Consumer Response

When striving to succeed in business, a savvy consultant once advised that “Good news is nice, but bad news is more important.”

And that certainly holds true for consumer-directed health care.

An important new study by McKinsey & Company released this week says that the early evidence about consumer-directed health care (CDHC) is promising, but much more needs to be done before there will be broad acceptance in the marketplace.

Promises and pitfalls: McKinsey found that consumer-directed health plans (CDHPs) increase consumer engagement in health care decision-making and health management, but the biggest stumbling block right now is the lack of consumer-friendly decision support tools, especially information on prices.

McKinsey conducted the most extensive survey yet of consumer-directed health care plans, conducting focus groups, one-on-one interviews, and an in-depth study of more than 2,500 Americans regarding their health insurance arrangements. It also eliminated adverse selection bias by studying consumer behavior under full-replacement health plans where employers have made the bold move of only offering a CDHP to their employees.

Most of the CDHC plans McKinsey studied were Health Reimbursement Arrangements (the elder sisters of HSAs) but there were some HSAs in the study. First the good news:

  • CDHC consumers were more value conscious: They were 50% more likely to ask about costs and three times more likely to have chosen a less extensive, less expensive treatment option. They also were much more likely to visit an urgent care center than a hospital emergency room.

  • Consumers were more attentive to wellness and prevention: They were 25% more likely to engage in healthy behaviors and 30% more likely to get an annual physical. Why? 51% of CDHC consumers agreed “If I catch an issue early, I will save money in the long run.”

  • Consumers are more attentive to cost control: Their behavior changes could result in better health outcomes and cost savings over the long term. CDHC consumers were more likely to perform independent research to identify treatment options, for example, even when insurance was paying, and they were 20% more likely to comply with treatment regimens for chronic conditions.

So that is the good news. Now the bad news: Only 44% of CDHP consumers said they were more satisfied with these new plans than they had been with their previous health plan. Many were dissatisfied with the information available to them to make health decisions, particularly the price differences among providers: 80% said they did not have sufficient information on the prices doctors charge.

This is the huge challenge of the CDHC movement. If consumers are going to have new incentives to manage their health care and spending, they must have better information to support their decisions.

Some of our colleagues have argued that CDHC shouldn’t start until these decision support tools are in place. But these tools are much more likely to be developed quickly and to be more user-friendly when consumers are demanding the information. (Some insurance companies are providing decision-support information, but McKinsey found these are not trusted sources.)

So in the Information Age, information about CDHC is absolutely key – both for employers and agents, in educating consumers about how HSAs and HRAs work, and obtaining user-friendly information about how best to use these accounts.


We have two big events planned next week:

  • On Monday, we expect a standing-room-only audience for our briefing on tax and health reform. The briefing, which Galen is jointly sponsoring with The Heritage Foundation, will explain the importance of addressing the tax treatment of health insurance. (We had hoped to present our petition to Ways and Means Chairman Bill Thomas, who has been very vocal about his frustration with the current system, but commitments in California prevailed, and unfortunately he will not be able to join us.)

  • And on Tuesday, Dr. Jacques Chaoulli has confirmed that he will be joining us for a briefing that we also are jointly sponsoring with Heritage, to tell the media and the policy community all about his victory before the Canadian Supreme Court.

    We have two good follow-up articles for you about the Chaoulli victory in the section below. We’ll report on both of these events next week.

Grace-Marie Turner


  • Health costs leveling off
  • 2005 medical care forever: What universal health care would really bring
  • Unsocialized medicine
  • Few online ‘Canadian pharmacies’ based in Canada, FDA says
  • Achieving drug access and affordability without trading on future innovation
  • Tax credits + Medicaid: An integrated approach to health insurance coverage

Author: Michael Barone
Source: The Washington Times, 06/14/05

“The overriding assumption in much commentary on health-care finance is that individuals and companies are helpless automata waiting for government action before anything can be done about health-care costs,” writes syndicated columnist Michael Barone. But a recent report from the Bureau of Labor Statistics shows that cost increases are cooling, rising 7.5% in 2004. Health care costs are being “held down by the marketplace” in part because consumer driven health care plans, including HSAs, are helping to make consumers “more cost-conscious on health care decisions,” writes Barone. He also notes the growing popularity of health insurance policies that encourage healthy behavior. “We have problems, yes, but we are not helpless,” concludes Barone.
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Author: Ronald Bailey
Source: Reason, 06/15/05

The implications of moving to a universal health care system are examined in this piece by Ronald Bailey, science correspondent for Reason magazine. He answers critics who say “a socially backwards U.S. should adopt a system of government-financed health care immediately” to get in line with the more enlightened Europeans. On health outcomes, he says critics note that life expectancy and infant mortality rates are worse in the U.S., despite our much higher spending. But where would you rather get sick? “Britons are four times more likely to die than Americans while undergoing major surgery [and] the most seriously ill NHS patients were seven more times likely to die than their American counterparts,” writes Bailey. Further, he says, government-run systems also have escalating costs, despite price controls and rationing of services. And the clincher: “If the U.S. adopts a nationalized health care system, taxes will have to double to pay for it.”
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Source: The Wall Street Journal, 06/13/05

