One of the basic assumptions of many health care reform advocates is that a “richer” plan which provides a broader range of benefits and which has a higher percentage reimbursement for medical events is automatically better for the plan participant. This is flawed thinking.

A health insurance plan is better for plan participants and for society as a whole if it causes participants to engage in healthier behaviors and if it drives physicians, hospitals, and other providers to deliver a higher quality of health care. In the blog entitled “Results-Driven Health Care” explores the five steps to higher quality, and lower cost health care.

For example, many older health plan designs, like the State of Connecticut Employees’ Plan, give plan participants 100% reimbursement for in-network hospital care, but require them to pay between $3 and $6 for prescription drugs. Not surprisingly, this kind of design leads to more hospital care and sends a signal to plan participants that hospitalization for a medical condition is being encouraged, as opposed to less-aggressive and less-costly drug therapy.

Clearly, this is a bad outcome from an overall cost standpoint, but is it bad for the plan participant? In many instances, the answer is yes. Hospitalizations can lead to many bad outcomes, including life-threatening infections from drug-resistant bacteria which kill 100,000 patients a year in America, complications from medical procedures done in hospitals, and medical errors, which kill another 100,000 Americans.

When plan participants pay nothing for hospitalization, their incentive to ask the tough questions about whether it is the right treatment is diminished. Hospitals which gain revenue from the contributions to overhead they get are not going to question a physician’s decision to admit a patient. Physicians may be encouraged to hospitalize patients in the discretionary cases.

This is not to say that drug therapy is the automatic fallback answer. Drug therapies can have side-effects or simply not work, as seen in some treatment methods with patients suffering from Parkinson’s disease. Sometimes the best answer is to do nothing, particularly with patients who are in an end-of-life situation. My dad was in a coma the day before he died in July, 2001, in a nursing home. A nurse came into his room with instructions to deliver an injection of a hormonal therapy for prostate cancer. Fortunately, my sister and I had his Living Will on file in the nursing home, and had been jointly given a Health Care Power of Attorney. We refused to allow this treatment, which would have cost $2,300 for a single injection.

He died the next day, and we saved the health care system from an unnecessary expense. I have told this story to many audiences, and am surprised at how many people have had similar experiences.

My observations are that we need to make sure that the patient is always incented to be a partner in health care decisions for discretionary care, especially expensive hospital care, and that we encourage everyone to complete both a Living Will and a Health Care Power of Attorney.
The Living Will serves the purpose of specifying as much as possible what level of care a person wants when there is no hope of recovery. The Health Care Power of Attorney identifies the decision maker for a person when he or she is unable to make health care decisions.

Health insurance plans should incorporate both of these ideas in their design: a cost sharing, even a modest one, for expensive treatments, and an incentive for Living Wills and Health Care Powers of Attorney.