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Patient Power For Chronic Illness

February 12th, 2009
by John Goodman

For a long time, I have believed the greatest potential for Health Savings Accounts (HSAs) is in the treatment of chronic illness. I even wrote some fictional vignettes in a “vision” chapter in the National Center for Policy Analysis’ Handbook On State Health Care Reform, describing how HSAs might work for diabetics and other patients. This was an application of a more general piece on “Designing Ideal Health Insurance” that many of you might be familiar with.

Turns out, truth is stranger than fiction. UnitedHealthcare is now using HSAs and health reimbursement arrangements (HRAs) to do something that almost never happens: aligning health incentives with economic incentives.

For diabetics, the program works like this. Deductibles and copayments are reduced to zero for four classes of medications, certain supplies and some office visits. Patients are further prodded by an online tracking and reminder system. And this is just the beginning. Patients who comply with their treatment regimes are rewarded with an additional contribution to their health account of up to $1,000 a year.

Here is my take:

1. Patients get an economic reward for doing things that have an economic payoff for the insurance pool as a whole. Let’s say the insurer/employer expects to save $500 in medical costs if a diabetic patient is fully compliant. Then it makes sense to pay up to $500 to induce such compliance.

2. The mirror image of a reward is a penalty. Since failure to be compliant means the patient forgoes the $500 reward, $500 is the opportunity cost of noncompliance.

3. One way to think about this arrangement is to see that there is a social cost of noncompliance over and above the personal costs. The social cost is the cost that is imposed on others. In making choices, therefore, patients are encouraged to consider the total cost of their actions, not just the personal costs.

4. There are other decisions patients make that do not have large spillover effects for the insurance pool as a whole. For these decisions, it makes sense to have the patient manage his/her own health care dollars. In doing so, patients will tend to weigh personal cost against personal benefits. That is appropriate.

5. No employee is forced to participate in the program. However, there are two kinds of rewards for doing so (and implied penalties for not doing so): (a) a flat fee of as much as $500 for answering a health questionnaire and for undergoing screening tests, and (b) the prospect of zero out-of-pocket expense for some drugs, supplies and office visits. Presumably, these rewards reflect the value to the insurance pool as a whole to induce screening and enrollment.

Two general comments on the program:

1. The incentives here are not as finely aligned as I imagine they could be. Among other things, every diabetic gets the same financial deal, even though expected costs must surely vary a lot from patient to patient. Still, you have to give UnitedHealth credit for a major advance in getting the economics of health care right.

2. Because of the rigidities of the HSA law, employees can have a zero deductible for some drugs but not others. Statins and beta blockers are okay (because they are considered “preventive” drugs), but insulin and antiglycemics are not okay (because they are considered “maintenance” drugs). This is one more reason to change the law and give the private sector a completely flexible account.

A news story description of how this program works for Affinia and other companies is here.

Postscript: Is this the first time you have ever seen ideal chronic care described in terms of getting the economic incentives right for all the actors at all the margins? If you know of someone else who has done this, please send me the source. Thanks.

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10 Responses to “Patient Power For Chronic Illness”

  1. RMcCullough Says:

    The 100 citations that “rarely ever appear” in Health Affairs still haven’t appeared in Health Affairs. The readers of your otherwise excellent journal are being cheated.

  2. tonglen Says:

    Yes, we need to deal with the cost of chronic illness. However, this approach does not address some major contributing factors to the cost of health care. I educate people on a daily basis who have diabetes, COPD, CAD, heart failure and more. Even with insurance and Medicare coverage, these people cannot pay for their medications and sometimes cannot even afford their co-pays for office visits.

    If we really want to provide affordable and quality health care for all, the following issues need to be addressed:

    First, the majority of my patient’s are sick because they don’t take care of themselves. Many got this way because they smoked, ate too much, didn’t exercise and drank.

    Second, it is the incredibly high cost of medications and high profits in the pharmaceutical and insurance industries that contribute to our rising health care costs.

    Third, the current system provides no incentives to health care providers to keep their patients healthy. And I don’t mean just prescribing medications. Our health care system needs to embrace a much more holistic approach to wellness, prevention and sickness. Pills are not the only answer and they are, in many cases, the wrong answer. Patients and health care providers alike need incentives for healthy lifestyles that include healthy food, exercise and an emphasis on developing community. Far too many of our elderly and chronically suffer from depression that comes from isolation. This leads to a viscous cycle of staying at home, watching TV, eating and becoming depressed, eating…… and repeating the cycle over and over again. Our communities have all but disappeared and the elderly and ill are being left to fend for themselves.

