Despite decades of cost-cutting reforms, U.S. healthcare is still the most expensive in the world (per capita and GDP). Many of the reforms have put downward pressure on healthcare spending, though not enough in the grand scheme of things: reforms have yet to stem the relentless rise in the cost of healthcare. That failure is largely thanks to compensatory counter-actions by physicians and hospitals, who make up for income lost to reforms by increasing the volume of services and procedures not yet subject to reformatory zeal (see previous post for details).
Healthcare reforms often focus on the supply side of the healthcare market – physicians, hospitals, insurers and drug companies. That’s well and good, but what about the consumers of healthcare services, ie, the demand side?
The problem with many demand-side proposals is that they don’t discourage care-avoidance, especially for low-income Americans. For example, in most cases subsidies reduce but do not eliminate healthcare costs, which may still feel out of reach for a substantial number of American households. A couple hundred dollars a month in subsidized premiums is still be a lot of money for people who live check-to-check. And it may seem an unnecessary expense for the young and healthy. As it is, a quarter of the uninsured in America say they don’t feel they need health insurance.
Here’s an idea, inspired by Amazon’s example. Why not offer “reward points” to patients for using healthcare providers offering clinically necessary care at a price below a region’s mean? By clinically necessary care, I mean evidence-based care known to provide significant benefit for specific conditions, aligning with quality standards. Clinically necessary care also includes preventive care, such as periodic check-ups with a primary care provider.
Similar to Amazon’s system, reward points would be converted to a cash value and applied to a patient’s co-pays, deductibles or insurance premiums. Since Medicare and private insurers already use regional price means to determine payment rates, a reward point system wouldn’t be that hard to implement. However, it wouldn’t work well without other conditions, such as mandatory insurance, transparent pricing and a sufficient number of local providers for meaningful price comparisons. (More on that last one at the end of this post).
Mandatory health insurance would be necessary, because some young, healthy, financially pressed, reckless, and stubborn people would refuse to buy insurance on their own, jeopardizing the financial viability of any insurance-based healthcare system that aspires to universal coverage. As explained by the American Academy of Actuaries:
“A sustainable health insurance market depends on enrolling enough healthy people over which the costs of the less healthy people can be spread. To ensure viability when there is a guarantee that consumers with preexisting conditions can obtain health insurance coverage at standard rates requires mechanisms to spread the cost of that guarantee over a broad population.”
But spreading the cost of healthcare over the U.S. population isn’t enough to make it affordable. For that you need regulations and incentives to reduce fraud, waste, low-value care and the lopsided pricing power of providers. A rewards points system should be part of that package, as it would use the market power of healthcare consumers to weaken the pricing power of providers, eventually lowering the cost of healthcare. In that eventuality, subsidies would go further to offset the expense of healthcare for low-income households.
Reward points are an incentive for healthcare consumers to choose comparable but less expensive care. Reward points are the carrot in my scheme. On the stick side, consumers who choose providers that charge above the benchmark price would have to pay the difference. I imagine some high-charging providers would feel the need to provide consumers with a rationale for their higher prices, an unpleasant task that may motivate them to move their prices closer to the regional mean.
Summary and then some:
Benchmark Pricing: Healthcare providers set their own fees, which would be transparent and assigned benchmark scores based on comparison with average fees for same service by equally qualified providers in local region. Healthcare consumers pay the difference if they choose providers who charge above the benchmark, or accumulate “reward points” for choosing providers who charge less than benchmark. Accumulated reward points would be converted to cash value and then applied to co-pays, deductibles and/or premiums (per consumer preference).
Competitive Market: Benchmark pricing incentives requires competitive market conditions, but not all localities have robust hospital or physician competition, especially in rural areas. Where there is a lack of competition, financial incentives could be used to encourage consumers to access lower cost care outside local areas (but still within a reasonable commuting distance). We also need to increase the overall supply of healthcare providers. For example, expanding training programs and revising scope-of-practice rules would increase the number of non-physician professionals, eg, nurse practitioners, to offer services traditionally performed by physicians. Benchmark pricing comparisons would include non-physician and physician prices for comparable care, with the same financial incentives and disincentives.
Subsidies: Funded jointly by federal and state governments. States would provide direct premium subsidies to households where insurance costs exceed a certain percentage of their income. Providers would not know if a patient is receiving government assistance. The same benchmark pricing incentives apply.