Why Charging Smokers Higher Premiums Doesn’t Pay – Kathleen King

During the recent Congressional debates leading up to the passage of the 2010 Patient Protection and Affordable Care Act, a multitude of strategies were identified to help address two serious and related health care challenges facing the United States. First, how do we improve health outcomes through prevention and wellness initiatives that promote healthy behaviors? Second, how do we reduce or stabilize health care costs? One such strategy identified was to charge people who use tobacco products a higher health insurance premium than people who do not use tobacco. Under the Affordable Care Act, premiums can vary for tobacco users by up to 1.5 to 1. In other words, smokers can be charged up to 50% higher premiums than non-smokers (1). In 2010, the average annual premium for employer-sponsored insurance was $5,049 for an individual plan and $13,770 for a family plan (2). If these rates varied by smoking status, tobacco users could pay an additional $2,525 for a total premium of $7,574 for an individual plan and $6,885 more for family coverage costing $20,655. The rationale behind this policy is two-fold. Smokers incur more direct health care costs than non-smokers so they should pay more into the system. Also, having to pay a higher premium should motivate those who smoke to quit, in order to save money. If smokers quit, they would get the benefit of reduced premiums and improved health, while the system overall would see cost reductions because the ex-smoker is healthier.

The idea of charging tobacco users more for health insurance than their non-smoking counterparts is not new. When the Health Insurance Portability and Accountability Act (HIPAA) was signed into law in 1996, it mandated that all beneficiaries of employer-sponsored health insurance pay the same premium regardless of health status. However in 2008, when HIPAA rules were finalized, an exception was created for certain wellness programs. These exemptions allowed employers to offer a financial reward or penalty for up to 20% of the total cost of covering an employee, to encourage healthy behavior changes (3). Employers implemented “smoker surcharges” with the goal of decreasing and shifting health care costs for the company, especially for self-insured entities, and improving worker productivity via a healthier workforce (4).

However, this misguided policy implemented by the government, insurance companies, and employers is ineffective at best and counterproductive at worst. First, charging tobacco users higher premiums stigmatizes and marginalizes this group, which not only undermines smoking cessation efforts but can increase the likelihood that a person will continue to smoke. Second, by focusing on the idea that smokers choose to engage in unhealthy behaviors ignores all social factors that contribute to an individual beginning to smoke and make it difficult to quit. Lastly, this policy issues an ultimatum to smokers to “quit smoking or pay”. This framing will threaten a smoker’s freedom and will likely lead to psychological reactance, where the smoker becomes more intent on smoking to regain control. Ultimately, charging smokers higher health insurance premiums oversimplifies a very complicated behavior (5). This approach will not motivate smokers to quit and will fail to improve health outcomes and reduce health care costs.

Stigmatizing Smokers

The idea of varying health insurance rates based on “voluntary health behaviors” invokes a merit-based system that implies someone is paying what they “deserve or have earned” to pay. While this may work for automobile insurance and driving records, unhealthy behaviors are much more complex (3). Charging higher premiums for people who smoke stigmatizes this group, marginalizing tobacco users and decreasing their motivation to quit smoking.

Stigma Theory was postulated in 1963 by Erving Goffman in Stigma: Notes on the Management of a Spoiled Identity. He defined stigma as “an attribute that links a person to an undesirable stereotype which leads to that person being cut off from society and from himself” (6). The five main components of stigma are as follows: people identify and label human differences, stereotyping follows by linking the labeled person to an undesirable characteristic, the group doing the labeling separates “us” from “them”, the “them” group is now stigmatized and experiences discrimination and loss of status, and this stigma has occurred due to an exercise of power by the “us” group (7,8). Following this model, charging smokers higher insurance premiums can be found to: label smokers as different, stereotype smokers as risk-takers who are responsible for their poor health, lack willpower, choose not to quit, and contribute to everyone’s increased health care costs, divide non-smokers and smokers into two groups within a workplace, and increase the financial burden placed on smokers with additional premiums, which is forced on them by their employer (9).

Internalizing stigma encourages secrecy and discourages seeking cessation support. One study has shown that 8% of smokers concealed their true smoking status to their health care provider. While this is a low percentage, there was a strong association between concealment and perceived stigma. Those who felt that smoking was less socially acceptable were more likely to conceal their behavior (10). Smokers who do not feel comfortable having an honest discussion with their health care provider about their tobacco use would receive no cessation resources, medications, or support to help quit.

Labeling theorists argue that stigma traps people into deviant roles, which deepens and stabilizes their deviant behavior. People begin to withdraw socially and isolate themselves from non-deviants, meaning smokers would predominantly socialize with other smokers. Decreased social networks increases depression, decreases quality of life, and decreases self-esteem. One study has shown that an increase in social withdrawal increases the number of cigarettes smoked per day (9). After being marginalized, smokers also internalize the negative label put on them and begin to identify themselves as a deviant, increasing their ownership over the unhealthy behavior. This can have a large impact on self-esteem and self-efficacy, or the belief that you can successfully quit if you try. All of these consequences of stigmatizing people who use tobacco increases stress and decreases the likelihood that smokers will be motivated to quit (9).

