Health Coverage Update No. 3
December 2006
CONSUMERISM IN HEALTH CARE
The consumer model is reshaping the way we think about health care.
Consumer-driven reforms encourage individuals to actively participate in their own health and in the health
care market. In both the private and public spheres, such reforms are becoming more common throughout
the US. This relatively new trend toward ‘consumerism’ is spawned by an overall shift in the way we, as a nation,
think about health care. The new ‘consumer model’ engages individuals in health care decision-making by
shifting greater financial responsibility to consumers, increasing price transparency, and encouraging
competition. It is thought that well-informed consumers who bear greater financial responsibility for their health
care decisions will act as natural regulators of cost and increase overall satisfaction with the system.
Consumerism can manifest in many ways in the health
care system. Recently we have seen the rise of new
consumer-centric insurance products, such as Health
Savings Accounts (HSA) and Consumer-Directed Health
Plans (CDHP). Also, several states including Florida are
incorporating elements of consumer-driven health care
into their Medicaid programs, by moving from a structure
of defined benefits to one of defined contributions. Under
Florida Medicaid Reform, enrollees will be able to use their
defined contributions to purchase health insurance in the
private employer-sponsored market. This restructuring seeks
to give beneficiaries more financial and decision-making
power in the health care market. With time, the
preferences of empowered consumers should dictate the
way services are delivered and financed. As the consumer
model gains greater acceptance, we can expect to see
innovation in health legislation, consumer advocacy, and
insurance product design.
Why is change needed?
There is no firm consensus regarding where health care
reform should begin, but trends show that the evolution of
our health care system over the past several decades has
been guided largely by innovation in cost-containment
techniques. Although increasing coverage to all
Americans is an underlying goal of reform, cutting costs has
proven to be universally accepted as the bottom line in
health system change.
Key Points:
• Managed care, no longer viewed as a
viable way to control costs, is giving way
to ‘managed competition.’
• The consumer model is gaining
acceptance:
Aims to increase patient’s role in
health care decision making and shift
greater financial responsibility to
consumers.
Intends to increase competition, and
in turn, lower costs and increase
satisfaction.
• Consumerism is being adopted in public
and private sectors and at the state and
federal level.
• The rise in consumerism in health care is
two-fold:
Consumer movement: Activism and
advocacy from consumers in
attempt to reform the industry on
which they rely.
Consumer policy: Market-driven
programs that favor demand-side
economics.
In the nineties it was widely believe that the managed care
model would contain costs by regulating provider
behavior. Managed care caught on quickly in private insurance as well as state Medicaid programs. The
model brought many new services to patients (e.g. disease and case management) which will continue to be
of importance. However, after nearly a decade of shaping the health care market, the cost reductions
achieved under managed care in the private sector have reached a plateau. It is unlikely that managed care
will achieve additional savings. The provider-centric, supply-side approach of managed care is no longer
working and, as a result, health care experts are now seeing the pendulum swing in the opposite direction,
towards demand-side, patient-centric approaches. i In contrast to managed care which sought to control
provider behavior through tight regulations, ‘managed competition’i seeks to control consumer spending
through the behavior of the markets.
National health expenditures in the US rose from $990 billion in 1995 to $1.7 trillion in 2005. ii In 2005 alone, overall
Medicaid spending is projected to approach nearly $330 billion. In 2003, total Medicaid spending surpassed
that of elementary and secondary education in overall state budgets. iii There is no single explanation for why
costs continue to skyrocket. The problem is driven by numerous factors, and as a result, strategies to reduce
costs are many and varied.
‘In contrast to managed
care, which sought to control
provider behavior through
tight regulations, ‘managed
competition’ seeks to control
consumer spending through
the behavior of the markets.’
Some approaches to cutting costs that are commonly employed
include:
•
Pharmacy utilization/cost control
•
Experimenting with plan design (e.g. changing benefits,
reducing provider reimbursement, changing eligibility,
introduction of co-payments)
•
Disease and case management
•
Curtailment of fraud and abuse
•
Cost-sharing
Although the aforementioned strategies are still embraced as viable components of any cost-containment
effort, there is increasing consensus that fundamental change is needed. An observable shift in Medicaid
policy reveals many states recommending Medicaid become a market-based program, iv, v , vi offering increased
options for consumers in order to foster a sense of empowerment and increase personal responsibility in health
care. In Florida, the state will offer beneficiaries a defined contribution, a choice of health plans, an ‘opt-out’
program that allows them to use their state contribution to purchase employer-sponsored care, and choice
counseling to help beneficiaries transition into the appropriate plan. To date, two pilot projects are running in
Duval and Broward counties. Increased state innovation and greater availability of federal waivers will
presumably lead to more consumer-directed Medicaid programs throughout the US.
