The ABCs of HDHPs

High-deductible health plans (HDHPs), often called account-based plans, come in several flavors. Standard HDHPs are simply high-deductible plans. Consumers pay lower premiums in exchange for paying more of the initial cost, a higher portion of each medical bill, or both. In 2008, the IRS tax-free threshold was $1,100 for individual coverage and $2,200 for family coverage.

A consumer-directed health plan (CDHP) is an HDHP with a special tax-favored savings account to pay for medical expenses. With CDHPs, consumers make tax-free deposits into health savings accounts (HSAs) that accompany HDHPs. Balances accumulate year to year, earning tax-free interest. Health reimbursement arrangements (HRAs) are often used by employers to help shape their benefit packages and to provide incentives for prevention and wellness. With HSAs, people make their deposits and own the balances. With HRAs, companies make the deposits, roll over from year to year and usually keep the balances when the employee leaves the company.

The typical CDHP member is more likely to be young, single, higher-income, healthier and better-educated than those on traditional plans are. The plans are also popular with healthy employees over 55 who consider HSAs a tax-free retirement investment account. The average household income for people with HSAs was $139,000 in 2008, compared with $57,000 for all other taxpayers. They are less likely to smoke or be obese, and more likely to exercise and be involved in a workplace health-promotion program than traditional-plan enrollees.

People who are sick or have an ill family member are less likely to choose account-based insurance. Some fear that, if many healthier people switch to CDHPs, traditional plans may become more expensive because they include a higher percentage of people with chronic conditions.

Regardless of the arrangement, HDHPs are more like true insurance by covering unforeseen, high-cost events while the consumer pays for low-cost health expenses that are more predictable and amenable to a household budget.

Social policy is health policy

If education and income are primary determinants of health, then social policies to improve both should improve health. This is reflected in Great Britain’s 1998 Acheson report, an authoritative government-commissioned report that linked health disparities and social class. It noted that death rates had fallen between 1970 and 1990, but at a much steeper rate for higher social classes, creating a larger disparity between the haves and have-nots. The report recommended 39 policy steps in areas such as taxes, education, employment, housing, nutrition and agriculture to improve the health of lower-income citizens, although the entire population could benefit. The goal was to attack the social inequalities that reliably produce health inequalities.

The problem is that funding for social policies is much less stable than for medical care. Programs that address the needs of those who some believe are not deserving struggle to maintain support. Government is more likely to assist those who are considered not at fault for their vulnerability, such as children, the disabled and the elderly. Unwed mothers, substance abusers and ex-convicts attract far fewer sympathizers.

Social programs that boost education, food security, employment and neighborhood stability can be considered investment in disease prevention. However, government is far more inclined to intervene with expensive health-care services when medical conditions present themselves.

University of Oxford researchers analyzed the health effects of deep social-welfare budget cuts in Europe. They looked at funding for programs that support families and children, help the unemployed find jobs and assist the disabled, from 1980 to 2005.

The analysis showed a strong association between social spending and risk of death, especially from heart attacks and binge drinking. They found that when social-welfare spending was high, mortality rates fell. When spending fell, death rates rose substantially. They found no such effect from cuts in spending for the military or prisons.

Low SES is associated with poorer health behaviors. It accounts for higher rates of smoking, binge drinking, obesity and, ultimately, death. Many argue that risky behavior is only an indirect cause of poor health and is itself a consequence of low income and education and powerlessness. However, a 1998 study examined the degree to which four risk factors – cigarette smoking, alcohol consumption, inactivity and being overweight – contributed to the death rate at various income levels. Researchers found that poor health behavior explained only a small portion of the higher death rate for those with low SES. They concluded the death-rate disparity would persist even if the disadvantaged improved their health behavior to the level of those with more education and income. In other words, there was a wide array of factors involved beyond health behavior.

Many assume prompt, affordable health care improves the health of the socially disadvantaged. This medicalization of social reform encourages the view that health disparities can be solved by improving health-care access, use and quality. The result is that health-care access is overvalued and overemphasized, perhaps because medical interventions are easier to provide than fundamental social and economic reforms.