Ignoring Social Context

Policies to charge smokers higher insurance premiums focus on an individual’s personal responsibility for their health. This argument largely ignores all social factors that contribute to a person starting and continuing to smoke. For most, starting and continuing to smoke is not a rational choice based on analyzing the costs and benefits of the unhealthy behavior. The majority of smokers want to quit, but it is difficult to do so (11). Quitting smoking is determined by many mental, physical, and social determinants. Placing the blame entirely on an individual smoker negates the role of tobacco industry tactics, physical addiction, and social factors such as poverty and education levels.

Prevalence of tobacco use is strongly associated with education level and socioeconomic status. According to the Centers for Disease Control and Prevention, in 2009 the smoking rate of adults with a GED diploma was 49.1 percent compared to adults with an undergraduate degree, whose smoking rate was 11.1 percent. For adults living below the poverty level, the population’s smoking rate was 31.1 percent compared to 19.4 percent of adults living above the poverty level who smoke (12). These disparities cannot be attributed solely to individual choice. People of low socioeconomic status experience multiple health threats, such as poor access to healthy foods, increased violence, and unsafe housing. They are more likely to have other chronic diseases, but have fewer resources for health care or to improve their living conditions. The multiple burdens that face people living in poverty in addition to using tobacco can have an additive affect, each increasing the harm of the other, causing and exacerbating poor health (13).

There is a unique relationship between using tobacco and a smoker’s finances. The inability to afford food and clothing has been found to significantly increase the odds an individual uses tobacco and decreases the odds that they will be able to quit smoking. When faced with a limited budget, many people eliminate non-essential spending, but tobacco tends to be an exception because it is an addiction and a stress reliever. Studies have also shown the reverse, that smoking is a predictor of financial hardship and stress (14). The cyclical relationship between a limited income, stress, and smoking would only be made worse by increasing health insurance premiums. Smokers, particularly low income smokers, would face an additional financial pressure and would turn to smoking to help alleviate the related stress.

Social conditions, including race, income, education, gender, stress, and social support can be fundamental causes of disease. An intervention that focuses on changing unhealthy behaviors will not be effective if it does not also address the fundamental underlying causes of disease (15). If a person smokes because they are under severe stress from financial pressure or an unsafe living environment, implementing a “smoker surcharge” to address their unhealthy behavior will do nothing to alleviate the reasons why a person is smoking. Unless these fundamental causes are the target of a public health intervention, health status will not improve.

Inducing Psychological Reactance

The policy at hand assumes that everyone thinks rationally and that smokers have analyzed their unhealthy behavior and decided the benefits of using tobacco outweigh the costs (8). The employer believes that by offering a financial savings for quitting smoking, this will increase the overall benefits (which now include health and fiscal improvement) and the smoker will quit. However, human behavior is not strictly analytical and includes many emotions that make many of our choices irrational (16). Depending on how an intervention is framed, different emotions could influence and determine an individual’s reaction and subsequent behavior.

Making smokers pay higher insurance premiums compared to non-smokers gives them an ultimatum to “quit smoking or pay a penalty”. The framing of this message would likely elicit psychological reactance from tobacco users. The Theory of Psychological Reactance was put forward by John Brehm in 1966, who argued that psychological reactance is a response to a threat to one’s freedom. If an influencer pressures someone to change a behavior, the responder will try to reassert their freedom by ignoring the influencer and will feel an increased ownership over the behavior that was threatened (17). According to this model, if an employee’s choice to use tobacco is threatened with a financial penalty they will experience reactance and not only will they not be motivated to quit, but will actually feel a stronger ownership over smoking and recommit themselves to continuing the behavior.

Three factors that can determine the level of reactance are the strength or extent of the threat, the current presence or perception of freedom regarding the behavior, and the importance of that freedom to the person (18). Reactance has also been found to be greater if the restriction was directed at an individual as opposed to an impersonal pressure towards change (19). For example, an employer pressuring an employee to quit smoking would elicit much stronger psychological reactance compared to a convenience store that sold out of cigarettes, preventing the person from smoking.

Once reactance has been induced, a smoker will likely increase their “ownership” of this behavior. As ownership increases over time, the object or behavior increases in value (20). As value and attachment grow, people become more “loss averse”. This means losses and disadvantages are viewed as greater than potential gains and advantages. Smokers who have ownership over their behavior and are loss averse would put more weight on the consequences of giving up tobacco use than on any benefits derived from quitting. Even if they do not want to be smoking, they put a high value on “losing” that behavior (21). Penalizing smokers financially to motivate quit attempts is built on the assumption that individuals think rationally. Understanding the concepts of psychological reactance, ownership, and loss aversion highlights that this assumption is incorrect and the intervention will be ineffective.

