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Consumer Driven HealthCareJoyce Ohlgren The ongoing healthcare dilemma in the US might for once be heading for a cure. At minimum it looks as if we may be able to provide some viable solutions to rein in an endlessly demanding monster. HMO’s in the 90’s served to put downward pressure on the ever-increasing costs associated with health coverage. But ice on a wound can only reduce so much of the swelling. Our best efforts have failed us and in many ways contributed to the creation of our “malfunctioning medical machinery”. In the 1950’s the total cost of medical care accounted for approximately 4.5% of our Gross Domestic Product. Today those costs represent over 14% of our GDP, having grown form $12 billion to more than $1 trillion dollars (Lundberg 5). As of 2000, annual corporate contributions exceed $400 billion in premiums alone. And the monster is still not satiated. According to Towers Perrin’s Health Care Cost Survey, 2003 will represent double-digit cost increases for large companies – approaching 15% (Caplan, Health-Benefits). We outstrip any developed country (as a percentage of our GDP) in the world and lack any discernable defense to these costs. We’re all fed up. Harvard Professor Regina Herzlinger likens health care to a lose-lose proposition for businesses and employees alike. The former pay too much for too little and the latter question the quality and depth of care they receive despite ever increasing out-of-pocket expenditures (Consumers). However, out-of-pocket expenditures, it turns out, may be where the cure rests. Raymond J. Keating, chief economist for the Small Business Survival Committee, argues that the problem stems from the fact that Americans are essentially over-insured to a large extent because 3rd party payers shield consumers from the real cost of doing business. Pick almost any year in the 1990’s and an audit will reveal that most Americans spent more of their own money on entertainment and apparel than they did on healthcare. How many of us don’t think twice about a $300-400 dollar car payment yet gripe when we have to pay a $15 co-pay to have that “discomfort” checked out. Sure, it just may be a case of indigestion but it could also be something more serious like colon-cancer. Put in that light $15 is perhaps a steal. Up until recently, out of pocket expenses
have actually been steadily declining since the 1950’s.
According to data from the Health Care Financing Administration
and the U.S. Census Bureau, out-of-pocket expenditures have
fallen from 56% in 1950 to 17% in 1998. This mirrors an opposite
trend according to the same source, which has seen government’s
third-party payer role grow from 14% in 1929 to 46% by 1998
(Keating). We ultimately have been forced to ask who the consumer really is. Is it the corporation buying the plan from Blue Cross/Blue Shield or the patient demanding the newest and often-times costliest anti-biotic? Last semester I overheard a rather eye-opening discussion between professor and student while working on an interdependent market analysis for a marketing class I had enrolled in. The student was an employee of Medtronic and couldn’t seem to come to an agreement over who was the true “customer” of her company’s line of pacemakers and defibrillators. Her flowchart stopped at the interventional cardiologist yet the professor insisted that one more arrow was needed – one leading directly to the patient. To the outsider this seems rather obvious yet to her (and I) the assignment, which involves all aspects of marketing – competitive information, pricing, demand etc., presented many obstacles when she could not focus on the physician as the “end-user”. In her mind she understood that the most intense marketing efforts were aimed at the physician who decided which brand and model pacemaker “Mrs. Johnson” would receive. Uncontrolled Atrial Fibrillation, for example, married with a number of other clinical manifestations that present themselves is simply too complex a matter for the average “consumer” to understand. In sharing this story with Charlynn Robertson, VP of Vivius, she correctly pointed out that the patient is ultimately a customer of the physician. I agree. It is precisely this relationship that has to be restored to its appropriate place - one that can if we re-think 3rd party involvement. Former JAMA Editor, Dr. George Lundberg argues that insurance has grown beyond its usefulness when it attempts to cover care beyond catastrophic coverage or even perhaps established preventive services. “In a world without coverage for routine care, practitioners would compete for patients on the basis of their expertise as well as on the quality of their services. Costs of care would