Free-Market Alternatives to Health Reform Work: Study

A new study by the Rand Corp. shows that free-market alternatives to President Barack Obama’s health reform may have an impact on bringing health costs down.

Patients who are under doctors’ care often have little or no control over their health care costs. But a new study by the Rand Corp., a nonpartisan research company, shows that free-market alternatives to President Barack Obama’s health reform may have an impact on lowering those.

Rand found that patients had an incentive to cut their costs if they had high health insurance deductibles and either a health savings account or a health reimbursement arrangement.

The Rand study says in a statement that roughly two-thirds of the reduction in total health care costs was from patients initiating care less often. The remaining third it says cut their health costs after care is initiated.

It “seems that today’s consumers can have greater influence on the level and mix of medical services provided once they begin to receive medical care,” said Amelia Haviland, the study’s lead author and a senior statistician at the Rand Corp.

“We found that at least part of the savings in cost per episode reflects choices for less-costly treatments and products, not just a reduction in the number of services.”

Haviland says in the statement that “at least three factors influenced the cost of care once the patient had initiated care: lower use of name-bRand medications, less in-patient care and lower use of specialists. Researchers speculate that patients may talk to their doctors about their higher deductibles and ask them to help keep costs low.”

Roland McDevitt, a study co-author and director of health research at Towers Watson, a human resource and employee benefits consultancy that assisted in the study, says in a statement: “It is not surprising that deductibles of $1,000 or more reduced health care consumption, but we found that savings occurred even when employers helped employees offset these out-of-pocket costs by making contributions to their accounts,” adding, “this was true for both health savings accounts and health reimbursement arrangements.”

Researchers from Rand, Towers Watson and the University of Southern California examined the claims experience of many large employers in the United States to determine how consumer-directed health plans and other high-deductible plans can reduce health care costs. The study was funded by the California HealthCare Foundation and the Robert Wood Johnson Foundation.

Health reimbursement arrangements and health savings accounts create different incentives for employees. Health reimbursement arrangements allow employers to pay for qualified medical expenses, including those that fall under the deductible. These payments or reimbursements are excluded from the taxable income of the employee. Unused portions may roll over at the end of the year, but any account balance is owned by the employer and employees generally forfeit the account balance if they leave the employer before retirement.