Canadian researchers wanted to find out whether lack of access to health care explained poor health for those with low SES. They tracked about 15,000 patients in the nation’s universal health-care system for more than 10 years. They found that low-income Canadians used the health-care system more. The increased use had little impact on their poorer health outcomes, especially the death rate. Likewise, SES health disparities actually widened after Great Britain established the National Health Service, its publicly funded universal health-care system.

Although medical innovations are intended to improve population health, they actually worsen health disparities. The rich and well-educated have the resources to use them more readily and reap the benefits more swiftly. On the other hand, cost-effective public-health measures aimed at broad populations have the ability to decrease health disparities. Examples include water fluoridation, fortified food and environmental efforts against toxic substances.

When patients get to decide

The research on whether or how consumers want to be involved in treatment is mixed, and there is no consensus on a systematic approach. Many are advocating a more formal approach to what is called shared decision-making. The American Medical Association, the American College of Critical Care Medicine and the American Academy of Pediatrics all endorse that model.

Shared decision-making means informing patients of the risks and benefits of various treatments or services when there is more than one option. Ideally, the patient carefully considers the alternatives in light of personal preferences and agrees on a course of action with the physician.

Medicine will have to change its traditionally paternalistic culture of care if it is to become more participatory. The patient-doctor encounter is not an ideal venue for joint decision-making. The physician and patient have unequal positions, and the patient is in a compromised physical and mental state. The physician, under pressure to generate revenue, is in a hurry.

Patients make a large number of medical decisions annually. More than 80 percent of adults over age 40 have made a decision about a surgery, new medication or screening test in the last two years. More than half had to make two or more of these decisions. About one-third of these decisions, in turn, have two or more treatment options. When faced with options, about 70 percent of uninformed patients say that doing what the doctor recommends is important.

When the patients become involved, things change. One study found a 20 to 30 percent reduction in aggressive treatment. This suggests that informed patients are more conservative than their health-care providers are. There are other benefits: better quality of care, increased satisfaction for the patient and provider, and improved self-esteem.

Wennberg and his colleagues interviewed patients who had undergone hysterectomies. It was clear that patients considered depression and decreased sexual drive to be important surgical outcomes – neither of which their physicians seemed to acknowledge.

In another study of treatment for benign prostate enlargement, symptoms were the driving force in patients’ decisions. Only 11 percent with moderate symptoms and 22 percent with severe symptoms chose surgery. Most were more concerned about potential impotence because of surgery than whether they would have to live with their condition. For most physicians, by contrast, symptom relief is a major priority.

The paternalistic approach to health care often violates a basic ethical principle of patient autonomy. Patients should be given enough information about their conditions and treatment options to make informed decisions.

A study of nine common medical decisions, such whether to have cancer screenings and whether to prescribe medication to alleviate a condition, found that U.S. patients were not well-informed. The research also showed that physicians tend to stress the advantages of the treatments they recommend rather than the disadvantages or risks. They also were unlikely to ask patients which treatment they would prefer.

Palliative care as a win-win

Palliative care offers multiple benefits. Pain can slow the healing process. It extends hospital stays, prolongs needless suffering and erodes a patient’s capacity to adhere to prescribed treatment.

A 2008 Journal of Palliative Medicine study measured the impact of palliative care on patient satisfaction, clinical outcomes and cost of care for six months after being released from the hospital. Patient satisfaction was higher, more advance directives were completed, fewer ICU admissions were necessary and overall medical costs were lower compared to patients with life-limiting illnesses not in palliative care. Patient satisfaction stems primarily from palliative care’s patient-centered approach, which incorporates personal values and preferences.

This is in contrast to the usual intensive care many patients receive regardless of their preferences. More than half of Medicare spending on beneficiaries in their last two years is for hospital costs. About 25 percent of total Medicare costs is spent for patients in the last year of life. Most of those expenses are for hospitalizations, including readmissions and ICU stays. One out of 5 cancer patients are still receiving chemotherapy in the last two weeks of life.

