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Consumer-Driven Health Plans May Hold Hidden Dangers

December 6, 2002
Consumer choice is always good. Or is it? Harris Poll chairman Humphrey Taylor argues that when it comes to health insurance, "an educated consumer with a choice of a broad range of health plans would be our worst nightmare."

In fact, says Taylor, consumer-driven health plans could lead to "a death spiral of adverse selection and the collapse of employer-sponsored health insurance." Writing in the Nov. 27 issue of "Health Affairs," Taylor predicts that younger, healthier Americans would choose low-cost catastrophic health plans, thereby destroying the risk pool under which the well subsidize the cost of caring for the ill.

Recent IRS rulings have cleared the way for employers to expand their offerings of consumer-driven plans and Republicans in the White House and Congress are trumpeting a consumer-choice approach to "reform" Medicare.

Those taking a more academic approach to the problem echo Taylor's alarm.

"Independent research is desperately required" before consumer-driven plans are adopted on a large scale, say the authors of a report based on structured interviews with 74 authorities in the fields of health care, insurance, employee benefits, government and related areas.

Writing in the Nov. 20 issue of Health Affairs, the researchers found that:

• It is questionable whether consumers will have adequate information to make informed choices in health care insurance;
• It is uncertain whether consumers will use available information competently;
• There is no consensus whether consumer-driven plans will lower health care costs, or simply shift a larger portion to employers and those who care for the uninsured;
• The effect on small employers is uncertain;
• The risk pool could be upset if healthier individuals choose low-cost plans offering mainly catastrophic coverage and there is no guarantee that employers would practice risk adjustment in administering their plans.

At their best, the researchers found, consumer-driven plans would give consumers an incentive to hold down the cost of non-essential medical procedures. At their worst, the plans would "lead to a redistribution of health care services and income from the sick to the healthy," they said.

The study was conducted by Jon Gabel, vice president of the Health Research and Educational Trust in Washington D.C., Anthony Lo Sasso, associated professor at the Institute for Health Services Research and Policy Studies, Northwestern University, and Thomas Rice, a professor in the School of Public Health, University of California, Los Angeles.

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