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From Lewis and Clark to Our Front Door: The Long Shadow of Rationing

12/04/18

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Tom Robertson, Executive Director, Vizient Research Institute

The sight of a frustrated motorist, struggling at the side of a dusty road to remove a tire whose inner tube had been patched once too often, was anything but unusual in the summer of 1943. Military occupation of Malaya and the East Indies in early 1942 had eliminated more than 90 percent of America’s rubber supply. Scrap drives for everything from raincoats to tin cans became increasingly common as the country dealt with the challenges of scarcity.

When we hear the word “rationing,” our thoughts instinctively go to times of war, when resources needed by the military are diverted from general consumption, but the practice of spreading scarce resources out purposefully is not limited to times of conflict. Stephen Ambrose, the noted history writer, described the discipline employed by Lewis and Clark to ensure that their limited provisions would last until the expedition reached its next opportunity to resupply: “The regular ration was hominy and lard on one day, salt pork and flour the next, and cornmeal and pork the following day … from the third day of the expedition on, Lewis was conserving rations.”

An interesting lens through which to view rationing is to consider it not as the arbitrary and involuntary imposition of limits, but instead as the continuous and even self-imposed process of allocating scarce resources. Common synonyms for the verb “ration” are conserve, allocate and budget. In that context, we engage in rationing in virtually every consumption decision that we make. The cars we choose, the vacations we take, the clothes we wear, and the groceries we buy are all part of an interconnected allocation of limited resources.

Bill Gates can make purchasing decisions that are entirely independent from one another – the rest of us face budgetary trade-offs and must make choices. A young mom puts one container back on the shelf and substitutes a more affordable alternative to stay within her budget. The allocation of scarce resources is anything but unusual; it is the foundation of economic theory. In times of acute stress or when circumstances portend a genuine shortage, the allocation process rises to what we commonly call rationing, and in the extreme, externally generated limits may be imposed. But consumers face tough choices every day, and those synonyms for rationing – conservation, allocation and budgeting – are part of normal life.

The introduction of high-deductible health plans was predicated on the assumption that patients would compare prices and choose lower-cost alternatives, much as they do when buying refrigerators or automobiles. Classic economic theory and common intuition led insurers and employers to assume that higher deductibles would lead to price shopping by consumers. Emerging evidence suggests that those assumptions were wrong.

Our most recent study, to be released in January, identifies two types of health care consumers, each engaged in making tough choices involving the allocation of scarce resources. The healthy majority seeks a balance between the costs of daily living and the rising premiums associated with their health insurance. Working families commonly trade higher deductibles and out-of-pocket exposure for lower premiums in an effort to make ends meet. The small subset of the population with chronic or complex illness, who account for the majority of health care spending, carefully monitor their progress toward meeting their deductible and eventually their out-of-pocket limit, after which prices no longer matter. Until then, patients do not shop for lower prices, they stop altogether.

Health care is not immune from tough trade-off decisions by consumers – but the behaviors triggered by high insurance deductibles are not what payers and policymakers expected. Healthy individuals opt for lower benefits in exchange for lower premiums, then avoid the system as long as possible. Once forced to engage, however, they quickly realize that unit prices are too high to matter. Any significant episode of care will put them over their deductible and well on their way to reaching their out-of-pocket limit. The chronically ill, who have considerable experience with the system, are acutely aware that unit prices are all but irrelevant to them. They meet their deductibles regularly and more often than not exhaust their out-of-pocket responsibility.

The unintended consequence of high deductibles is the avoidance of not only unnecessary services but also preventive care and early detection. Examples of patients unable to afford prescription drugs or insulin, or postponing necessary services due to budgetary constraints, are all too common. By its nature, insurance with front-end deductibles causes patients to engage in rationing. Healthy beneficiaries ration income between insurance premiums and other necessities. The chronically ill back-load utilization, waiting for deductibles or out-of-pocket limits to be met. In the process, virtually everyone engages in sub-optimizing behavior. Unlike 1943, when shortages of rubber or steel were the basis for rationing, the trigger for health care is scarcity of income, and scrap drives will not close the gap.

About the author and the Vizient Research Institute™. As executive director of the Vizient Research Institute, Tom Robertson and his team have conducted strategic research on clinical enterprise challenges for 20 years. The groundbreaking work at the Vizient Research Institute drives exceptional member value using a systematic, integrated approach. The investigations quickly uncover practical, tested results that lead to measurable improvement in clinical and economic performance.

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