Rethinking Employer Cessation Policies

Setting higher health insurance premium rates for tobacco users to encourage smoking cessation is a fundamentally flawed public health intervention. At best, this policy will not motivate smokers to quit and at worst, may deter tobacco users away from resources and support to help them quit. Instituting “smoker surcharges” places blame on smokers. Tobacco users who are stigmatized and marginalized by this policy will socially withdraw from non-smokers and internalize the deviant label, increasing the likelihood that they will continue the unhealthy behavior. Focusing solely on personal responsibility for an individual’s health defines smoking entirely as a voluntary behavior and ignores the influence of social determinants on the behavior, including poverty and stress. Lastly, by issuing an authoritative policy demanding that smokers quit or face a financial penalty, the intervention will induce psychological reactance, causing smokers to ignore the employer’s demand and continue smoking to reassert their freedom.

Smoking is a physical addiction and quitting can take multiple attempts to be successful. An effective intervention must support and encourage smokers’ efforts to quit and bring people who use tobacco into the health care system, not create barriers to good health as higher premiums would do. As noted by Steven Pearson and Sarah Lieber, “All employees should have equal access to services for behavior change and improved health” (22). One possible alternative intervention would consist of two parts. First, the employer would implement a “wellness program” open to all employees regardless of tobacco use, featuring a workshops series and social support. The program would embrace a broad understanding of what factors would help smokers quit and help all employees engage in healthier behaviors. Second, all employer-sponsored health insurance policies would cover a comprehensive smoking cessation benefit free of any barriers. The benefit would cover all FDA-approved cessation medications and phone and in-person counseling, with no out-of-pocket- costs (e.g. co-pays and deductibles) for employees and no annual caps or limits.

Support Instead of Stigma

The new wellness program would be inclusive and supportive with the goal of increasing self-esteem and self-efficacy in individuals and fostering social support between employees. Self-efficacy is an individual’s own belief in their effectiveness, competence, and ability to accomplish what they set out to do (23). Wellness workshops could be offered to all employees including topics on leadership, communication skills, project management, and how to set personal goals and identify strategies to achieve those goals. As employees discuss these topics as a group, co-workers could begin to view one person’s goal of quitting tobacco use similar to another person’s goal of achieving a better balance between work and their personal life or akin to their own goal of losing 15 pounds. This interaction between smokers and non-smokers would reduce the marginalization of tobacco users, prevent social withdrawal, and foster an understanding of the challenges that face a smoker who is trying to quit, instead of blaming them for the unhealthy behavior.

Studies have shown that social support is a significant predictor of successfully quitting smoking (24,25). As part of the wellness program, an organization could provide group cessation counseling sessions to those who choose to participate and are looking for that kind of interaction with others trying to quit. As Mermelstein concludes, “Most smokers consider quitting to be a difficult and stressful process. Having confidants to whom one could turn to help reappraise stressful situations as nonthreatening or to provide adequate coping resources aided cessation” (25). Group counseling sessions would also be open to spouses and children of employees who are trying to quit, as this would benefit the health of the entire family unit and increase the support of the employer for the entire well-being of its employees.

Lastly, the company could openly promote all the tools it was offering to help people quit smoking. A voluntary “Ex-Smokers Hall of Fame” in the break room could be created, highlighting employees who successfully quit smoking recently or ten years ago to create a supportive and encouraging environment. A wellness newsletter could frame all health-improvement activities in a positive light. The smoking cessation benefit covered under insurance should be highlighted as much as Weight Watchers and gym membership reimbursement benefits are, to encourage employees and their families to take advantage of the resources available to them.

Looking Beyond Tobacco

Understanding that employees face a variety of challenges in life, the employer must focus on addressing the fundamental social causes underlying unhealthy behaviors. Employers must take concrete steps to reduce barriers and increase an individual’s ability to access the resources and support made available to them. Focusing on the broader relationship between the social context each individual lives in and their health can lead to “a realization that actions taken have a marked and positive impact on one’s health while also radiating good effects on other dimensions of life and on other people” (26). As part of the wellness workshop series, the employer should offer financial and debt reduction counseling, stress management and coping skills, time management, and sessions on work/life balance. Time during the workday should be set aside for these programs to make them available to all employees regardless of their commitments outside of work. The company could also offer programs aimed at the employee’s family, like tutoring for children, in addition to a mentorship program to increase professional development opportunities for employees, improving their potential for a promotion or salary increase.

Insurance coverage should be designed to eliminate all employee cost-sharing for the smoking cessation benefit and all preventive/wellness visits to their health care provider. This will encourage use of the benefit by all tobacco users, regardless of their financial situation, and will also help bring people of low socioeconomic status into the health care system and into their doctor’s office where they can address any other health concerns that they might have. In Massachusetts, offering this type of barrier-free, affordable, and comprehensive cessation benefit to Medicaid subscribers was found to drastically reduce smoking rates within this population, which had previously not seen the reductions in smoking prevalence that the state’s higher income population had experienced (27). In addition, the company could offer a free Nicotine Replacement Therapy (or patch) give-away to employees trying to quit. As argued in Helping Smokers Quit: Understanding the Barriers to Utilization of Smoking Cessation Services, “Making cessation services more affordable and widely available would increase access for the subpopulations with the highest current smoking rates, especially people of lower socioeconomic status, Native Americans, and those with psychiatric illnesses” (28).