Patient satisfaction with hospital care is inversely related to intensity of care. It falls in direct proportion to higher spending, greater use of resources and intrusive care.

Early palliative care can actually extend life. A 2010 study found that people with lung cancer who received the care lived three months longer, compared with those receiving standard care. Those with lung cancer can expect to get only two or three additional months of life at most from chemotherapy.

Despite its advantages, there are several barriers to widespread use of palliative care. Physicians are trained to save lives, even if it requires aggressive measures. It is often not clear at what point a condition becomes inevitably terminal. For many physicians and their patients, palliative care represents a surrender of sorts. Aggressiveness is the default approach to end-of-life care in the U.S.

An intensive battery of procedures and tests is paid for by Medicare and private insurers without questions. Reimbursement for palliative care is less certain. Medicare and private insurers pay for some palliative care, but the billing can be less comprehensive and more complicated than for standard hospital care, and physicians may consider this too burdensome. Customarily, most health plans do not pay for time-consuming care coordination and shared decision-making.

To counter these barriers, in 2010 Gov. David A. Paterson signed into law the New York Palliative Care Information Act, which requires physicians to offer terminal patients and their families information about prognosis and options for end-of-life care. New York State’s medical society opposed the law because they believed the government was intruding on the physician-patient relationship.

Palliative care is not necessarily intended to be less expensive care, but that often is the result. A hospitalized palliative-care patient costs $279 to $374 less a day. There are significant reductions in pharmacy, laboratory and ICU costs. The average annual savings of a palliative-care program is $1.3 million for a 300-bed community hospital and $2.5 million for an average academic medical center.

In a study of Medicaid patients in four hospitals in New York state, patients who received palliative care cost $6,900 less during a hospital stay compared with those who received standard care.

In Spain, a 2006 study found that a shift to palliative and at-home care and away from traditional hospitalization saved 61 percent.

Dissecting your genome at the drug store

Regardless of their validity, personal-health blueprints are in great demand.

In a poll taken right after the Walgreens recall, nearly 3 out of 4 said drugstores should sell genetic testing kits, compared with only about 1 in 4 doctors.

People appear willing to pay a lot of money even for imperfect or marginal genetic information about themselves. Tufts Medical Center researchers posed scenarios to about 1,500 people based on disease, risk of getting the disease and test accuracy. Most said they would be tested – from about 70 percent  for a flawed test for Alzheimer’s disease and 10 percent average risk, to nearly 9 out of 10 for a perfectly accurate prostate-cancer test and a 25 percent average risk. People were willing to pay an average of $320 for an imperfect arthritis test, $622 for a hypothetically accurate prostate test.

Four of 5 Americans support a national study of how genes are affected by health behavior and the environment. About 60 percent said they would supply their DNA.

Younger adults are especially interested in genetic information. About half believe that genes play an equal role in health to lifestyle habits. Those with riskier health behavior tend to say genetics has a more pronounced effect, perhaps as a rationalization for bad habits. Those with a family history of disease also place a greater value on genetic information. In reality, genetic markers, on average, account for only about 10 percent of the overall risk of acquiring a disease.

A study in the New England Journal of Medicine attempted to determine how spooked people would be by the results of DTC genetic tests. Researchers assessed the anxiety levels of more than 2,000 who used the tests to analyze their probability of getting any of 22 different diseases. The result: Nine out of 10 were unfazed. Another result: Hardly any of them changed their health habits after getting the results. The implication was that the test was harmless psychologically and ineffective in making a difference in anyone’s life. According to the researchers, DTC tests are “underpowered” with data.

A separate study of genetic-test takers found that about 1 in 4 slightly altered their lifestyles based on the results. About one-third shared the results with their physicians, many of whom did not know what to make of the information.

