I was interested in Professor Chandra’s comments at the end of class this week about the incentives created by high-deductible health plans. It would seem that having a higher upfront, out-of-pocket fee would create incentives for patients to be selective about how to spend that money, in theory encouraging them to research care options, switch to low cost and high quality providers, and be more discriminant in the care they seek. However, studies have shown that patients often don’t respond rationally to these incentives. Some reduce all care indiscriminately. Some have worse adherence to medication regimens (particularly asymptomatic conditions like high blood pressure or high cholesterol), and one study showed minimal switching to less expensive generic medications. The article points out that a rational consumer 1) behaves rationally, 2) knows his/her preferences, and 3) has all relevant facts about what he/she plans to purchase. There are many reasons to explain why these don’t apply to a consumer of healthcare today.
Regarding the first criterion, experiments in behavioral economics have shown that people often don’t behave rationally. The article notes that people are highly loss averse (they experience twice the dissatisfaction in the face of loss compared to the satisfaction they experience when they gain something). So the idea of having to spend money on high deductibles is a significant psychological barrier that can impede pursuit of care that the patient knows he/she may benefit from.
Regarding knowing one’s preferences and having the relevant facts to make a decision, information asymmetry is a big issue. Medical literature is often complex and full of jargon that can be difficult for a lay-person to understand and then weigh pros and cons for himself/herself. Even with the help of sophisticated decision aids that attempt to simply concepts and focus on outcomes patients care about, patients often feel most comfortable making medical decisions jointly with or deferring decisions altogether to their doctors who have the expertise. The problem is that in a fee-for-service world, physicians are often subject to a number of conscious and unconscious biases toward more care. In addition, patients often have limited information on relative costs of procedures. Furthermore, individual outcomes for each purchase are never guaranteed (taking a statin may not prevent a heart attack). These gaps in information and uncertainties about outcomes make it even harder for patients to make rational decisions.
After identifying barriers to rational decision making, the article makes several suggestions for enabling better decisions. Health savings accounts can reduce feelings of loss when patients have to pay high deductibles, given that money has already been set aside for healthcare spending. There are increasing efforts to increase price transparency throughout medicine, though these are admittedly still in progress. Finally, shifting away from fee-for-service can reduce provider incentives to prescribe more care (that a patient may indiscriminately reduce across the board because he/she doesn’t have information to choose among the recommendations) and align patient and physician incentives more closely.