Question

The Health Insurance Experiment (HIE) is perhaps the greatest experiment in the history of healthcare finance as it explores the interface of people and insurance and the methods for reducing waste in the consumption of healthcare through moral hazard.

Tasks:

Describe the results of the experiment and analyze how it affects healthcare today.

Answer 1

Today's health care environment differs in fundamental ways from the one in which the HIE took place.

The science of medicine has changed across all dimensions. Managed care has become more prominent, as has prescription drug use. It is possible to take two contrasting perspectives on the HIE's relevance to today's health care debate. On the one hand, the study raises the possibility that cost sharing can be adapted to help achieve fundamental goals: containing costs and reducing waste without damaging health or quality of care. The study suggested that cost sharing should be minimal or nonexistent for the poor, especially those with chronic disease.

On the other hand, the HIE showed that cost sharing can be a blunt tool. It reduced both needed and unneeded health services. Indeed, subsequent RAND work on appropriateness of care found that economic incentives by themselves do not improve appropriateness of care or lead to clinically sensible reductions in service use.

In addition, cost sharing may not address the principal causes of cost growth. Cost sharing cuts expenditures by reducing visits but has little effect on the cost of treatment once care is sought. If, as is widely believed, cost increases are driven by treatment expense and new technologies, cost sharing can contribute to reducing costs at each point in time but may have little effect on the overall rate of cost growth.