When "choice" is a euphemism for "wealth"

I am a little surprised that two leading healthcare economists, Austin Frakt and Amitabh Chandra, write approvingly in The Upshot of this proposal for a new kind of health insurance:

If plans could compete on the basis of the therapies they cover, consumers could decide what they wish to pay for. This sounds complicated, but it need not be.

Health plans could define themselves at least in part by the value of technologies they cover, an idea proposed* by Professor Russell Korobkin of the U.C.L.A. School of Law. For example, a bronze plan could cover hospitalizations and visits to doctors for emergencies and accidents; genetic diseases; and prescription drugs that keep people out of hospitals. A silver plan could cover what bronze plans do but also include treatments a large majority of physicians find useful. A gold plan could be more inclusive still, adding coverage, for instance, for every cancer therapy shown to improve patient outcomes (no matter the cost) as long as it was delivered at a leading cancer center. Finally, a platinum plan could cover experimental and unproven cancer therapies, including, for example, that proton beam.

This way, nothing would be concealed or withheld from consumers. Someone who wanted proton-beam cancer treatment coverage could have it by selecting a platinum policy and paying its higher premiums. Someone who did not want to pay higher premiums for lower-value care, in turn, could choose a bronze or silver plan

The author of the proposal, Russell Korobkin, implicitly admits that it's a bit utopian, or at least a distant prospect, in that "there is very little solid information demonstrating the basic effectiveness of the majority of medical treatments recommended by physicians and other providers every day" and "where there is more than one plausible intervention, there is even less information available concerning the comparative effectiveness of possibilities."  His plan depends on creating a uniform scale of "relative value ratings" based on an existing measure, quality-adjusted life-years, "routinely used by health service researchers to compare the benefits of dissimilar interventions."


Korobkin acknowledges that drug companies and other treatment creators would do their utmost to game the ratings, efforts he suggests would be offset in part by the counter-efforts of their competitors. He would count on increases in ACA seed funding for comparative effectiveness research (CER), set at $500 million through 2019, to build his scale. Acknowledging that "years of funding well in excess of the ACA's current budget for CER would be necessary" before most treatments were rated, he suggests phasing in his ratings systems by granting all treatments the highest rating until they've been assessed. In practice, that means differential pricing for only a scattered sampling of rival treatments for the foreseeable future.

I had two instinctive objections to Frakt and Chandra's summary of the plan, partly mitigated by a "hybrid" proposal outlined by Korobkin, which they did not discuss. The first is the complexity of the risk management demanded of ordinary consumers.  In a recent interview with me, Frakt described the difficulty that he, a mathematically sophisticated health economist, experienced when trying to weigh the relative value of rival plans that varied mainly by deductible and premium.  How much less informed would be an advance decision about the level of deemed effectiveness for treatments of any imaginable illness we want to pay for?

The second objection is that when health economists (and elected officials) talk about "choice," it's too often code for "wealth." In practice, the complex choice outlined above is very simple.  Almost anyone who can afford to will want to retain the possibility of potentially better treatment that costs more. Korobkin's system, in its simplest form, would ration access to care according to wealth. Proton beam therapy,  poster child of unnecessary expensive treatment at least since the Upshot editor David Leonhardt flagged it as such in 2009. may not show better outcomes than rival treatments on average, but if my doctor argues that it best suits my own condition, of course I'll want the option at least of following his advice. 

Now to complicate that equity argument: any plan that varies coverage according to price favors the wealthy to some extent. Some choices are fairer than others, though.  It seems fair to me to confront patients with cost-benefit choices on the level of a particular treatment, at least if special circumstances can be taken into account, and if there's at least partial coverage for unfavored options.  Reference pricing, done right for the right kinds of procedures, is fair. If I need a knee replacement, and my insurer presents me with the opportunity to get it done with a high-quality provider at no cost to me, with the option of choosing a different provider and paying the difference, I can live with that. I can live with tiered choices of provider and facility and drug, where the added cost of going with less-favored options is incremental. When the tradeoffs are limited in scope like that, and don't foreclose the possibility of expensive treatment (at affordable if higher personal cost) when it's truly indicated, they are more acceptable.**

In fact  Korobkin does imagine a tiered option, in which "insurance companies might choose to market policies that provide coverage at all rating levels but vary cost-sharing arrangements based on the rating level of treatments. For example, an RVHI might provide that treatments rated 3 or higher qualify for full coverage, whereas interventions rated 4 or 5 would require a 25 percent co-payment, interventions rated 6, 7 or 8 would require a 50 percent co-payment, and interventions rate lower than 8 would not be covered" (pp 429-430).