With genetic tests, consumers seem to be in one of two categories: the fatalists who consider inherited  risk to be destiny that cannot be altered by changes in behavior, and those who believe they can make a difference with lifestyle changes.

The mother lode of waste, fraud and abuse

In a March 2010 report, the U.S. Government Accountability Office (GAO) designated Medicare and Medicaid as “high-risk programs because they are particularly vulnerable to fraud, waste, abuse and improper payments.”

The Office of Management and Budget tracks “high-error” government programs. All of the major health-care government insurance programs are listed: Medicare fee-for-service, Medicare Advantage, Medicaid and CHIP. Medicare Advantage’s improper payment rate was more than percent and the fee-for-service improper payments exceeded 10 percent.

According to The Centers for Medicare and Medicaid Services, Medicare improperly paid $48 billion, which amounts to about 9 percent of the program’s costs.

As an example, the GAO report pointed out that Medicare erroneously paid $3.1 million for clearly ineligible erectile-dysfunction medications such as Viagra and Levitra in 2007 and 2008.

The Dartmouth Atlas Project has tracked geographical variation in Medicare spending. Dartmouth researchers found that health-care providers in New York City spent more than $12,000 per capita on Medicare patients, compared with about $6,700 in Minneapolis. These differences could not be explained by sicker patients or better health outcomes. The researchers also found that physicians in higher-spending regions were more likely to recommend discretionary services and admit patients directly into intensive-care units, and were less likely to suggest palliative care with patients and their families. The researchers recommend Medicare payment policies that encourage high-cost regions to behave more like low-cost regions by adopting their practices.

In a June 2011 report to Congress, the independent Medicare Payment Advisory Commission said Medicare cannot control costs for two reasons. First, it pays a set rate for services so there is no incentive for a provider to be more efficient. Second, doctors who bill a greater volume of services – regardless of whether they improve outcomes – make more money than doctors who do not.

True Medicare reform will require that the program shift payment incentives away from quantity and toward quality, efficiency and evidence-based medicine. Otherwise, Medicare’s march to insolvency will continue without interruption.

The uncertain economics of ACOs

Hospitals are being asked to reinvent themselves.

Potentially, one of the best health-delivery reforms to emerge from health reform is the accountable care organization (ACO). An ACO is a network of health-care providers willing to be held accountable for achieving measurable quality improvements and reduced spending growth for up to 5,000 Medicare patients. In exchange, an ACO would share the savings with Medicare. The government hopes the model succeeds and spreads throughout the health-care system.

The goal is to improve coordination of patient care and provide an incentive to avoid wasteful services encouraged by fee-for-service medicine.

The most likely ACO configuration would include a hospital, primary-care physicians and specialists. The nation’s largest health systems already have these elements under common ownership and are best suited to meet the January 2012 deadline for the program’s inauguration. The Congressional Budget Office (CBO) estimates that there will initially be 75 to 150 ACOs and that the program will save Medicare about $5 billion by 2020.

However, many are concerned that ACO formation will give large health-care organizations even greater market power (see discussion below).

ACOs may be suffocated at birth because of overbearing regulation. The 429-page document governing ACO creation attempts to thread the needle by encouraging hospitals and physicians to form ACOs without sticking the government with the tab if the effort fails. The results, many experts say, are meek incentives that do not justify the steep startup costs. Other hurdles include requirements to document 65 quality measures and submit marketing materials for federal editing.

ACOs have two alternatives for a three-year arrangement. Those willing to bear greater risk can earn up to 60 percent of the savings they achieve. However, they will have to repay Medicare for cost overruns. The maximum risk would be 10 percent of what Medicare would have spent on patients if they were not in ACOs.

This so-called two-sided risk may appeal most to established integrated-delivery systems that already operate much like ACOs.

The one-sided risk model allows ACOs to avoid financial risk in the first two years, but they would be eligible to keep only 50 percent of the savings. They would face penalties of up to 7.5 percent in the third year.