Eliminate the Ultimatum

Psychological reactance is likely when there are punishments, like “smoker surcharges”, in place as consequences for not changing a behavior. To avoid psychological reactance, employees should be involved in all aspects of the organization’s wellness program design, implementation, and evaluation. There should be an initial survey taken by all employees where they can identify their health needs, but also their highest life-concerns more broadly and support or resources they need. Programs, insurance benefits, and workshops should be shaped by what employees voiced would be most helpful to them (22). As wellness initiatives are implemented, there should be a feedback and evaluation mechanism to allow the program to adapt over time to fit employees’ needs. One study has shown that a strong sense of control is associated with self-initiated preventive care, an increased effort to avoid the harms of smoking, and overall higher self-ratings on individual health status (29). By including employees in the design of the interventions, they are more likely to feel in control of their efforts to lead a healthier life and may decrease ownership of their identity as someone who uses tobacco.

Higher Premiums Do Not Pay, Find a Better Way

Charging tobacco users higher health insurance premiums will not achieve the intended goals of motivating cessation, improving employee health, nor reducing health care costs. It is a flawed public health intervention that blames smokers, assumes that tobacco use is solely a volitional behavior, and demands personal responsibility of an individual to quit. This policy stigmatizes smokers and marginalizes them from non-smokers, increases stress, decreases social support, and ignores all social factors that led the person to use tobacco. By demanding smokers quit and charging them a penalty, companies are ensuring that current smokers will experience psychological reactance, not be motivated to quit and may even strengthen their ownership of this unhealthy behavior.

John Braithwaite writes, “Long-term internalization of values like altruism and resistance to temptation are inhibited when people view their action as caused by a reward or punishment” (30). Thus, employers who empower employees to achieve healthier lifestyles, instead of penalizing them, may see greater long-term health improvements in their workforce. Any alternative intervention must focus on providing social support, defining the causes of unhealthy behaviors like smoking more broadly and addressing these underlying factors, and reducing barriers to access resources. Providing barrier-free smoking cessation coverage of medications and counseling and offering diverse topics through a wellness workshop series provides employees with multiple pathways to successfully quit smoking and improve their health. These two alternative approaches will avoid the three flaws discussed above that make charging tobacco users an increased health insurance premium an ineffective, and possibly counterproductive, intervention.

References

(1) Office of the Legislative Counsel, U.S. House of Representatives. Compilation of Patient Protection and Affordable Care Act 2010. http://docs.house.gov/energycommerce/ppacacon.pdf.

(2) The Kaiser Family Foundation. Employer Health Benefits 2010 Annual Survey. http://ehbs.kff.org/?page=charts&id=1&sn=6&p=1

(3) Buchanan D. Should People with Unhealthy Lifestyles Pay Higher Health Insurance Premiums? Journal of Primary Prevention 2007; 32:17-21.

(4) MSNBC. Smokers Paying Extra for Health Insurance. Cincinnati, OH: Associated Press. http://www.msnbc.msn.com/id/11394043/ns/health-addictions/.

(5) Blacksher E. Carrots and Sticks to Promote Healthy Behaviors: A Policy Update. The Hastings Center Report 2008; 38:13-16.

(6) Goffman E. Stigma: Notes on the Management of a Spoiled Identity. New York, NY: Simon & Schuster, 1963.

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(11) Hymowitz N, Cummings K, Hyland A, Lynn W, Pechacek R, Hartwell T. Predictors of Smoking Cessation in a Cohort of Adult Smokers Followed for Five Years. Tobacco Control 1997; 6:S57-S62.

(12) Centers for Disease Control and Prevention. Vital Signs: Current Cigarette Smoking Among Adults Aged ≥ 18 Years―United States, 2009. Morbidity and Mortality Weekly Report 2010;59(35):1135–40.

(13) Pampel F, Rogers R. Socioeconomic Status, Smoking, and Health: A Test of Competing Theories of Cumulative Advantage. Journal of Health and Social Behavior 2004; 45:306-321.

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(22) Pearson S, Lieber S. Financial Penalties for the Unhealthy? Ethical Guidelines for Holding Employees Responsible For Their Health. Health Affairs 2009; 28:845-852.

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(25) Mermelstein R, Cohen S, Lichtenstein E, Baer J, Kamarck T. Social Support and Smoking Cessation and Maintenance. Journal of Consulting and Clinical Psychology 1986; 54:447-453.