The Rise of Consumerism in Health Care
Consumerism has been defined in countless ways and used to support a wide variety of agendas. For the
purposes of this discussion, two distinct brands of consumerism stand out: the consumer movement and
consumer policy.
The popular consumer movement has historically protected individuals from private industry through
governmental regulation demanded at the grassroots level, while consumer policy supports economic policy
shifts toward privatization and decentralization, placing an emphasis on consumer preferences to shape
markets. While the bottom-up social movement and top-down economic agenda initially appear to be at
odds, they share the underlying assumption that an individual’s defining role in society is through markets acting
as a consumer. Translated to the health care setting, the individual consumes services, drugs, and devices and
drives the market through his or her health care decision-making and preferences.
Some well-informed consumers may find refuge in recent policy changes that favor greater economic and
decision-making freedom in the health care market. Such individuals give credence to the belief that one’s
free choice will dictate the economic structure of a given industry. However, health care is a unique market
because of the vast body of knowledge that is required to maneuver the system and select services and
products. The market is further complicated by the presence of the physician, who acts as an ‘expert
intermediary between the product and consumer,’ and who regulates consumption through the issuance of
prescriptions. vii It is difficult to imagine a truly informed consumer in a market characterized by professional
expertise and cutting edge technology.
Acknowledging that many Americans do not have sufficient knowledge about health care to make informed
decisions, how does policy intend to instill a sense of empowerment in individuals? What techniques are used to
inform and empower consumers? These are the questions that health plans, researchers, and policy makers are
now attempting to address and the answers they find will undoubtedly drive innovation in the health care
arena over the next decade.
Concepts: Redefining the Health Care Market
Over the past several years, policy makers and health plans have begun experimenting with various concepts
aimed at engaging consumers more directly in their health care purchases. The objective of these techniques
is to foster market dynamics in the health care arena and to empower consumers.
• Information: The key to a viable market is the
Consumerism:
availability of information to consumers and
Social movement or economic policy?
producers. The Internet has revolutionized our
ability to access information about diseases,
Social movements and market-based policy traditionally
conditions, preventive care, and alternative
reflect opposite ends of the political spectrum. However, an
therapies. More information is needed regarding alliance between consumer policy and consumer
the cost of care, how prices are set, the quality
movements could represent a hugely positive development
for health care in the US.
of care, and satisfaction with providers.
• Transparency: The ready availability of data
Consumer movement ~ A growing movement of consumer
on price and quality is necessary to reduce
protectionism demanded by organized citizens was officially
information asymmetries in the health care
recognized with the 1962 passage of the ‘Bill of Consumer
market. Access to information promotes
Rights.’ Popularized by Nader’s auto-safety campaign,
accountability and openness which in turn
consumer activism is now apparent in many sectors of
leads to informed decision making.
society. Through popular books and films, consumers attempt
to reform the markets they rely on. Most recently, the fast
• Cost-Shifting: Many plans and policies are
food and corporate pharmaceutical industries have come
seeking to shift costs to consumers. This concept
under fire by consumer groups, authors, and filmmakers. A
assumes that greater financial responsibility will
prominent interest group, the disability-rights and
promote wise health care decision-making, a
natural control to consumer spending. Under the independent living advocates, illustrates how consumer
movements can shape policy. In the early 90s, Medicaid law
Deficit Reduction Act of 2006 (DRA), states can
required personal care services to be prescribed by a
now begin shifting costs to Medicaid enrollees.
physician. Advocates saw this as an excessive
• Cost-Sharing: One cost-shifting technique
‘medicalization’ of the services and worked to influence
requires consumers to pay a portion of the cost,
Congress to remove the condition in the Omnibus
or ‘share’ the cost with the third party payer. In
Reconciliation Act of 1993. vii
the 70s, the federal government contracted with
Consumer Policy ~ Policies which seek to increase market
the Rand Corporation to investigate health
transparency and shift economic and decision-making
insurance economics. The study revealed that
responsibility to consumers can be loosely described as
cost sharing reduced health care spending, but
‘consumer’ policies. In health care, demand-side economic
did not increase market efficiency.
policy is illustrated by the recent enactment of Health
• Consumer Driven Health Plans (CDHP): CDHPs
Savings Accounts under the Medicare Prescription Drug,
design benefit packages in order to engage
Improvement, and Modernization Act of 2003. This new
consumers in provider choice, management of
coverage option requires heightened consumer involvement
health expenses, and health improvement. A
in managing health finances. Additionally, the prescription
drug benefit established by this Act requires Medicare
wide variety of insurance products are
enrollees to research and select a private plan that best suits
becoming available, many of which couple a
their pharmaceutical needs.
tax-exempt health savings account with a highdeductible insurance policy.
