ **Post date:** [August 12, 2009, 9:11pm UTC](https://boards.straightdope.com/t/consumer-driven-health-plans-quasi-free-market-work/506185/7 "2009-08-12T21:11:06Z")
> [@jtgain](#): > > I thought that the purpose of UHC was to provide healthcare for EVERYONE? Even the rich and the healthy? What’s your point? ---
**Author:** ![Sateryn76](https://avatars.discourse-cdn.com/v4/letter/s/a88e4f/32.png) [@Sateryn76](https://boards.straightdope.com/u/Sateryn76)\ **Post date:** [August 12, 2009, 9:32pm UTC](https://boards.straightdope.com/t/consumer-driven-health-plans-quasi-free-market-work/506185/8 "2009-08-12T21:32:38Z")
> [@jtgain](#): > > I thought that the purpose of UHC was to provide healthcare for EVERYONE? Even the rich and the healthy? I think that’s the problem. We are also an HSA/HDCP family, and it works perfectly for us. But it’s not right for a whole bunch of people. I’m not sure why we can’t expand Medicaid to cover more poor families, with a sliding premium cost, based on last year tax return. I have no problem giving some money to help out those less fortunate. The problem I have is with the total takeover implicit in UHC. We originally dropped my husband’s employer insurance, because we were paying $400 per month and got almost nothing out of it. We need dental and vision far more than standard medical care. His plan didn’t cover any of that. So we paid dearly into the pool and got almost nothing out of it. Under UHC, we’re back in the same position - putting far more into the pool and taking out almost nothing. ---
**Author:** ![Frankenstein\_Monster](https://avatars.discourse-cdn.com/v4/letter/f/ccd318/32.png) [@Frankenstein\_Monster](https://boards.straightdope.com/u/Frankenstein_Monster)\ **Post date:** [August 12, 2009, 10:01pm UTC](https://boards.straightdope.com/t/consumer-driven-health-plans-quasi-free-market-work/506185/9 "2009-08-12T22:01:07Z")
[QUOTE=jtgain] I thought that the purpose of UHC was to provide healthcare for EVERYONE? Even the rich and the healthy? [/QUOTE] What I meant was, the rich and healthy won’t have problems getting health insurance and care in any case. The purpose of UHC is to make sure that everybody can get a certain level of care, including those who wouldn’t get it otherwise. I don’t have time to participate but what I think is too often missing in UHC discussions on the side of UHC proponents is **moral clarity**. UHC is a matter of **moral values** , but I rarely see it argued that way by proponents. ---
**Author:** ![Rumor\_Watkins](https://avatars.discourse-cdn.com/v4/letter/r/d9b06d/32.png) [@Rumor\_Watkins](https://boards.straightdope.com/u/Rumor_Watkins)\ **Post date:** [August 13, 2009, 2:22am UTC](https://boards.straightdope.com/t/consumer-driven-health-plans-quasi-free-market-work/506185/10 "2009-08-13T02:22:13Z")
> [@Frankenstein\_Monster](#): > > I don’t have time to participate but what I think is too often missing in UHC discussions on the side of UHC proponents is **moral clarity**. UHC is a matter of **moral values** , but I rarely see it argued that way by proponents. It’s a losing argument because there is a large (loud) enough contingent of people in this country (who, incidentally, are the ones most apt to shout others down) who define their morality and moral clarity through religion, and god help you if you feel any different about that - literally. ---
**Author:** ![Sam\_Stone](https://avatars.discourse-cdn.com/v4/letter/s/ecccb3/32.png) [@Sam\_Stone](https://boards.straightdope.com/u/Sam_Stone)\ **Post date:** [August 13, 2009, 3:20am UTC](https://boards.straightdope.com/t/consumer-driven-health-plans-quasi-free-market-work/506185/11 "2009-08-13T03:20:00Z")
Look, there are lots of ways to solve the high deductible problem with health savings accounts. Among them: 1. Gap insurance, either provided publicly or privately. Gap insurance would be much cheaper than regular health insurance, because the insurance company’s risk is capped at the level of the deductible. The known downside risk also mitigates the problem of adverse selection in the insurance market. 2. Bridge loans. They work like this: Let’s say your HSA accumulates $1000 per year. The catastrophic coverage deductible is $10,000. In a normal year, you might only use a couple of hundred dollars of medical care. But then you get hit by a car, and have to pay the full $10,000 at once, and your HSA only has $5000 in it. So you get a health care loan for $5000, and you’re allowed to pay it back out of your HSA, tax free. So you get out of the hospital, and start paying off your loan. Your health spending goes back to normal, so you can put $800/yr towards your loan, and it’s paid off in 7 or 8 years, and then your HSA starts accumulating again. You can even add government programs if necessarily to allow you to declare some form of health bankruptcy should a second illness or accident hit you while you’re already paying off the first loan. 1. Indexing the deductible to income. Make the rich guys pay the first $10,000, but the poor people only have to pay the first $500. And if they need to, they can get gap insurance, which should be dirt cheap if it only has to cover up to $500. 2. Make health expenditures tax deductible once the HSA is emptied. You can even set it up as a negative tax for the very poor to help defray the cost of the gap. 3. Provide emergency grants and subsidies for people who need the care and don’t have the money. The point with HSA’s is that they keep a fundamental piece of the market in place - they tie costs and benefits to the participants of the transaction instead of third parties. They allow the price system to continue working. They encourage saving. Here in Canada, we’re increasingly moving to HSA’s as well. My wife has one through her job as a manager in the health care system. It works very well for us.