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What the Accountable Care Act Did Not Account For – Christopher Toretsky

Introduction
Health care expenditures accounted for an estimated 17.3% of the U.S. GDP in 2010; this number will rise to almost 20% by 2019 (1). Additionally, per capita health care expenditures in the U.S. are roughly 2 – 2.5 times higher than all other wealthy nations (2). Seeing how this unsustainable cost was crippling our economy, the government enacted the Affordable Care Act (ACA) on March 23, 2010 (3). The ACA has promised to reduce health care costs by “improving government-wide efforts to fight fraud and waste” (3).
It is worth pointing out that fraud and waste are not mutually exclusive events: fraud is a type of [intentional] waste, but not all waste constitutes fraud. Other forms of waste include administrative, clinical, and high prices of care. And although the ACA frames the majority of waste as fraud, Lewis Morris, chief counsel of the Office of Inspector General (OIG), Department of Health and Human Services (DHHS) explicitly states, “we cannot measure the full extent of health care fraud in Medicare and Medicaid [that accounted for more than half of the $98 billion in “improper payments” in 2009]” (4). Because of the difficulty in identifying and quantifying fraud in health care, the term “waste” will be used when referring to fraud, et al. for the remainder of this paper. This change in semantics will not influence the main issue that will be discussed: health care costs are exceedingly high due to unnecessary “wasteful” spending and the ACA has fallen incredibly short in negating this problem.
Several flaws are imbedded in the ACA in regards to reducing health care waste, but the three most prominent are using the Extended Parallel Process Model to elicit behavioral change without accounting for all factors of the situation, failing to address the U.S. health care’s Tragedy of the Commons structure, and limiting stricter regulations to a small portion of those who are insured (i.e. those people utilizing government-funded programs such as Medicare, Medicaid, and CHIP). After explaining why these flaws exist in the current ACA, three fixes will be proposed: a structural Kaiser-like design to the U.S. health care system, a national anti-waste marketing campaign, and de-linking health care from employment in hopes to obtain universal coverage.

Extended Parallel Process Model
The Extended Parallel Process Model (EPPM) describes how a person evaluates and responds to a message that attacks his/her fear appeal. A fear appeal is a “persuasive message designed to scare people by describing the terrible things that will happen to them if they do not do what the message recommends” (5). This fear appeal message first initiates a threat appraisal within the person. Here, the person assesses the susceptibility and severity of the threat. If these are low, the person will not process the message; conversely, if these are high, a person enacts his/her efficacy appraisal and determines if he/she has the ability to engage in the “safer” behavior and if this “safer” behavior will actually prohibit the threat from occurring. “A high level of efficacy coupled with a high level of threat is predicted to lead to self-protective action.” Furthermore, “for a fear appeal to be successful it must instill susceptibility and severity in the receiver, as well as self-efficacy and response efficacy regarding the proposed behavior change” (6).
This paradigm is unsuccessfully used in the ACA as government officials aim to prevent health care waste. Regulations such as “increas[ing] the Federal sentencing guidelines for health care fraud offenses by 20-50% for crimes that involve more than $1,00,000 in losses” and “impos[ing] stronger civil and monetary penalties on those found to have committed fraud” which “may exclude providers and suppliers for providing false information on an application to enroll or participate in a Federal health care program” are now in place (7). Lastly, “The Affordable Care Act provides an additional $350 million to ramp up anti-fraud efforts, including placing more “feet on the street” by allowing for the hiring of more law enforcement agents and others to fight fraud in the health care system” (3).
Clearly these new laws are playing into health care members’ fear appeals as they threaten these people with stronger monetary fines and indicate that more officials will be policing the health care streets in hopes to detect waste. Studies have shown that stronger fear appeals generate higher levels of perceived susceptibility and severity, which yield greater results than weaker fear appeals, but also “strong fear appeals with low-efficacy messages produce the greatest level of defensive responses” (8). Since no message is given as to how the ACA plans to account for other variables that contribute to health care waste – namely environmental and social factors – physicians and other health personnel have little incentive to cease fraudulent behavior.
Iglehart states, “The Government Accountability Office (GAO) has designated Medicare as a high-risk federal program because its vast size and complexity make it vulnerable to fraud, waste, and abuse” (4). What makes the system so complex is the myriad of billing codes used and the difficulty in administering said codes and procedures. This results in upcoding by the physicians and providing unnecessary care. Since the structure of this multifarious environment remains intact, the ease to which physicians can game the system is not mitigated. Therefore, although the perceived severity of being caught is high, physicians’ perceived susceptibility remains the same and will not deter them from continuing their current behavior. As the status quo ensues, those physicians who were initially reluctant to game the “new” system will notice the simplicity in which their peers are able to do so and will follow suit, perpetuating the endless waste cycle.