• Health Savings Accounts (HSA): These savings accounts are often coupled with a high deductible health plan
and were legitimized in legislation when President Bush signed the Medicare Act on December 8, 2003. HSAs
are intended to help individuals save for future ‘qualified’ health expenses on a tax-free basis.
• Retail Clinics: While not typically included in discussions of consumer driven health care, retail health clinics
promise to lower costs by reducing overhead, relying on less expensive, non-physician labor, and simplifying
patient billing by cutting out insurance companies and charging flat fees. These clinics could potentially
transform the health care marketplace by offering consumers a new option for receiving and financing care.
• Self-Care: A fully empowered consumer will practice self-care as a way to maintain personal health without
the expense of outside help. Nutrition, exercise, psychological maintenance, and home health will form the
basis of a preventive health routine for the empowered consumer. Self-care is firmly rooted in the availability of
information, as discussed above.
• Defined Contribution: Many employers are rethinking health coverage and seeking to offer health benefits in
much the same way that pension plans are commonly offered: with a defined contribution model. If these new
models are successful, employees will have increased responsibility to manage their health finances.
Conclusion
For decades, individuals have been isolated from health care decision-making. Lack of information, insurance
mechanisms which have shielded consumers from the true cost of care, and the physician’s monopoly on
medical knowledge has resulted in a society of disenfranchised consumers. While many decry efforts to shift
greater financial responsibility onto consumers already struggling with the cost of care, consumerism in health
care seems to hold promise for long term reduction of costs. The shift that is required for its success requires the
restructuring of social attitudes, policy directives, and economic incentives. The movement must be followed
with a watchful eye, as highly innovative models begin to emerge that may dramatically reshape how
Americans perceive and utilize health care.
Prepared by Lisa Chacko and Allyson Hall of the Florida Center for Medicaid and the Uninsured (FCMU). Additional copies of
this publication are available on the FCMU website at www.fcmu.phhp.ufl.edu. Housed at the University of Florida in the
College of Public Health and Health Professions, FCMU promotes research and timely dissemination of policy analysis.
i
Robinson, James C. “Managed Consumerism in Health Care.” Health Affairs, November/December 2005; 24(6): 1478-1489.
Health, United States.
iii
Smith, Vernon K. & Greg Moody. “Medicaid in 2005: Principles and Proposals for Reform.” Health Management Associates, February 2005.
iv
Empowered Care. “Empowered care: A proposed concept for Florida Medicaid.” March 2005. http://www.empoweredcare.com
v
Stephen, J.A. “New Hampshire’s GraniteCare recommendations to modernize Medicaid.” New Hampshire Department of Health and Human
Services. Nov 2004.
vi
Sanford, M.C. “South Carolina Medicaid choice: A waiver concept to bring a consumer directed, market based environment into Medicaid.” Feb
2005.
vi
Quadagno, Jill. “Turning Patients into Consumers: The Trickle-Up Economics of HSAs.” Oxford University Press: OUPblog, February 21, 2006.
vi
Add reference from Holohan: devolution in health care
vii
Doty, Pamela, Judith Kasper and Simi Litvak. ‘Consumer-Directed Models of Personal Care: Lessons from Medicaid.’ U.S. Department of Health
and Human Services, 1996.
ii
FCMU
University of Florida
P.O. Box 100227
Gainesville, FL 32610
Director
Robert G. Frank, PhD
Director of Research
Allyson G. Hall, PhD
Research Program Manager
Heather Steingraber
Statistical Analyst
Jianyi Zhang, PhD
Research Coordinator
Lisa R. Chacko, MPH
Project Coordinator
Lorna P. Chorba, CCNA
Office Assistant
Michele Romano
Student Assistants
Andrea Lee, MS
Jingbo Yu, MHA
Cameron Schiller, MS
Naya Hrabovsky
Health Coverage Update No. 3 ~ Consumerism in Health Care ~ December 2006