moderate and satisfaction with care would increase” (125). We have been forced to acknowledge that yes indeed, side-airbags are certainly utilitarian, but it’s still essential that we all buckle up and drive safely. The equivalent of this is showing up in the health-care arena in a movement entitled Consumer Driven Healthcare. By shifting the burden of cost, choice and decision making directly into the hands of employees, competition can take its rightful hold of the market and encourage providers to compete on the basis of quality, convenience and price. “The consumer-controlled approach essentially relies on the fact that the public can control health care costs better than a government or managed care organization because the public will shop for health care more carefully and effectively than any surrogate acting on their behalf” (Herzlinger 260). This has led to a trend in the marketplace to replace “defined benefits” with “defined contributions”. Instead of paying for a specified benefit, the employer advances a fixed amount of money to the employee, a.k.a. “the consumer” in this instance, to cover benefits that they have in part or whole selected. An early example of this, prevalent in the 90’s, involved the use of cafeteria plans. A flexible spending account would allow employees to contribute pre-tax earnings into an account which could be used to cover health care costs not currently covered by traditional insurance plans such as lasik surgery or certain types of dental work. The drawback was that if one did not use all of the predicted out-of-pocket expenditures for a given year, they lost that money. Today defined contributions have gotten much savvier. In 1996, as part of the Health Insurance Portability and Accountability Act, tax-free Medical Savings Accounts were introduced on a trial basis to ease the high insurance premiums many small business owners and self-employed individuals had to contend with. An MSA ensures such individuals that high deductibles associated with catastrophic coverage won’t leave them out in the cold when facing higher than average years of primary care utilization. If you are too young for Medicare, self-employed, uninsured or work for a business that employs 50 or fewer workers and have no other health insurance, you can open a tax-exempt MSA. Either the employer or employee can contribute funds towards an MSA but not both at the same time. Routine medical costs are then paid for out of this account. If costs exceed the “deposit”, employee’s only have to meet any remaining deductible before their insurance policy kicks in to cover remaining costs. The beauty of MSA’s however lies in the fact that any unused funds roll-over. The advantages are tremendous. Raymond Keating argues that MSA’s solve the 3rd party payer issue. “With MSA’s, the traditional buyer-seller relationship in the marketplace is reestablished. Unlike when some third party pays, consumers and health care providers become concerned about costs with MSA’s. In addition, since the funds deposited in the MSA are the property of the individual, demand for services is not artificially juiced up. Make no mistake, when consumers get to keep what they do not spend, they are simply more inclined to check prices and bills, and work to keep costs down.” In addition MSA’s place no restrictions on coverage, choice of providers or facilities. The down-side to this seemingly popular trend is that the trial date is set to end at the stroke of midnight 2004. Cinderella, however, has nothing to worry about in that her chariot has arrived in the form of Health Reimbursement Accounts. HRA’s are funded solely by the employer and combine the best features of an MSA and a flexible spending account. These tax-free accounts are not limited to the small business owner or the self-employed. Funds, ranging from $1000 for an individual and $1500 for a family, can be utilized to pay out-of-pocket expenses or even to purchase health insurance if the employer wants to give the employee complete control and autonomy over their healthcare. This is an attractive feature to a healthy “40 something year-old” employee that would like to purchase long-term care coverage instead of a policy that focuses on heavy primary care utilization. Like the MSA, any unused funds roll-over and can be used to cover non-traditional expenditures such as physical therapy or alternative medicine. Employers can pick up the interest earned on these accounts and although they lack portability if an employee takes employment elsewhere, accumulated funds can be used to cover COBRA payments. HRA’s commonly accompany a traditional HMO or PPO plan which kicks in after an HRA account has been drained and the deductible has been met. This serves as