Tragedy of the Commons
As people involved in health care continue to game the system and act in a self-serving manner, they inevitably will slowly strip away all of the resources available. This economic concept is known as Tragedy of the Commons and was first discussed by Garrett Hardin (9). Hardin uses the example of a shared open pasture where herdsmen keep as many cattle as possible. For each additional animal a herdsman adds, two processes simultaneously occur: he receives the profit from selling that animal (a positive shared only by him) as well as overgrazing from that animal (a negative shared by all). The herdsman realizes that it is in his best interest to add the animal since he reaps all of the benefits at only a fraction of the costs. Ultimately, this leads to the deterioration of the land / common good. Analogously, America’s health care system is an open pasture where physicians, payers, and patients all overgraze.
Firstly, in the current fee-for-service model, physicians have an incentive to perform more services since each additional service brings in an additional payment (10). Problems arise because this method of payment not only provides financial incentives for a higher quantity of services, but lower quality services receive the same incentives (11). Even more alarming is the fact that a fee-for-service model leads to more (unnecessary) hospitalizations than other payment methods (12). This is because primary care services are not reimbursed at a level comparable to specialty services; therefore, it is in the physician’s self-interest to perform more costly procedures in a hospital setting (13).
Secondly, under the current health care system, payers strip away the system through arbitrarily set annual premiums. As paranoia about the newly proposed health care reform bill swept the nation, insurers estimated the cost impact the bill would have on their clients. “Regence BlueCross BlueShield of Oregon said the cost of providing additional benefits under the health law will account on average for 3.4 percentage points” while “In Wisconsin and North Carolina, Celtic Insurance Co. says half of the 18% increase it is seeking comes from complying with health-law mandates” (14). Regions should experience various rate increases as cost of care fluctuates differently between states; however, at an almost threefold percent discrepancy in calculated costs, action needs to be taken in order to streamline this process and remove the ambiguous rate setting. The health care sector has a finite amount of money, but payers turn a blind eye and collect “unjustified rate increases” (14) leading to more waste in the system.
Lastly, patients make up the remaining herdsmen in the health care common land. Remarkably, they do so just by the fact that they have insurance. “Moral hazard is the term economists use to describe the fact that insurance can change the behavior of the person being insured” (15) and its role in health care has been discussed ad nauseam by Mark Pauly (16-18). The tendency of people to use their insurance solely because they have it arose because “none of the three main requirements for insurance are satisfied in health care: low likelihood of a bad event, high cost of the bad event if it occurs, and unpredictability of the bad event” (19). This coupled with the fact that “the current U.S. system is not structured to provide incentives for less expensive preventive care and healthier lifestyle choices” (20) leads to the patients’ overutilization of x-rays, labs, scans, and other expensive medical procedures.
The tragedy of the commons principle is an extensive issue in the health care sector as all players (physicians, payers, and patients) have self-fulfilling incentives to pare down the shared resources. Given the severity of this issue, it’s perplexing that decision makers’ best approach to curb wasteful spending is through Accountable Care Organizations (ACOs). ACOs have promised to “provide good quality care to Medicare beneficiaries while keeping costs down” (21). However, there is little explanation as to how this is going to be done, though two details are apparent: “ACOs [won’t] do away with fee for service” and “patients [will] still be free to see doctors of their choice outside the network without paying more” (21) – so the tragedy of the commons effect will continue.

Monitoring Waste for a Few
As discussed above in the EPPM portion of this paper, the ACA has new regulations/provisions to stop waste and save health care dollars. These laws hope to discourage physicians for fraudulent behavior in government-sponsored programs – namely Medicare, Medicaid, and CHIP. But this only accounts for 30.6% of the people covered by health insurance! What about the 63.9% who have private insurance (employment-based or otherwise)? (22).
According to the ACA summary sheet released by the government, the final paragraph is reserved for private insurance coverage. It states:
The new law also provides enhanced tools and authorities to address abuses of multiple employer welfare arrangements and protect employers and employees from insurance scams. It also gives new powers to the Secretary and Inspector General to investigate and audit the health insurance Exchanges. This, plus the new rules to ensure accountability in the insurance industry, will protect consumers and increase the affordability of health care (7).
Without so much as giving one detail as to how waste will be reduced in private insurance, ambiguous phrases such as “enhanced tools,” “new powers,” and “new rules” are used.
In March 2011, the North Carolina Institute of Medicine put together a robust summary of the ACA (23). Although the document contains a few portions that only concern the state of North Carolina (and where they are with implementing all of the ACA provisions), the following excerpts affect the entire country:
Most of these cost savings will accrue to the federal government (Medicare) or to the state and federal government (Medicaid and CHIP). However, the ACA also included other provisions that have the potential of reducing cost escalation in the private market (p. 13, emphasis added).

The CBO estimates that these provisions would save $11.6 billion over 10 years to the federal government, but these provisions could also provide savings to private plans (p. 85, emphasis added).

The ACA includes funding to support more aggressive efforts to eliminate fraud and abuse and to recover overpayments in Medicare, Medicaid, and CHIP (p. 81).
Many of the efforts to reduce fraud and abuse may also be adopted by private insurers (pp. 85-86, emphasis added).

This illustrates that the lack of verbiage found in the government summary as it pertains to eliminating wasteful spending for private insurance wasn’t a mere oversight. Rather, the ACA as a whole almost completely disregarded this sector of health care – one in which roughly two-thirds of those insured reside. By omitting stronger waste-stopping policies for the vast majority of covered people, too much superfluous waste will still be embedded in the health care system.