Consultant Steven Lieberman, a 30-year CBO veteran, wrote in a Health Affairs blog, “The proposed regulation imposes unfavorable economics, unrealistic requirements, high uncertainty and significant risks for ACOs.”

The Medicare Physician Group Practice (PGP) demonstration, the model upon which the ACOs were built, was not financially promising. Only half of the 10 participating practices produced savings by the fourth year.

Researchers crunched the numbers from the PGP demonstration and concluded that an ACO with an average of $1.7 million startup costs would have to have an unlikely 20 percent profit margin for the three-year period to recoup costs.

Fearing disability more than death

A long life is one thing. A healthy life free of disease and disability is another. The evidence suggests that life overall is lengthening, but that disease and disability may be increasing. The result: More months and years spent in poor health. It has been dubbed a “failure of success.”

It is also a failure of “compression of morbidity,” a concept developed by Stanford professor James Fries 30 years ago. He believed the same forces that lengthened life expectancy would also decrease – or compress – the number of years of disease and disability prior to death. In other words, the ideal healthy life would be one spent without impaired functioning right up until the moment of death.

People over 50 generally do not fear death as much as disability. When questioned, they express a dread of potential chronic illness, pain and immobility. They fear senility, loss of memory and dependence on others.

Disease trends are mixed. People are acquiring chronic disease at earlier ages, but disability generally is being delayed because of medical technology. For example, a 20-year-old today can expect to live one less healthy year than a 20-year-old did a decade ago – even though life expectancy has grown. A typical 20-year-old man today can expect to spend nearly six years of his life without basic mobility, two more years than a decade ago. For a 20-year-old woman, it will be nearly 10 years of being unable to walk up 10 steps or sit for two hours.

Despite medical progress, the age of a first heart attack has remained relatively constant since the 1960s and the incidence of several forms of cancer continued to increase until recently. High cholesterol and high blood pressure have decreased only because of successful pharmaceutical treatments.

These trends certainly shatter the illusion that each successive generation would live longer and healthier lives. It also does not bode well for the extra burden placed on age-based entitlement programs such as Medicare and Social Security.

Physical decline is not inevitable. Fries and his colleagues followed more than 400 people for 12 years and categorized them based on lifestyle risk factors: cigarette smoking; physical inactivity, and being under- or overweight. Those with no risk factors had almost no disability 10 to 12 years before death, and the incidence of disability rose slowly until the end. Those with two or more risk factors had more disability, which rose significantly 18 months before death. Those with moderate risk declined swiftly three months before death.

Disability can be delayed relatively late in life by lifestyle choices. Mental and physical facilities can be improved at any age. It has been called the “plasticity of aging,” a phenomenon that can significantly diminish the effects of aging. This plasticity is why some 80-year-olds can run marathons and 90-year-olds can substantially increase strength by weightlifting. Age-related decline in maximum athletic performance is only 1 percent a year beginning at age 25. Training to achieve one’s athletic potential is far more important than one’s age. The body tends to rust out rather than wear out. Several studies show that improving one’s lifestyle and health behaviors reduces late-life disability more than it lengthens life expectancy — thus decreasing the amount of time spent with illness.

The rate of disability has been declining steadily since the early 1980s, although it is unclear why. It could be a number of factors: declining smoking rates; assistive medical devices; rising educational levels, and improved cardiovascular treatment. However, obesity may reverse that trend. Researchers estimate disability will begin to increase 1 percent a year by 2020 because of the excess weight carried by people 50 to 70 years old – and that’s assuming they gain no more weight.

Why the U.S. spends more on health

Wealthier nations all spend more on health. However, the U.S. spends well above what would be expected, compared with its peers. McKinsey Global Institute used data from 13 industrialized nations to develop a measure it called Estimated Spending According to Wealth (ESAW). By McKinsey’s calculations, $477 billion of the $1.7 trillion the U.S. spent on health care in 2003 was in excess of what it should have spent based on its wealth. Analysts said the condition of Americans’ health did not explain the higher costs. Hospital and physician care accounted for 85 percent of the excess spending.

