NCPA - National Center for Policy Analysis


January 8, 2008

As health policy studies go, the RAND Health Insurance Experiment is the gold standard. Conducted 25 years ago at a cost of $50 million (close to $300 million in today's medical marketplace), this study sorted families into health plans with different deductibles as well as an HMO, and carefully monitored the results, says John Goodman, president of the National Center for Policy Analysis.

RAND's findings:

  • Patients are responsive to out-of-pocket costs (the more they have to pay, the less health care they buy).
  • Changes in the amount of spending have no apparent impact on health care outcomes in most cases.
  • Judging from the difference in behavior between HMO doctors and fee-for-service doctors, physicians are also very responsive to economic incentives.

Two very important policy implications follow, says Goodman:

  • First, the study put the final nail in the coffin (at least for several decades) of naive national health insurance (NHI).
  • If health care were completely free, spending would soar, with no improvement in health status (NHI, by the way, was a principal motivation behind the entire experiment.)
  • Second, the study opened the door to a myriad of market-based solutions to health policy problems.
  • For instance, we could have full-service diabetes centers vigorously competing for diabetic patients, each managing his own risk-adjusted Health Savings Account.

Unfortunately, none of the thoughts above appear in the "selective memories" of the original researchers, recently published by RAND, says Goodman.  They do not even mention national health insurance.  As for cost sharing, their prose is full of caution -- pointing to dangers for the poor and the sick and to more recent studies showing what can go wrong.  There is no mention of the creative ways in which cost sharing is being used in chronic care -- either in private plans or in Medicaid.

Source: John Goodman, "The RAND Experiment: Still Apologizing After All These Years, Part I," National Center for Policy Analysis, January 7, 2008.

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