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The Failed Economics of Consumer-Driven Health Plans

John Aloysius Cogan Jr.

Vol. 54

February 2021

Page 1353

Consumer-driven health plans (“CDHPs”) are now the dominant form of health insurance coverage in the US. CDHPs represent a market-based attempt to control health insurance costs. By requiring a significant outlay of the patient’s own money before insurance payments begin, CDHPs try to turn patients into health care consumers. Patients-turned-consumers, so the theory goes, will be more judicious about health spending and will reduce consumption of low-value health care. In response, health care providers will lower their prices to compete for fewer health care dollars. But the CDHP price-lowering theory is flawed. Constructed using an economism framework, CDHPs rely on a microeconomic, partial equilibrium model that overextends the concept of moral hazard and disregards the larger health care economy. This matters. CDHP theory simply ignores the powerful legal structures and system incentives that health care providers exploit to limit competition and drive up prices. In short, CDHPs cannot reduce prices because larger, more powerful profit-driven forces in our health care system out-muscle CDHP’s “patient power” approach to price control. This failure leaves patients with CDHPs in a dangerous double bind: they are increasingly burdened by high deductibles yet possess less purchasing power as medical prices keep rising. As a result, many patients with CDHPs suffer medical harm and are plunged into financial ruin. View Full Article

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