Rational Arguments

A reader points me to a study out in the New England Journal of Medicine this week.  The abstract:

Background When copayments for ambulatory care are increased, elderly patients may forgo important outpatient care, leading to increased use of hospital care.

Methods We compared longitudinal changes in the use of outpatient and inpatient care between enrollees in Medicare plans that increased copayments for ambulatory care and enrollees in matched control plans — similar plans that made no changes in these copayments. The study population included 899,060 beneficiaries enrolled in 36 Medicare plans during the period from 2001 through 2006.

Results In plans that increased copayments for ambulatory care, mean copayments nearly doubled for both primary care ($7.38 to $14.38) and specialty care ($12.66 to $22.05). In control plans, mean copayments for primary care and specialty care remained unchanged at $8.33 and $11.38, respectively. In the year after the rise in copayments, plans that increased cost sharing had 19.8 fewer annual outpatient visits per 100 enrollees (95% confidence interval [CI], 16.6 to 23.1), 2.2 additional annual hospital admissions per 100 enrollees (95% CI, 1.8 to 2.6), 13.4 more annual inpatient days per 100 enrollees (95% CI, 10.2 to 16.6), and an increase of 0.7 percentage points in the proportion of enrollees who were hospitalized (95% CI, 0.51 to 0.95), as compared with concurrent trends in control plans. These estimates were consistent among a cohort of continuously enrolled beneficiaries. The effects of increases in copayments for ambulatory care were magnified among enrollees living in areas of lower income and education and among enrollees who had hypertension, diabetes, or a history of myocardial infarction.

Conclusions Raising cost sharing for ambulatory care among elderly patients may have adverse health consequences and may increase total spending on health care.

Here’s the recap.  Some researchers wanted to see what happened to seniors if you increased their Medicare co-pays a bit for primary care and ambulatory care visits.  This is all based on the moral hazard argument.  It goes something like this: People use too much care if it’s free.  So the more you make them pay for it out of pocket the less they will use.  People who need the care the most will pay for it, but people who don’t need it will avoid it.  We become more efficient shoppers, spend less on needless care, and everyone wins.

Right?

No.

What happened here is that just by increasing the co-pay from $7 to $14 and $13 to $22, about 20 fewer outpatient visits occurred per 100 people.  That’s a huge reduction for just a few dollars increase.  Imagine the reduction you would have seen for a significant increase.  And that reduction wasn’t harmless.  There were an additional 2 hospitalizations per 100 people and an average of more than 13 additional days in the hospital.

This minor additional cost-sharing not only resulted in worse health outcomes, but it might also cost more.

Here’s where it gets worse: The most effects were seen in those who were poor or sick.  That’s exactly what we’re trying to avoid.

You will hear some people say this contradicts the findings of the RAND Health Insurance Experiment, which basically “justifies” the whole co-pay thing.  They will say that the RAND HIE showed you can increase co-pays without negative health consequences.  But that’s because many have always misinterpreted the results.  As I’ve argued before about the HIE:

[H]ere’s the gist of that they found: People in the high deductible plans – those most exposed to health care costs – did spend significantly less and consumed less health care.  And, yes, much of that care was unnecessary, as healthy people did not suffer negative consequences  from forgoing care.  BUT, and this is important, poorer participants with hypertension avoided necessary care, and saw their mortality rates rise significantly.

Removing the moral hazard did no harm in the majority of patients (which is touted often as the result of the study) because they were healthy.  And, of course, getting less care when you’re healthy leads to few short term negative results.  But for those who were unhealthy, who comprised a minority of patients in the study, removing the moral hazard led to significant and dangerous consequences.

This study in the NEJM was of elderly people, who were all excluded from the RAND HIE.  They were inherently sicker.  And the results of the RAND HIE for sicker people held.  They fare poorly.  And it might not even save money.

I know it feels like higher co-pays are a good thing.  It seems right to ask people to have more skin in the game.  It looks like it’s fairer and more likely to reduce waste.  But that’s only true for healthy people.  And they’re not who we need to protect.

Because it’s a holiday for me, I decided to do one long post instead of a number of shorter ones.  That worked out well, because this topic is complicated and important.  I hope you will read the whole thing.