Using an EPPM After Implementing a Kaiser System
It has been argued that a twofold reason exists as to why using an EPPM to prevent waste in the ACA will fail: both environmental factors (ease of gaming the system) and social factors (witnessing peers easily game the system) will not increase one’s perceived susceptibility of getting caught frivolously spending. Not until the health care system can correct these problems can an EPPM ever work to elicit behavioral change. However, restructuring the current paradigm into a Kaiser Health Plan (Kaiser) model would begin this procedural fix.
Kaiser is a large, vertically integrated, HMO that performs the function of a health insurer, owns and administers its own hospitals, and provides medical services to Kaiser members. Kaiser differs from traditional models by paying physicians a salary and hospitals a global budget (10). A global budget is a fixed payment made to the hospital for all services for one year and puts the hospital “entirely at risk because no matter how many patients are admitted and how many expensive services are performed, the hospital must figure out how to stay within its fixed budget” (10).
Forcing all medical groups and hospitals to adopt this payment method would allow them to easily monitor their flow of money and see how it’s being allocated on a daily basis. Not only could they be more conscious about their finances, but they would need to be in order to generate a profit. Once this system is in place, physicians would be more reluctant to commit any wasteful practices knowing that the company is tracking the budget dollar for dollar and thus the physician would be caught. There would only be one fee per procedure and the hospital would have fewer physicians to monitor (only those a part of their “business”) so perceived susceptibility would go up. Furthermore, physicians would no longer have the mindset to game the system through wrongful (more expensive) billing since they would be given an annual salary (as opposed to the common fee-for-service payment method). Being paid the same amount regardless of how many procedures they administer would negate their incentive to provide more care; their principles and Type-A personalities would keep them from under-serving patients. For those physicians still contemplating gaming the system, their peers would keep them from doing so knowing that wasting money results in lower salaries, bonuses, and benefits.
Studies have shown that the Kaiser model is more cost-effective than other delivery systems (24-25), best in clinical quality (26), and tends to focus more on care management (27). Thus evidence exists as to why this paradigm shift should be made. However, how to make the transition will be difficult. Reluctance will arise by physicians as they might feel slighted in not being able to collect a fee for each procedure, hospitals won’t like this new model because it forces them to be more efficient in their health care delivery, and some patients will pushback since they are familiar with getting procedures where they want and when they want them in an open-network system. Given all this, the only feasible mechanism to enact this proposed intervention is through government assistance.
Both parties should be willing to adopt this change. Conservatives could view this as a market-based approach in which every hospital becomes their own business. Competing on efficiency, quality, and low cost in order to recruit patients, each hospital must now strategize how best to deliver health care. Ultimately, a market-clearing equilibrium will be established for each procedure and hospitals will need to compete in order to stay in business. Liberals, on the other hand, will see this model as a fair way to compensate physicians, have better quality care for those insured, and squeeze out waste found in the current system. Or, at least, this system would allow them to successfully use an EPPM in the next version of their ACA, as both perceived susceptibility and perceived severity would increase to those in health care.

Waste is Not a Victimless Crime: A National Anti-Waste Campaign
“Did you know that your physician is providing you with unnecessary services, which infringe on your physical liberties and are both damaging to your health and wallet?” So begins the basis of a new national anti-waste campaign. The most effective advertisement/marketing strategy focuses on emotional appeal with freedom, civil liberties, and individual rights as the most salient three (28). Prefacing the campaign in this manner will immediately grab the population’s attention because they will know they have lost control of part of their personal lives; a loss resulting in subsidizing their physician’s monetary greed.
Furthermore, one of the elements involved in building a great campaign is to “give the facts” (29). Fact: “nearly 5 percent of GDP—or roughly $700 billion each year—goes to health care spending that cannot be shown to improve health outcomes” (30). Not only will people now know that health care is expensive: they pay $700 billion either directly (through out-of-pocket payments) or indirectly (through lower take home salary), but that this only accounts for the portion that doesn’t make them healthier! The number also omits financial losses due to missing work – driving to the doctor’s office or hospital, waiting in the lobby, having the procedure, and recovering/rehabilitating. Irate at best, patients would demand that their dollars and liberties be returned to them, the latter because “people care as much about being treated fairly as they do about the actual value of what they are paying for” (31).
Positing Agenda-Setting Theory to be true, the “anti-waste” message must be emphasized in a mass-media outlet before changes can be made (32). Even Kathleen Sebelius, Secretary of the Department of Health and Human Services, alludes to this concept when she says, “You’ve [Families USA] been doing this a long time, even when health care was out of the headlines” (33). Seeing how health care is already a significant topic in the news and that the U.S. becomes infatuated with any sort of scandalous behavior (see Enron and Goldman Sachs), the message about physicians spending 5% of GDP on harmful [if not physically, then emotionally and monetarily] procedures will instantaneously become viral. Not only do these actions violate personal freedom, but ceasing this activity would recapture $700 billion, money a recession-laden economy desperately needs.
Political pressures aside, why then would physicians change their behavior once the anti-waste campaign hit the media? Well, once America stresses that the current standard needs to terminate, that Americans are not interested in being part of a society where physicians provide them with nonessential care in order to take home higher paychecks, then new social norms in America emanate. Social norms are defined as “customary codes of behavior in a group or culture, together with the beliefs about what those codes mean. [Social norms are] both a guide for how to behave (or not behave), and an affirmation of the meaning behind it…they are generally adhered to standards among a group about what should be ‘normal’” (34).
After the new norm is in place and physicians’ behaviors change, Cognitive Dissonance Theory posits that the physicians’ attitudes will change to match and justify their behaviors (6). In doing so, not only will physicians stop giving wasted services, but they will also start to understand why overutilization is harmful to both the patient and health care sector. With the first puzzle piece in place, the second and third pieces will lock almost simultaneously: patients won’t demand certain x-rays/scans because the campaign emphasized this care won’t better their health (and physicians won’t administer the tests anyways) and payers won’t need to set arbitrarily high premiums to recoup the costs of these expensive procedures. The tragedy of the commons puzzle will be solved.