That seems fair. By tiering the options rather than simply excluding coverage for a range of treatments, this plan design reduces the stakes of the initial gamble and mitigates the degree to which low payers are excluded from expensive treatments that may be appropriate given their individual circumstances. 

All that said, I suspect that Korobkin's system leverages comparative effective research (as yet unconducted) from the wrong end of the payment chain. Healthcare economists -- American ones, anyway -- sometimes remind me of protagonists in a lightbulb joke, turning the stool, or the room, instead of the bulb. The common denominator among wealthy countries with lower per capita healthcare costs and better outcomes than the U.S. -- i.e., all other wealthy countries -- is stronger government control over pricing than that exerted by federal or state government in the U.S. A uniform price scale could deploy comparative effectiveness research more efficiently than individuals rolling the dice on their optimal risk levels.  But uniform pricing is often excluded from the discussion in the U.S. because it's perceived as politically impossible.

Korobkin does address the possibility of government-deployed comparative effectiveness research. But I don't think he dismisses it effectively. The example below concerns Procysbi, a new drug treating juvenile kidney disease that retails for $250,000 per year in the U.S.; the older Cystagon, retailing for $8,000, has the same active ingredients but also a variety of nasty side effects that Procysbi avoids.

Those on the political left traditionally favor proposals that rely on some combination of administrative rationing of care and price controls,as is common in much of the developed world: government officials with expertise on cost and efficacy decide, to a greater or lesser extent, what medical interventions are provided or reimbursed and how much providers are paid. In the United Kingdom, for example, a government-constituted expert panel would have to recommend that a new drug like Procysbi be added to that country’s National Health Care system formulary, taking into account clinical effectiveness and cost-effectiveness before it would be covered (Pearson and Rawlins 2005: 2618). Although this type of approach could restrain spending, its bluntness could never take account of the heterogeneity in preferences for medical care and thus would almost certainly result in significant inefficiencies, even assuming that political decisionmakers were able to roughly determine the overall, socially efficient amount of resources to allocate to medical care. Some people would prefer to pay the actuarially determined increase in health insurance prices to know that Procysbi would be covered if they needed it, while others undoubtedly would prefer to pay less and
accept Cystagon, should the need ever arise (p. 419).

The "preferences" that Korobkin professes to respect here are driven mainly by income. Who wouldn't prefer the option of sparing their child bad breath, body odor, nausea, abdominal problems, and the necessity of being woken every night for medication or risking serious effects from skipped medication? Should  access to a nearly endless range of difficult-to-evaluate advanced treatments only be available to those who can afford, say, gold-level plans in the ACA exchanges, rather than the benchmark silver or the cheapest bronze?  (Britain's NHS, by the way, allows local health officials to approve an uncovered drug if an individual's special circumstances warrant it.)


And about that retail price: prices for such drugs in Europe and Japan are generally a fraction of those charged in the U.S. -- again, because of government-imposed pricing discipline of types surveyed by the New York Times' Elisabeth Rosenthal:

In all other developed countries, governments similarly use a variety of tools to make sure that drug manufacturers sell their products at affordable prices. In Germany, regulators set drug wholesale and retail prices. Across Europe, national health authorities refuse to pay more than their neighbors for any drug. In Japan, the price of a drug must go down every two years.

For medical services of all kinds, pricing discipline imposed by national and sometimes state or regional governments throughout the developed world is the sine qua non of effective cost control. It may not be sufficient, but it's essential. No matter how much creativity U.S. insurers exercise, they can't compensate for negotiating in a fragmented market in which providers have undue leverage.
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* In "Relative Value Health Insurance," Journal of Health Politics, Policy and Law, Vol. 39, No. 2, April 2014, 417-40.

 ** (At least, such choices can work for plan holders above a certain income level. They won't work for people who are deterred from buying insurance at premium levels as low as $10 per month, as many low income people are. And while Korobkin suggests that his system might be effective for Medicare, he doesn't touch Medicaid.)