Basically, the moral hazard is the idea that people insulated from risk behave differently than people exposed to risk.  For instance, once you have good car insurance, you may drive less carefully, because you are more protected.  In health care, some apply to moral hazard to posit that once you have good insurance, you are more likely to use health care – even if you don’t need it.  In my favorite example of this (because I find it amusing, not because I agree), if we all had employer paid supermarket insurance, we would demand filet mignon instead of hamburger.  This would evidently lead to skyrocketing food costs, the end of sales, and mass starvation.

It’s important to understand people who apply the moral hazard to health care believe that people are using too much, and that’s why our costs are too high.  If we somehow changed health care, and exposed people to the true costs, they would become better consumers, and the whole system would cost less.

But let’s take this argument seriously.  If fails, both in a theoretical sense, and in an empirical one.

As a theory, the moral hazard in health care was first described only about 40 years ago in a seminal paper by Mark Pauly.  And it’s still just a theory.  Like many theories, it has its good points and bad; it’s not an undisputed law.  For instance, recent work by John Nyman explains that the moral hazard may actually do good in health care by encouraging people who otherwise would not seek care to do so.  We want sick people to get care.

And think about it.  That supermarket example isn’t even remotely comparable.  If I made colonoscopies free tomorrow, no one would start picking them up by the dozen.  If I declared no one would ever have to pay for chemotherapy again, you wouldn’t ask for extra.  If surgeons refused to accept payment for appendectomies anymore, would anyone go and get one just for the hell of it?  We have a hard enough time getting people to do the things we want them to do to be healthy without having to expose them to more hardship to get them.  I love filet.  No one loves going to the doctor.

Moreover, this argument assumes that we have no skin in the game.  Really?  The average employer provided family health care policy in the United States is over $13,000.  And they still have co-pays and co-insurance.  I have phenomenal health insurance through my job and it still costs me $100 to take my kid to the ER.  I feel that.  My prescriptions have co-pays, sometimes up to $25 dollars.  That’s money.  Many, many people have it much worse.  People with insurance, too many of them, go bankrupt every year from medical expenses.  They aren’t shielded from the costs.

But you know I like evidence, and it’s available here as well.  The most comprehensive health policy study ever performed was the RAND health insurance experiment:

The HIE was a large-scale, randomized experiment conducted between 1971 and 1982. For the study, RAND recruited 2,750 families encompassing more than 7,700 individuals, all of whom were under the age of 65. They were chosen from six sites across the United States to provide a regional and urban/rural balance. Participants were randomly assigned to one of five types of health insurance plans created specifically for the experiment. There were four basic types of fee-for-service plans: One type offered free care; the other three types involved varying levels of cost sharing — 25 percent, 50 percent, or 95 percent coinsurance (the percentage of medical charges that the consumer must pay). The fifth type of health insurance plan was a nonprofit, HMO-style group cooperative. Those assigned to the HMO received their care free of charge. For poorer families in plans that involved cost sharing, the amount of cost sharing was income-adjusted to one of three levels: 5, 10, or 15 percent of income. Out-of-pocket spending was capped at these percentages of income or at $1,000 annually (roughly $3,000 annually if adjusted from 1977 to 2005 levels), whichever was lower. The 95 percent coinsurance plan in the study closely resembled the high-deductible catastrophic plans being discussed today.

I could write volumes on the meaning of the results, and the good and bad things about this study.  It has been interpreted and misinterpreted too many times to count.  But here’s the gist of that they found: People in the high deductible plans – those most exposed to health care costs – did spend significantly less and consumed less health care.  And, yes, much of that care was unnecessary, as healthy people did not suffer negative consequences  from forgoing care.  BUT, and this is important, poorer participants with hypertension avoided necessary care, and saw their mortality rates rise significantly.

Removing the moral hazard did no harm in the majority of patients (which is touted often as the result of the study) because they were healthy.  And, of course, getting less care when you’re healthy leads to few short term negative results.  But for those who were unhealthy, who comprised a minority of patients in the study, removing the moral hazard led to significant and dangerous consequences.

And that’s the most important lesson from all of this.  Removing the moral hazard as it relates to health insurance is fine for most people.  Yes, if we make it more expensive to seek care, if we demand more “skin in the game”, if we remove the moral hazard, people will seek less care.  That’s fine for healthy people; it’s terrible for those who are ill.  But for whom is the health care system intended?