De-linking Insurance from Employment
Focusing waste prevention measures on government-funded insurance underlies the biggest problem with the ACA. It has the potential to curb government spending, but in no way will this help with wasteful medical practices as a whole. In fact, the problem of high cost of care could become exacerbated if physicians decide to forego seeing Medicare and Medicaid patients and only treat those with employment-funded insurance seeing how easily they can continue to game the system due to the ACA’s lack of emphasis. Fixing this flaw in the system will require de-linking medical coverage from employment and covering everyone under a central system.
Myriads of plans, and thus codes and fees, are interwoven in the U.S. health care system resulting in the largest percentage of national health expenditures spent on administration compared to other wealthy nations (35). Not only do insurance companies waste money tracking these plans, but also employers have to spend money on internal administration and benefits consultants to help monitor their own plan(s). Furthermore, “the link of private insurance with employment inevitably produces interruptions in coverage because of the unstable nature of employment” (10). This disruption causes people to enroll in COBRA coverage (37). Even more plans, more administration, and more waste are thus created through employer-linked medical insurance to provide coverage for those unemployed.
The system’s complexity has become such an issue that when compared to a single payer country such as Canada, the U.S. spends roughly $752 per capita more just on health care administration (36), or more than $280 billion in total (35). De-linking coverage from employment and having one overseer (the government) would substantially mitigate these costs.
A government run health care system does not mean the U.S. would be forced to adopt one plan for the entire country. In fact, the thought of this concept is preposterous. What it does entail is the government working with other health care personnel (e.g. physicians and hospital executives) to create one fee schedule for all procedures. The government would also be the administrator of all monetary transactions found in the newly created plans, in the newly created environment (see proposed Kaiser model above). Distributing money through the one governmental channel as opposed to the millions of channels in today’s labyrinth will vastly simplify payment and administration, resulting in less health care waste.
Lastly, having health care distributed under one umbrella would enable the government to more easily enforce new legislation going forward. Being responsible for all of the money, plans, and system, would allow them to devise streamlined strategies in preventing wasteful practices; strategies which not only could be quickly implemented, but efficiently enforced. They would no longer need to create and monitor piecemealed provisions accounting for the various modes of health care delivery. The government needs to mandate de-linked employment insurance and adopt the role as “Big Payer” if it really wishes to crackdown on wasteful practices inherent in the current system.

Conclusion
Failing to be safe, effective, and efficient (38), the U.S. health care system experiences many flavors of waste: administrative, overutilization, and fraudulent activity to name a few. To combat these and other types of wastes embedded in the paradigm, the government enacted the ACA. However, the ACA did not account for the system’s environmental and social factors before using an EPPM approach to elicit behavioral change, did not offer up a structural modification to address the tragedy of the commons problem, and failed to implement more severe penalties for those involved in employment-based health care coverage. Given all of this, it should come as no surprise if wasteful practices persist and health care costs continue to spiral out of control.
Rather than mere overlays that mask the same botched health care system, the government must mandate structural changes to fix the problem. A Kaiser-like delivery will force companies to be more efficient internally if they hope to generate a profit. This system will be more cost-effective and ultimately deliver higher quality of care. An anti-waste campaign issued by the government and media will address the “overgrazing” perpetuated by physicians, payers, and patients. As argued above, a successful campaign will lead to new social norms in the U.S. that will lead to different waste-curbing practices. Finally, de-linking coverage from employment and having the government oversee the financing and delivery of care will reduce administrative wastes and can streamline all future health care strategies. There is no silver-bullet approach to fix the problem of health care waste; in fact, the aforementioned proposal in total is greater than the sum of its parts. In the vast sea of policy recommendations, the U.S. continues to throw away money at under-studied solutions to the health care waste problem. Stopping these “we tried” philosophies and incorporating evidenced-based, structural modifications must be done now before it’s far too late.


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