 |
|
|
|
 |
 |
 |
NATIONAL CENTER FOR POLICY ANALYSISHOME / DONATE / ONE LEVEL UP / ABOUT NCPA / CONTACT US
| Medicare Reform and Prescription Drugs: Ten Principles | |
| |
|
Almost all proposals to add a prescription drug benefit to Medicare establish a uniform level of cost sharing for all drugs. In other words, the patient's share of the bill is the same - regardless of the drug and regardless of the condition it is supposed to treat. Yet an insurance plan with this feature makes little economic sense. Let's begin with the basics. Why have any patient cost sharing in the purchase of prescription drugs? Why not let Medicare, or a private payer, bear all the costs? The reason is that patients are often more effective and more efficient monitors of prescription drug therapy than are third-party payers, even when the third-party payers impose a regime of strict managed care. Switching from a brand-name drug to a generic equivalent may affect some patients differently than others. Different dosage levels also may have different effects on different patients. And some prescription drugs are no more effective than over-the-counter medications. No one is in a better position to observe these effects and weigh the costs against the benefits of alternatives than are the patients themselves. Patient Discretion. Given the desirability of some patient cost sharing, should the rate be the same for all drugs? Both common sense and basic principles of health economics suggest otherwise. Like some health care services, some drugs are more discretionary than others. And, all other things being equal, patients exercising greater discretion and bearing a larger share of the bill tend to reduce waste and enhance health outcomes. Ideally, we do not want to spend a dollar on health care unless it produces a dollar's worth of value. But if patients pay, say, only 20 percent of the cost, they have an incentive to consume drugs until they are worth only 20 cents on the dollar. This incentive may not mean very much if the drug is lifesaving and there is very little discretion about dosage. But the incentive makes a great deal of difference when the outcome of drug therapy is experienced subjectively and there is a lot of discretion about dosage. Allergy relief is one example. No outsider can directly observe how uncomfortable you are, so no third party can objectively measure the value of relieving your discomfort. You may find adequate relief from a $5 over-the-counter antihistamine, or you may decide a more expensive prescription like Claritin is a better value. But you cannot make a rational choice unless that choice has cost consequences. Possible Adverse Consequences of Patient Discretion. In general, patient discretion is desirable. There are exceptions, however. The reason is that even if patients are paying the full cost of their drugs, they are certainly not going to pay the full costs of hospital therapy and physician therapy that may result from the underuse or misuse of prescription drugs. Because drugs often are an alternative to more expensive therapies, failure to follow an appropriate drug therapy regime may lead to higher health care spending - including higher Medicare costs. South Africa's Experience with Flexible Deductibles. The considerations outlined in this section are already influencing the design of private health insurance in the United States. For example, health expert J. D. Kleinke points out that health plans are rapidly moving toward multitier drug coverage wherein insurers prepay for drugs that are the most "medically and economically useful" for patients while assigning a copayment to drugs that are not.28However, there is a problem with this approach. If patients are living from paycheck to paycheck, they may not have the funds to pay the deductibles for drugs that are more promising. Medical Savings Accounts are a possible solution to this problem. Under the government of Nelson Mandela in the 1990s, South Africa conducted a unique experiment in the market for private health insurance. After deregulation in 1994, virtually every type of health insurance plan sold in the United States was able to enter the South African market - from health maintenance organizations (HMOs) to preferred provider organizations (PPOs) to Medical Savings Account plans (MSAs). And after a favorable ruling from the tax authorities, employer deposits to MSAs received the same tax treatment as employer payment of third-party insurance premiums. Employees were free to use their MSA funds to pay expenses not paid by third-party insurance.29 Thus in South Africa, MSA plans have competed against other forms of insurance on a level playing field for several years. The result has been remarkable. Since 1994, MSAs have captured about half of the private health insurance market, covering about 7 million people. By contrast, HMO-type managed care has made only small inroads. In the United States, the design of tax-free MSA plans allowed under a special pilot program is rigidly defined in the tax code.30 In general, MSA plans in this country must have a uniform high deductible, regardless of the health service. In South Africa, by contrast, insurers have been free to innovate and experiment. The result is a far more interesting product - one better designed to meet patient needs. South African MSA plans typically have varying deductibles. For example, a representative plan has no deductible for hospital care, on the theory that patients exercise little discretion within hospitals. But a $1,100 deductible for annual outpatient care is common, on the theory that patients have far more discretion in that setting. The high deductible also applies to prescription drugs. However, for chronic conditions for which skimping on medication could lead to more expensive care later on, the deductible drops back to zero.31 South African insurers also have experimented in other ways. In one of the most popular plans, diabetics are able to enroll in "centers of excellence," special treatment centers that are effective and efficient. If they do, they pay one-third of the monthly fee from their MSA; their health insurance pays the other two-thirds. Since employers are making most of the deposits to the employees' MSAs as well as paying insurance premiums, ultimately almost all the money comes from the employer. But these plans are designed so that the employees make choices in which they have a financial stake.32 |
|
| Previous | Next | |
12770 Coit Rd., Suite 800 - Dallas, TX 75251-1339 - 972/386-6272 - Fax 972/386-0924 601 Pennsylvania Avenue NW, Suite 900 South Building, Washington, DC 20004 - 202/220-3082 - Fax 202/220-3096 Copyright © 2002 National Center for Policy Analysis |