an incentive to avoid over utilization and to shop around for the cheapest service and prescriptions. Most recently, a provision of the Medicare bill which passed the week of November 23rd has ultimately expanded the choices available under the umbrella of defined contributions. Health Savings Account’s lack some of the restrictions of MSA’s and will more than likely dominate the market for individuals that purchase their own health insurance such as the self-employed or small business owner. Similar to an IRA, HSA’s are a form of tax-sheltered savings accounts dedicated to out-of-pocket healthcare expenditures. It does require the purchase of a high deductible health insurance policy but will honor a plan in favor of lower deductibles that former MSA’s didn’t allow. 100% of the deductible amount can be deposited into an HSA which is fully deductible from your gross income on your federal taxes without the need to itemize. HSA’s allow for carry-over and are completely portable. In addition to the tax-deductible deposits, withdrawals are also tax-free if used for medical outlays. After the age of 65, one can treat their HSA like an IRA and withdraw from their account without penalty for any purpose. This is a real attractive feature when one thinks of the tax-deferred interest one can accumulate over 20 years. Traditional Insurance policies and HMO’s will certainly remain in existence. One common complaint about defined contribution plans is that they may force even higher premiums as healthier employees opt for the HRA’s and HSA’s, leaving them with an adverse-risk pool, comprised of individuals with costlier and chronic diseases. Regina Herzlinger disagrees. The problem has been that companies have been paying the same premiums for all employees, regardless of their health status. Premiums ultimately must be adjusted for individual risk. In other words, employers will find that by setting aside the same amount of money for health coverage annually, they will pay more for “sicker” employees and less for healthier. This will hopefully encourage better and more cost efficient care of those suffering from chronic illnesses as employers, employees and providers will be forced to innovate. “The risk adjustment of insurance prices and provider payments will actually encourage the treatment of the chronically ill – and spur the development of innovative, coordinated approaches to their care. It is precisely by undermining the homogenized pricing of the present insurance system that the sick will, finally, receive the excellent, focused care they deserve” (Consumers). Vivius, Inc. based out of Minneapolis is an example of how large employers could utilize traditional insurance providers to better meet the individual needs of their employees. Unlike Healthcare Reimbursement Plans – think of a self-insured business like 3M which pays a 3rd party administrator to handle all their medical claims – Vivius creates networks by offering participants numerous choices. Perhaps I’m a single parent with an asthmatic child and prefer to list a pediatric allergist as my child’s “primary care practitioner”. Vivius’ software would allow me that option. I could select co-pays per visit that would differ from the co-pays I designate for myself. I can also pick facilities I prefer for ER visits and/or routine surgery. The beauty of Vivius’ plan is that I as a consumer know what my employer is contributing towards my healthcare each month and based upon my choices I determine how much money I want to contribute monthly as well. If I have decided to cap it at $200 and my choices exceed this budget – Vivius’ software will allow me to go back and make adjustments to lower my individual premiums – I could decide to pay higher out-of-pocket co-pays for ER visits, or I could find a less expensive provider for myself. Such choice should create more competition than the traditional plans/HMO’s have generated. Even the more traditional 3rd party administrators and providers are responding wisely to employer complaints. Destiny Health, an international insurance company, offers its customers an aggressive health-promotion program. In addition to providing comprehensive health insurance and a modified HRA (both employer and employee’s can contribute on a post-tax basis) Destiny tips the scale with an incentive based wellness program. Employees can earn points towards premium reductions, fitness club privileges and more by participating in weight loss programs and smoking cessation classes. Disease Prevention initiatives have all too routinely been ignored by the traditional insurance companies. The ROI is simply too far out for most of them. The benefits of getting someone in their early 20’s to quit smoking won’t be felt until