McKinsey said a huge driver of costs is the fact that providers are expanding capacity, in part because they can produce their own demand. This echoes ample research showing that health-care use rises when facilities expand or open, independent of population health. McKinsey also cited technological innovation that invariably delivers more expensive care, and the fact that patients are insensitive to high prices because their out-of-pocket costs are, in general, so low.

In a classic Health Affairs journal study called “It’s The Prices, Stupid: Why The United States Is So Different From Other Countries,” the researchers argued that Americans spend more on health care even though they use fewer health services than other developed nations. The difference, they said, was that the U.S. health-care providers charged higher prices.

For example, the U.S. consumes 10 percent fewer drugs per capita than other industrialized nations. However, the U.S. spends 70 percent more for drugs. The U.S. also has comparatively lower disease prevalence because it has a younger population and lower smoking rates. It also has the lowest hospital usage compared with 10 peer nations and ranks eighth out of 10 in the number of physician visits.

The reason for higher U.S. prices is that buyers lack negotiating power – or choose not to exercise it. Other nations consolidate their bargaining power either in their governments or as cooperatives. They negotiate one standard – and invariably lower – price for health services and pharmaceutical drugs. In the U.S., there is no government purchaser willing to bargain on behalf of constituents. The continuing consolidation of hospitals and physicians leaves health plans in weaker negotiating positions.

The government shies away from using its buying power. Mike Leavitt, Health and Human Services secretary under President George W. Bush, said he opposed negotiating Medicare drug prices because “it really isn’t about government negotiating drug prices. It’s a surrogate for a much larger issue, which is really government-run health care.”

During the health-reform debate, the Obama administration dropped the “public option” insurance plan, even though it would have been one of several available options on the health insurance exchanges. It also decided not to seek to negotiate lower drug prices for Medicare.

Other nations do not have a choice on whether to drive a hard bargain with health-care providers. If they spent the same portion of GDP as the United States did, the required tax burden likely would cripple their economies. The United States is not at that point, but is well on its way.

The International Federation of Health Plans surveyed 12 industrialized nations on the costs of 14 common procedures. Each nation but the U.S. reported one price. The U.S. reported a range of prices because of its fragmented negotiating landscape. The price differences were significant. The cost of delivering a baby was $2,667 in Canada, $2,147 in Germany and an average of $8,435 in the U.S. A comparable length of hospital stay cost $1,679 in Spain, $7,707 in Canada and ranged from $14,427 to $45,902 in the U.S..

Even though U.S. physicians deliver less care than doctors in other industrialized nations do, their average income is about three times greater. The ratio of physician income to that of the average U.S. employee is 5.5, compared with 1.5 in Great Britain and Sweden.

Health reform attempts to reduce the amount of care consumed, rather than attempt to control prices. It will encourage doctors and hospitals to form accountable care organizations (ACOs) and pays them a fixed sum to discourage unnecessary care. The law also funds comparative-effectiveness research in an effort to reduce less effective treatments. However, many health-policy analysts consider these  measures too weak to counteract the proliferation of expensive procedures and emerging, costly technologies.

The fragmented health-care sector is also larded with excessive administrative costs. The McKinsey Global Institute estimated that administration accounted for 21 percent of ESAW. Most of that is because of the incredibly complex U.S. private insurance system. The U.S. spends about six times more on insurance administration than other industrialized nations.

Consumers weigh in

Few health consumers blame technology and market power for rising health-care costs. Instead, they point to favored demons, real and imagined. In a HealthDay/Harris Interactive poll, 6 out of 10 blamed insurance companies and pharmaceutical firms. About half blame hospitals.

Health economists say insurance and drug-company profits account for about 2 percent of total health-care spending. A 2009 analysis of hospital finances found that the median profit margin for U.S. hospitals was zero.

More than 1 in 3 poll respondents blamed obese and overweight people. The least-cited reason: Their own excessive use of health services.