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Our Conclusions/ Opinions
The Rand Health Insurance
Experiment
Overview
Empirical Results
ANOVA Estimates
Health Status Outcome Results
Our
Conclusions/
Opinions:
As a consequence
of wage and price controls instituted during World War II, American
health care has gradually evolved into an employer based, tax subsidized system
of prepaid care that has progressively disconnected consumers from
the real cost of health care
services.
Some believed that access to virtually free care would
ultimately produce:
-
A substantial net gain in
population health,
-
That would eventually offset the cost of providing virtually free
prepaid care
to all.
This health care "dividend" never
materialized, nor would the available data have predicted that outcome.
While nearly "free" care is
extraordinarily popular and marketable especially as an employer paid tax
free benefit, the past forty years of progressive reductions in share of
cost have clearly demonstrated that comprehensive 1st dollar insurance
coverage produces significant losses of social welfare.
The demand
for medical services absent reasonable
personal financial responsibility produces gross excesses in spending
that are rapidly becoming unsustainable. Once again we have proven
that people spend other people's money differently
than they spend their own.
The exigencies of a retiring
"boomer" generation necessitate urgent changes. We must gain control over
health care spending or we face the real possibility of a catastrophic collapse of the American economy and the disintegration
of our health care infrastructure just as 75 million needy boomers begin to retire.
Regardless of what one may
personally prefer, recent history and the available experimental data
clearly show that managing demand by reconnecting
consumers to the true cost of health care is an effective and safe means of curbing expenditures while
still preserving general health, quality, choice and access to care.
In that regard, Consumer Directed Health Care is
a practical and immediate necessity. The time for nay-saying is over.
James G. Knight MD, CEO
Consumer Directed Health Care, Inc.
May 30, 2004
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The Rand Health Insurance
Experiment
Overview
The Rand Health Insurance
Experiment, referred to as the “HIE”, (“Health
Insurance and the Demand for Medical Care”;
Evidence from a Randomized
Experiment; Manning, Newhouse, Duan, Keeler, Benjamin, Leibowitz, Marquis and
Zwange; February 1988; R-3476-HHS) was the largest randomized prospective
study ever conducted on behalf of the Federal government on the effects of cost sharing and the demand for medical
care. (Download whole document here:
http://www.rand.org/pubs/reports/2005/R3476.pdf)
In the experiment, 7,791 people
were studied with respect to varying levels of 1st dollar coverage
(including both medical and dental expenses), with no person subject to an
out-of-pocket expense that exceeded $1,000 dollars (1977 dollars equivalent to
$3,102 in 2004 dollars). Coinsurance
rates (the portion of an expenses that one must pay out-of-pocket) ranged from
free care (0%) to a ninety-five percent (95%), up to a $1,000
maximum out-of-pocket limit on the share of cost for all participants.
The study was conducted over a
four year period from 1974-1977 with assignments of coverage randomized with
respect to health status, socio-economic status, geographic locales etc.
The total cost of the experiment
was 80 million dollars in 1977, equivalent to 288.2 million in 2004 dollars.
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Empirical Results
Page
ix:
- Paragraph
1, “Main
Effects. The data from
the HIE clearly show that the use of medical services responds to changes
in the amount paid out of pocket. The
per capita expenses on the free plan (no out of pocket costs) are 45
percent higher than those on the plan with a 95 percent coinsurance rate,
subject to an upper limit on out-of-pocket expenses of at most $1,000 per
year. Spending rates on plans
with an intermediate level of cost sharing lie between these two extremes.
- Paragraph
2, “The largest decreases in the
use of outpatient services occur between the free and the 25% plan”
- Paragraph
3, “For example, the outpatient
expenses on the free plan are 67 percent higher than those on the 95
percent plan, whereas, outpatient visit rates to physicians and other
health providers are 66 percent higher than those on the 95 percent plan.
A similar pattern holds more weakly for inpatient care: Inpatient
expenses are 30 percent higher on the free plan than on the 95 percent
plan, whereas admission rates are 29 percent higher”
Page x:
- Paragraph
1, “Although health status was a
strong predictor of expenditure levels, we observed no differential
response to health insurance coverage between the healthy and the
sickly.”
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ANOVA Estimates
Page 18
- Paragraph
1, “The per capita expenses on
the free plan (no out-of-pocket costs) are 45 percent higher than those on
the plan with a 95 percent coinsurance rate, subject to an upper limit on
out-of-pocket expenses.”
- Paragraph
2, “Cost sharing affects the
number of medical contacts but not the intensity of each of those
contacts.”
- Paragraph
3, “The largest decreases in the
use of outpatient services occur between the free and 25 percent plans,
with smaller but statistically significant differences between 25 percent
and other family pay plans”
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Health Status
Outcome Results
Page 34:
- Paragraph
3; “For the person with mean
characteristics, we can rule out clinically significant benefits from the
additional services in the fee-for-service free plan relative to either
the cost sharing plans or the HMO experimental group.
For poor adults (the lowest 20 percent of the income distribution)
who began the experiment with high blood pressure (specifically, who were
in the upper 20 percent of the diastolic blood pressure distribution),
there was a clinically significant reduction in blood pressure in the free
fee-for-service plan compared with the plans with cost sharing.
Epidemiological data imply that the magnitude of this reduction would
lower mortality about 10 per cent each year among this group.”
Page 35:
- Paragraph
1, “The specific gains in health
just described were all for relatively prevalent chronic problems (of
course we had difficulty detecting effects for rare problems) that are
relatively inexpensive to diagnose and remedy.
One can infer that programs
targeted at these problems would be much more cost effective in achieving
these gains in health than free care for all services. (emphasis
added, JGK) For example, more
than half the benefit of free care for high blood pressure (and presumably
for risk of dying) was available from a one-time screening examination,
whose cost is a small fraction of free care for all services (Keeler et
al., 1985).
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