Garamendi vs Consumer Driven Health Plans?

The insurance commissioner of California released a damning report on the state of U.S. health care. With my nap schedule, I can only make a few observations today.

Consumer driven health plans and their funding vehicles (HSAs, HRAs) are condemned quite strongly. One hope of CDHPs is to reduce the amount of wasteful medical care by giving consumers a financial stake in their health spending. The commissioner's chapter on the ills of the prescription drug market provides several reasons why consumers should have a financial stake in their choices.

1) Pharmaceutical companies fuel demand for high priced drugs through direct-to-consumer marketing. Doctors have no incentive to refuse prescription requests spurred by this advertising. Cost-sharing reduces the number of prescriptions that offer minor benefits. Given consumer ignorance about medicine, direct-to-consumer advertising and financial incentives might be a combination that effectively balances cost and knowledge about care.

2) The report pillories drug companies for patent abuse but also criticizes the trend towards three-tier drug plans. These plans charge the consumer more for brand drugs than generics. Even with financial incentives many people are still reluctant to buy generics. Health insurers spend a lot of energy educating people that generics are therapeutically equivalent to brand name drugs. Without financial incentives, there would be almost no market for generics. The commissioner wants the state to influence doctors to prescribe more generics. Financial incentives can do the same thing without government coercion.

3) The report finds disturbing that PBMs serve as a middleman by negotiating discounts. Many drug categories have several competing drugs with comparable therapeutic value. Using their bargaining power on behalf of consumers, PBMs make drugs more affordable. The report is concerned that prescription patterns will be distorted by price incentives, but it also bemoans the fact that "there are virtually no studies conducted to evaluate the comparative efficacy of drugs in the same class." If science gives little guidance, why not go with the greatest discount? Formularies have been a target for years, but critics usually describe possibilities of abuse instead of specific cases. This is not surprising since in the U.S., healthcare consumers bridle at any restriction, no matter how reasonable. Mindless rebate chasing is unlikely to yield a competitive product.

Thanks to Ralston via Caplan.