There’s a collision brewing between Indiana and Washington over health care: whether our system will be a top-down affair of central planning, or whether it will leave any room for bottom-up arrangements that rely on dispersed, individual decision-making and resource-allocation by self-correcting consumer choice. The relevance to pending national decisions is obvious. Here’s how it began.
In 2006, at the instigation of a new governor, Indiana added a consumer-driven health plan (CDHP) to the benefit options offered to its 35,000 state employees. That first year, 4 percent of state workers chose it. This year, 94 percent did.
Then in 2008, the state again used a consumer-driven model to create an affordable health plan for low-income Hoosiers not eligible for Medicaid. To date, this Healthy Indiana Plan (HIP) has served over 98,000 people. Of users surveyed, 94 percent said they were satisfied with the program, and 99 percent would reenroll, according to the governor’s office.
The idea behind consumer-driven health plans is that people are careful shoppers when paying for services piecemeal but tend to overuse what seems to be free—think of an open buffet. Making every consumer of health care cost-conscious will spread market discipline throughout the system, the thinking goes, and contain prices more successfully than commands from on high. Indiana is now the largest test laboratory in America for this concept as applied to health care. And the results are encouraging. Not only are the customers satisfied, but overuse of emergency rooms and specialists has declined, use of generic drugs has risen, the state’s cost for insuring its workers has been reduced, and—most remarkable—the participants have accumulated in their personal Health Savings Accounts combined reserves of nearly $60 million. That’s $60 million worth of health security for the future.
The tax-free Health Savings Accounts (HSAs) for out-of-pocket expenses are just one feature of Indiana’s CDHP for state workers, along with high-deductible insurance and 100 percent coverage of preventive care. The state deposits money in each worker’s HSA every pay period, and employees can make contributions as well. Employees receive a simple statement every month showing deposits, expenditures, and balances.
It’s the HSA that users seem to appreciate most, judging by interviews with a dozen state workers approached at random in the main state office building here the other morning. “Actually, I love it,” said one fortyish paralegal who’s been in her state job almost a year. “Saving those pre-tax dollars benefits me—I’m a single mom.” A middle-aged administrator noted, “You’re saving as you go, so you have the resources when you need them.” Two others emphasized, “You decide how much you put in,” and, “The state gives you money.”
Still, some employees have tried a CDHP and preferred to return to traditional health insurance. Not many, though—under 3 percent.
State budget hawks are delighted at the savings. An independent analysis by the consulting firm Mercer in 2010 concluded that the CDHPs reduced costs to the state by 10.7 percent per year, for projected savings of $17 to $23 million in 2010. That’s in addition to the $7 to $8 million employees themselves were projected to save.
The users’ savings come from cost-conscious decision-making. “Employees and dependents have historically been . . . shielded from the actual costs of health care services,” noted Mercer. CDHP “participants are exposed to the full cost of health care services and forced to decide if the care is appropriate.” Providers, for their part, like receiving immediate payment, without the rigmarole of third-party reimbursement.
The common objection to market-based schemes is fear that people paying out of pocket won’t go to the doctor. Mercer found “no evidence that participants in the CDHPs are avoiding care”—no reporting of health difficulties resulting from deferred care, no flood of complaints, no exposés in the press, barely a trickle of participants returning to traditional insurance. At present, CDHP participants are getting preventive care at rates higher than those in the traditional plan, according to the governor’s office.
While the savings alone are eye-catching, especially with control of health care costs by fiat continuing to fail nationally, it is the intangible value of consumer-driven care that is primary for the mastermind of Indiana’s reforms, Governor Mitch Daniels. Nearing the end of his second four-year term in office, Daniels is emphatic that this is the approach to health care “consistent with human dignity.”