Last week’s historic ruling by the Canadian Supreme Court, which struck down a Quebec law that banned private medical insurance, “ought to be an eye-opener for the U.S., where ‘single-payer,’ government-run health care is still a holy grail on the political left,” reports The Wall Street Journal. The court agreed with Canadian doctor Jacques Chaoulli that long waiting times for surgery contradict the country’s constitutional guarantees of “life, liberty, and the security of the person.” Although the ruling “stops short of declaring the national health-care system unconstitutional?it does say in effect: Deliver better care or permit the development of a private system.” The court’s decision also makes it clear “that health care isn’t immune from the laws of economics?There are only two ways to allocate any good or service: through prices, as is done in a market economy, or lines dictated by government, as in Canada’s system.” Single-payer advocates often claim that government-run health care is more equal than one based on market prices, but last week’s court decision proves otherwise. “Politicians can’t wave a wand and provide equal coverage for all merely by declaring medical care to be a ‘right’,” concludes the Journal.
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The Manhattan Institute’s David Gratzer, a Toronto physician, notes that “the Supreme Court ruling almost surely means that health care rights will spread…Medicare defenders are quick to point out that [the ruling] simply applies to Quebec. And that is true. But remember: in an age of jet travel, private health care anywhere in Canada effectively means that private health care is everywhere.”
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Author: Brian Krebs
Source: The Washington Post, 06/14/05

“Most Web sites that purport to sell quality, discounted prescription drugs from online stores in Canada appear to be controlled or owned by individuals or companies located outside Canada,” according to a study commissioned by the Food and Drug Administration. Brian Krebs, staff writer for The Washington Post, reports that the study reviewed about 11,000 Internet pharmacies but “fewer than 25% were registered to or hosted by companies or individuals in Canada.” Barbados operates 87 of the online pharmacy sites identified in the study, while others claiming to be based in Canada were actually registered in Australia, the Czech Republic, El Salvador, Germany, Mexico and Vietnam. Furthermore, “two-thirds of the online pharmacies identified in the study explicitly stated on their Web sites that potential customers did not need a prescription to purchase medicines that otherwise would require a doctor’s written permission.” The FDA concluded: “We want consumers to be aware that when they order online from these sites?for the most part no one is overseeing that.”
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Author: Scott Gottlieb, M.D.
Source: American Enterprise Institute, 06/13/05

In a speech before members of the Japanese Diet, Scott Gottlieb, M.D., of the American Enterprise Institute said that “the task of making sure we continue to create new [medical] technologies is a global challenge.” He stressed that pricing policies in Europe and elsewhere are hurting patients. “We could be trading affordability at the expense of future progress,” he warned. Instead, “It is possible to redirect billions of dollars in drug spending, through greater use of less expensive and more competitively-priced generic drugs, permitting greater financial rewards for developing and providing access to valuable new drugs more quickly,” said Gottlieb. “This approach encourages innovation without spending much more money.” He suggested that Japan should promote increased use of generics and more market-based pricing for newer drugs.
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Author: Lynn Etheredge
Source: National Governors Association, 04/05

Lynn Etheredge, an independent health policy consultant, provides a framework for the design of an integrated system of federal tax credits and Medicaid reforms that would help individuals who do not have employer-based health insurance and do not qualify for Medicaid/SCHIP. “An effective ‘tax credits + Medicaid’ strategy would require state flexibility to re-design their Medicaid programs for this uninsured population,” writes Etheredge. He outlines and offers solutions for eight issues that would need to be addressed in a tax credits + Medicaid system. One example: states would need the flexibility to phase down the amount of the tax credit with income, which is not currently allowed in federal Medicaid law. Etheredge also writes that the system should be “built around the principles of consumer choice and a level playing field,” with consumers able to choose among private plans and public programs.
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Tax Reform as the Road to Health Reform
Sponsored by The Heritage Foundation and the Galen Institute
Monday, June 20, Noon
Room 2261, Rayburn House Office Building
Washington, D.C.

For additional details and registration information, go to:

Taking On The Canadian Health Care System
Featuring Dr. Jacques Chaoulli
Sponsored by The Heritage Foundation and the Galen Institute
Tuesday, June 21, 2005, 2:30 p.m.
The Van Andel Center at The Heritage Foundation
Washington, D.C.

Please RSVP to Tara Persico at the Galen Institute at or (703) 299-9205.

The Ownership Society and Health Care
Sponsored by The Heritage Foundation
Wednesday, June 29, 2005, 12:00 noon
385 Russell Senate Office Building
Washington, DC

For additional details and registration information, go to:

Health Policy Matters is a weekly newsletter containing summaries of timely and informative studies and articles on free-market health reform. It features research and writings by participants in the Health Policy Consensus Group, articles of interest from the health policy world, and announcements of coming events. Health Policy Matters is published by the Galen Institute, a not-for-profit public policy organization specializing in information and education on health policy. For more information about the newsletter and our organization, please visit our website at

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