Consumerism: The Real Answer to Healthcare Cost

Containment

Tim Feeser, FSA, MAAA

Total Employer Spending on Health Insurance – 1950 to 1980

Source: Bureau of Economic Analysis

$0.7 $1.7 $3.4

$5.9

$12.1

$25.5

$61.0

$0

$10

$20

$30

$40

$50

$60

$70

$80

1950 1955 1960 1965 1970 1975 1980

Annu

al Sp

endi

ng (i

n bi

llions

)

… Then there was Flex circa 1980

Source: Bureau of Economic Analysis

$0.7 $1.7 $3.4 $5.9 $12.1

$25.5

$61.0

$110.0

$176.9

$0

$20

$40

$60

$80

$100

$120

$140

$160

$180

$200

1950 1955 1960 1965 1970 1975 1980 1985 1990

Annu

al S

pend

ing

(in b

illio

ns)

Managed Care enters circa 1990

Source: Bureau of Economic Analysis

$0.7 $1.7 $3.4 $5.9 $12.1 $25.5

$61.0

$110.0

$176.9

$242.8

$331.4

$500.2

$0

$100

$200

$300

$400

$500

$600

1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005

Ann

ual S

pend

ing

(in b

illio

ns)

Recent Medical Cost Trend

11.9%

9.9%

9.2% 9.0% 9.0%8.5%

7.5%

6.5%6.8%

6.2% 6.0%6.5%

0%

2%

4%

6%

8%

10%

12%

14%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Source: PwC Medical cost Trend: Behind the numbers 2018

Consumerism in Healthcare Defined

Place the healthcare purchasing decision more directly into consumers hands, by providing the information necessary for them to make cost conscious decisions regarding their needs, while also offering financial incentives or rewards which encourage active participation in the healthcare purchase decision

Iterations of Healthcare Consumerism

First Iteration: Benefit Plans with consumer cost sharing, indemnity, and HMO plans

Second Iteration: Increased consumer share of out-of-pocket spend via POS plans and increased deductibles and coinsurance

Increasing Premium Expense

$2,973

$5,277

$8,508

$12,865 $11,480

$18,142

2006 2016

Worker Contribution Employer Contribution

78% Worker Contribution

Increase

58% Total Premium Increase

Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 2006-2016

What is important to consumers?

69%66%

56%

0%

10%

20%

30%

40%

50%

60%

70%

80%

Cost of my monthly premium Coverage of services and medications Doctors and hospitals in the network

Perc

enta

ge o

f con

sum

ers w

ho s

aid

fact

or w

as im

port

ant

Source: PwC – Top health industry issued of 2017: A year of uncertainty and opportunity

Iterations of Healthcare Consumerism

First Iteration: Benefit Plans with consumer cost sharing, indemnity, and HMO plans

Second Iteration: Increased consumer share of out-of-pocket spend via POS plans and increased deductibles and coinsurance

Third Iteration: High Deductible plans with health savings accounts providing consumers with a bank balance to use to pay for first dollar coverage (i.e. the high deductibles and coinsurance), with savings accounts growing year to year if consumers change behavior and eliminate unnecessary utilization (i.e. trips to the doctors office for colds, flu, etc.)

Fourth Iteration: Employer incentives in the form of employee contribution credits for lifestyle changes in the form of meeting bio-metric screening measurement targets

Increasing High Deductibles

2% 3% 3% 3%

7% 8% 8% 9%7%

9% 9%

2%3%

5% 6%

6%

9%11%

11%14%

15%

19%

4%5%

8% 8%

13%

17%

19%20% 20%

24%

29%

0%

5%

10%

15%

20%

25%

30%

35%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

HDHP/HRA HAS-Qualified HDHP

Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 2006-2016

Benefits of Increased Consumerism in Healthcare

• Direct line of sight to cost of services

• Greater cost transparency could allow for more comparison shopping like done for most other goods and services

• Reward system around purchasing or lifestyle habits could create customer loyalty to health system providers, with good health conscious customers being desired health system customers

• The cost burden shift to consumers may accelerate movement to healthier lifestyle behaviors, which may lead to an overall healthier population and hence meet the long term objective of slowing the growth of healthcare costs nationwide

The Success of Increased Consumerism in Healthcare will need Healthcare System Participation

• The promotion or prescription of healthy lifestyle is heavily promoted by fitness industry as their core offering (hire the personal trainer, gym membership). The healthcare system does not make money in a FFS system promoting health and wellness, but rather serving the sick population

• As pressures on healthcare providers mount in the form of new reimbursement strategies reflective of more budgetary approaches, with risk adjusted bonus payments, the healthcare system will be more incentivized to deliver quality cost efficient care to sick patients while also seeking to keep its healthy customers healthy

The Success of Increased Consumerism in Healthcare will need Healthcare System Participation

• Data infrastructure improvement will be critical amongst the health system community to offer the tools and information necessary to consumers allowing them to make informed decisions regarding their health, lifestyle, and health services purchasing decisions

– Development of greater transparency tools allowing consumers to log into a portal to review the cost of services or procedures they are considering

– Historical data collection will be necessary to build out these capabilities

– Consumer education on how to utilize these platforms allowing for them to perform the comparison shopping they currently do at the stores, online, and on Amazon for non-health service goods

Consumerism and Maryland’s Global Budget Revenue (GBR) Model, a Perfect Marriage?

• The GBR model is essentially a ‘capitation’ model with a fixed budget payment to hospitals, for which there is no incremental revenue for increased service delivery

• A highly educated healthy Maryland consumer is the ideal healthcare consumer under this reimbursement model, which clearly is focused on eliminating unnecessary service utilization

• With the joint goal of CMS and MD thru the implementation of the GBR model is healthcare cost savings and the slowing of healthcare spend growth, an increased focus on the next iteration of the healthcare consumerism would be advantageous to the MD hospitals operating within the GBR system