Introduction: A Cure for High Health Care Costs

Republican reform plans misdiagnose the problem. The solution is better care for the minority of patients who drive most of the spending.

Republicans have long articulated a case for reforming American health care. That case, in short, is this: Too many people are buying too many health care services with other people’s money. The key to controlling health care spending, according to this view, is to give individuals “skin in the game”—that is, financial incentives to be more prudent health care consumers.

This theory underlies virtually all of the GOP proposals floating around Washington, including House Speaker Paul Ryan’s plan, revealed in February, to “repeal and replace” Obamacare and transform Medicaid. The basic idea is to limit the federal government’s role (and financial stake) in health care by shifting more of the costs and burdens onto individuals via measures such as high-deductible health care plans. Make health care “consumers” feel at least some of the pain of paying for their care, the thinking goes, and they will shop for better deals and stop demanding care they don’t need. This, in turn, will force providers to be more efficient, reduce their prices, stop pushing unnecessary care, and thus lower the nation’s health care bill.

Special Report: Health Care

Missouri, Compromised
Home Remedy
Stanford’s Big Health Care Idea

Republicans are right about the desperate need to control health care spending, which is eating away at both the federal budget and the livelihoods of individual Americans. But their theory of change rests on a peculiar vision of human nature, which, not to put too fine a point on it, assumes that most Americans are hypochondriacs. While we all know somebody who fits that description, most of us are actually not eager to hand our bodies over to be punctured with needles, probed with instruments, and cut open with scalpels. We do so only when the pain gets bad enough or when our doctors say we should. And when it comes to making health care purchasing decisions, our own judgment isn’t necessarily the best guide. A recent study of workers whose Fortune 500 employer switched them to a high-deductible health insurance plan found that employees never learned to do price comparisons, and while they reduced their health care spending, they did so not only by cutting back on wasteful services like unneeded CT scans, but also by forgoing necessary care, such as a follow-up visit after a diagnosis of diabetes.

Even if policy changes could somehow make Americans savvier medical consumers, the effect on overall health care costs would be surprisingly small. That’s because the vast majority of Americans aren’t big users of the health care system. Rather, statistics show that 5 percent of the population accounts for fully 50 percent of all health care spending, and 20 percent of individuals consume fully 80 percent.

Who are these people? They are our elderly parents, whose health is slowly deteriorating and who need help coping with their worsening illnesses. They are younger people, most of them still working, who suffer from multiple chronic conditions, such as diabetes, lung disease, and rheumatoid arthritis. Many of these patients have mental health problems that make it a challenge for them and their doctors and families to deal with their chronic physical ailments. These are people who, almost by definition, can’t use their purchasing power to fix an out-of-control health care market, because they rapidly spend down their deductibles on necessary care, leaving the bulk of the cost to be paid by insurance. These folks have plenty of skin in the game—their own skin.

The real source of our spending problem is not a nation of hypochondriacs, nor even the sickest 5 percent of Americans. It’s our sick health care system. American medicine is the best in the world at “acute care,” saving the lives of victims of car accidents and heart attacks. But it is remarkably bad at caring for people with chronic conditions, whose symptoms can be controlled but rarely cured and who require routine help in managing their health. Without that help, they will inevitably be hit with sudden health crises that leave them nowhere to go but the emergency room and the hospital. And that’s the most expensive place to treat them.

There are many reasons American health care is doing such a bad job, one of them being the way insurers—both private companies and Medicare and Medicaid—pay for the majority of the care we receive. Most doctors and hospitals are paid on a “fee-for-service” basis; that is, they charge a fee for each individual office visit, test, drug, minor procedure, major surgery, and hospitalization. This means that the more patients a primary care doctor sees in a day, the more she makes; the more stuff that gets done to patients in a hospital, the higher its revenue. Providers are rewarded for delivering more care, not better care. Fee-for-service has made it difficult for even the most ambitious and well-meaning hospitals, clinics, and clinicians to transform their practices to provide the routine, largely low-tech, often home-based care the 5 percent really needs.

In this Washington Monthly special report, we offer three examples of health care programs that have walked away from this broken system. They employ “low-tech, high-touch care,” much of it provided by non-doctors, that not only improves the day-to-day lives of people with chronic illnesses, it also saves money for the government and private insurers. Each takes advantage of an alternative payment model, which opens the door to “wraparound” care that can keep the sickest 5 percent out of the emergency room and hospital.

In San Diego, the Transitions program, run by Sharp HealthCare, provides extra care at home that helps elderly people who are not yet sick enough for hospice avoid frequent hospitalizations. At Stanford, a clinic coordinates doctors, nurses, and medical assistants to care for university employees with multiple chronic illnesses. And a “health home” in Missouri makes sure that people with mental illness get the treatment that enables them to manage their physical health challenges.

Each of these programs is at risk if Congress repeals the Affordable Care Act or tinkers in the wrong way with Medicare or Medicaid. In addition to covering nearly thirty million people who previously had limited or no access to health insurance and adequate care, the ACA supports novel payment schemes that can break the cycle of neglect toward the chronically ill. If these programs are dismantled, or even slowed, we will continue to see rising health care spending—and worsening health in America. If the GOP is serious about lowering costs, it should reconsider its assumptions about how the health care market works. The lives of millions of American patients, and the financial health of the whole system, are riding on it.

Shannon Brownlee

Shannon Brownlee is senior vice president of the Lown Institute and author of Overtreated: Why Too Much Medicine Is Making Us Sicker and Poorer. These stories have been supported by the Solutions Journalism Network, a nonprofit organization dedicated to rigorous and compelling reporting about responses to social problems, at solutionsjournalism.org. Thanks also to the Commonwealth Fund for its support.