their in their 40’s or 50’s and with annual turnover approaching 20 – 25% most insurance providers and HMOs have preferred to spend their money elsewhere. Wellness Programs pay off though. Dick Cotrell, a Human Resource Expert and Professor at St. Thomas University, has worked with companies whose bottom line has ultimately benefited by 6 figures after implementing wellness programs. Employers are looking hard at the numbers. Upwards of 80% of health-care costs are born from only 20% of the employees. A recent study conducted by Hewitt Associates points to a growing trend. Disease management programs were offered by three out of four employers. Whether a series of brown bag lunch seminars offered by a specialty vendor or a more intense program targeting high blood pressure/cholesterol offered through a fully insured plan, more HMO’s and traditional policy holders are destined to follow on Destiny’s heal (Caplan, Disease Management). Another attractive alternative, born in Minnesota as well, comes in the form of MinuteClinic. Formerly known as QuikMedx, the idea is that a lot of people are fed up with the cost and inconvenience of seeing their primary care provider to treat a possible strep infection. For $38 I can stop by one of their convenient locations in the metro area with no appointment and see a qualified Nurse Practitioner or Physician Assistant usually within 15 minutes. They offer cholesterol and glucose screenings. Vaccinations for tetanus, Hepatitis B, MMR and the flu are available as well. Stores are open 7 days a week and are conveniently located in major retailers that house pharmacies such as Cub Foods and Target. Today employees will soon find it commonplace to choose from a variety of healthcare options as large businesses will offer a more traditional HMO alongside some form of defined contribution plan coupled with catastrophic coverage. Regina Herzlinger offers 6 guidelines to employers who are seeking ways to shift to a more consumer-driven health care coverage:
Medtronic has incorporated some, if not all, of the features mentioned above with the assistance of Definity. In addition to realizing savings of $1000 per employee per year, Medtronic employees love the flexibility their personal care accounts afford them. Accompanied by a high deductible insurance plan, PSA’s can be used to cover traditional and non-traditional medical expenses. Left-over funds roll-over and excesses are capped by the traditional insurance that kicks in once the deductible is met (Consumers). It clearly motivates employees to take more responsibility as far as their health care needs are concerned. That’s what Consumer Driven Healthcare is all about. Regina Herzlinger believes that… “Individuals are highly motivated to educate themselves about their health, their insurance, and their care and to shop responsibly, seeking the most value for their money. Promoting that economic dynamic – the dynamic of consumer markets everywhere – is the best way to enhance the health care industry’s productivity and quality. It’s time to put our trust in the good sense of the American people” (Consumers). Bibliography http://www.americanhealthvalue.com - 17 December 2003. “The Archer Medical Savings Account.” Merrill Lynch – Research & Commentary, August 2003. http://askmerrill.ml.com - 4 December 2003. Caplan, Jennifer. “Disease Management: Prfevent Defense.” CFO.com 1 November 2002 - http://www.cfo.com Caplan, Jennifer. “HRAs: The Next Wave?” CFO.com 1 November 2002 - http://www.cfo.com Caplan, Jennifer. “Cost-Sharing and Tiered-Pricing: Shift or Shaft?” CFO.com, 1 November 2002 - http://www.cfo.com Caplan, Jennifer. “Health-Benefit Costs: Up Up and Away.” 1 November 2002, http://www.cfo.com http://www.definedcontributionhealthplans.com - 12 December 2003. Herzlinger, Regina. Market Driven Health Care. Reading:Perseus Books, 1997. Herzlinger, Regina. “Let’s Put Consumers in Charge of Health Care.”, HBR OnPoint July 2002, product number 1415. “HRA Helper.” http://www.benefits.net/hra/who.htm - 12 December 2003. Katz, David M. “Defined-Contribution
Plans: the Next Big Thing after Managed Care?” Keating, Raymond J. “Medical Savings
Accounts: The Necessary Centerpiece of Health Lankarge, Vicki. “The basics of defined contribution health insurance.” - http://www.insure.com/health/ - 18 June 2001. Lundberg, George. Severed Trust. New York: Basic Books, 2000. http://www.msainfo.net - 17 December 2003. Novak, Tony. “HealthSavingsAcccount-HAS.com.” http://www.healthsavingsaccount-hsa.com/ - 17 December 2003. http://www.outsourceone.com/release.asp -12 December 2003. http://www.quickmedx.com/
- 12 December 2003. “Tax-Free Plans Could Alter Health Coverage.” http://eflexgroup.com/news/tax_free.asp - 4 December 2003. |