    The answer is not simple. Our future as elders in America will be very grim unless we start making changes today. My best wishes to and hopes for President Obama. He inherited many, seemingly impossible tasks.

  3. jackshoemaker Says:

    This looks like P4P for patients. Notwithstanding some of the other comments about the potential for moral hazard, this programs does seem a step in the right direction. That is, getting some pricing signals into the health-care delivery market. (BTW, could not agree more with R Weber’s comments about the use of the term “insurance” in the health-care-payment market. It is mostly forced savings, not insurance in the typical sense.) If we expand this model to cover an expense condition like HTX, how would that work. Would they wait for an official DX? Or would they seek to become more proactive? If my lipids and weight were out of line, would UHC give me an incentive to change diet and exercise?

  4. Ralph Weber Says:

    Insurance is the voluntary re-distribution of wealth. It is effective when used to cover unsystematic risk, where winners and losers are NOT known in advance. When people attempt to get insurance to cover systematic risk, then it is pure socialism, and it is not effective.

    Once someone figures out how to make rocks fall upwards, then insurance will be able to effectively cover systematic risk.

  5. LGorman Says:

    Accounts similar to health savings accounts have been used with great success for chronically ill Medicaid patients under Colorado’s Consumer Directed Attendent Support (CDAS) program. People in the program had a sum of money placed in an account with their name on it, and were allowed to act like any other employer in hiring people to take care of them. They kept 50% of any savings and the state got the other half. Savings were about 20 percent and the people in the program were far better off as they could use their half of the savings to purchase things that Medicaid did’t pay for, things like voice activated telephones and lifts. They also reported higher satisfaction and better health.

    Similar results, without the savings because the program was designed to be budget neutral, were recorded in the Robert Wood Johnson Foundation’s Cash & Counseling program. The big surprise there was that cost went up in some states because the consumer directed account freed people from the red tape that prevented people from getting benefits they were entitled to.

    It is entirely possible that consumer directed accounts will provide bigger benefits for those who are ill than for those who are well. The reason is that freedom from oppressive rules allows people who need care to get what they need rather than what someone else thinks would be good for them.

  6. acavale Says:

    Being an Endocrinologist, I see validity in your points. It is true that a significant portion of ongoing care and cost in the management of diabetics is due to patient non-compliance. I suppose financial incentives to patients that spur compliance will be beneficial. However, I am skeptical about the source (UHC) and also with the fact that most of these actions (such as reminders. etc.) will be coming from the insurer. The value of such a program will mostly depend on the details, for example how they integrate insurance-sponsored intervention with those of the physician offices, as well as whether they will adhere to plans initiated by the patients’ physicians. This could become a double-edged sword if UHC policies end up conflicting with physician instructions. I will hold my judgment in this regard.

    As usual, a good piece, Mr. Goodman.

  7. Brian R Williams Says:

    John Goodman rightly points out that consumer-directed health care initiatives in general, and HSAs in particular, hold great promise for the chronically ill. As Congress begins to debate health care reform (sooner or later), I wish they would give greater consideration to market-oriented examples like this.

    Unlike government mandates, the market can provide appropriate consumer rewards and penalties — without the need for complex regulations, bureaucracies or paperwork. Simultaneously, the same market forces will reduce health care costs and improve quality, thereby eliminating many of the barriers faced today by the chronically ill.

    Unfortunately, many health care reform advocates suggest we should expand programs that are already underfunded and inefficient. Or they suggest creating new programs (and mandates) to replace the old ones. But those ideas empower the government, not the patient.

  8. RMcCullough Says:

    Fascinating. Doesn’t it all boil down to this: chronic patients should reap the benefits and bear the costs of their own actions? That’s common sense.

  9. SauerC Says:

    The free market wins again! This product innovation provides more benefits by aligning the incentives up correctly than any single payer or big government solution ever will.

  10. Devon Herrick Says:

    It is interesting how policy wonks on both the Left and the Right all seem to agree (in theory) that Americans need more incentives to adopt healthy behaviors. Programs like United Healthcare are great examples of how health coverage could encourage workers to better manage chronic diseases.
    However, many chronic diseases are brought on, or exacerbated by unhealthy lifestyles — including diabetes, hypertension and heart disease. But, when employers tried various means(using more stick than carrot) to coerce employees with unhealthy behaviors to pay more for health coverage, liberal health advocates cried foul. Last year the Labor Department ruled that programs that punish workers engaging in unhealthy behaviors (e.g. by paying up to 20% more for employee health coverage) were illegal.

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