Where Health Care Meets Policy

withDr. Mike Magee

Consumer-Directed Insurance is Here – But Will It Work?

Assumed Roles• Managing collective population risk • Managing cost and quality

Lacked Support • Of the people• Of the people caring for the people

Gatekeeper Strategy • Control supply of health care by limiting access and choice - Narrow networks - Capitation and deep price concessions - Ongoing utilization reviews

Managed Care Envisioned a Collective Good,But Was Too Paternalistic to Reach Its Objective

Sources: Robinson JC. Reinvention of health insurance in the consumer era. JAMA. 2004;291:1880-1886.Robinson JC. Managing consumers in health care. Health Affairs. 2005;24:1478-1490.

Managed Care’s Lifespan

Managed care collapsed under own weight (after 2000)• Rapid evolution of the patient-physician relationship - Consumer changes

Emancipation empowerment active engagement (accelerated by aging demographics and family complexity) - Physician changes Paternalism partnership One-on-one approaches team models

Now exploring social leadership, advanced communication technology and lifespan management

Sources: Luft HS. Why are physicians so upset about managed care? Journal of Health Politics, Policy and Law. 1999;24:957-966.Robinson JC. The end of managed care. JAMA. 2001;285:2622-2628.Nash, D. Connecting with the New Health Care Consumer. New York, NY: McGraw Hill, 2001.

Cross subsidization was commonplace (1980-2000)• Shifting resources from healthy populations to needy• Extending benefits to wider populations in return for tighter controls

The Emergence of Consumer-Directed Health Insurance

Movement Toward Ownership Societies• Individual autonomy and responsibility• Self ownership• Confidence in individual and family to vote own best interests • Lack of confidence in collective organizations to make one size fit all

Sources: Robinson JC. Health savings accounts – the ownership society in health care. NEJM. 2005;353:1199-1202.

Health Insurance Theories of the 1980s Combined to Support a Top-Down Collective Approach

Theories• All health decisions are made by doctors and hospitals• Variability in protocols and outcomes were unacceptably high • Open enrollment would deliver savings through economy of scale• Insurers were good managers• Insurance industry had a social mission to bring health care costs under control for employers, while expanding benefit packages and eliminating waste, inefficiency, and variability• 65% - 70% of people were healthy and needed to stay that way • Unspent premiums could support acutely, chronically, morbidly ill

Sources: Robinson JC. Reinvention of health insurance in the consumer era. JAMA. 2004;291:1880-1886.

Consumer-Directed Health Insurance Supports Consumer Differences

New plans offer choice, but thinner benefits• Networks are wider, but increasingly tiered

- access to anyone, if you’re willing to pay Health management used sparingly and selectively • For the well: Internet and educational support• For acutely ill: social worker might work to shorten hospital stay• For chronically ill: nurse manager might regularly monitor care• No more penetration pricing or community ratings

Sources: Robinson JC. Reinvention of health insurance in the consumer era. JAMA. 2004;291:1880-1886.

“The most important characteristic of the private voluntary health insurance market is that individuals differ widely in what they want and are willing to pay for.” – Dr. James Robinson, Health Economist

The Price of Choice

Return of medical underwriting“…the attempt to predict future expenditures for particular groups and individuals based on demographic characteristics and historical claims costs, and to set future premiums accordingly.” – Dr. James Robinson

No more cost shiftingAll products and all customer segments must be profitable all of the time

Sources: Robinson JC. Reinvention of health insurance in the consumer era. JAMA. 2004;291:1880-1886.

Into the Brave New World Comes the Health Savings Account (HSA)

HSA: financial instrument like an IRA• You or your employer put tax-free money in an account (must have high deductible health plan) - Can be used to cover initial deductible• You pay 20% to 30% coinsurance for services up to a maximum• At catastrophic coverage point, plan pays 100%• Unused money gets rolled over to next year - Unlike former “use it or lose it” plans• Plans are priced differently for different people

Sources: Robinson JC. Health savings accounts – the ownership society in health care. NEJM. 2005;353:1199-1202.Uyoo H, Chovan T. Number of HSA plans exceeded 1 million in March 2005. America’s Health Insurance Plans, Center for Policy and Research, May 6, 2005.

The Future of Consumer-Directed Plans

Strengths• Broader choices• Better access (for some)• Healthy shift of responsibility to individual and family• Increasing focus on cost-conscious prioritization of services

Sources: Berk ML, Monheit AC. The concentration of health care expenditures, revisited. Health Affairs. 2001;20:9-18.

Weaknesses • Lack of focus on managing supply - Ask consumers to control demand High consumption is predictable• Choice brings complexity - Complexity brings administration expense, consumer mistrust, litigation, regulation

Erosion of Social Pooling of Risk

“The language of individual ownership weakens society’s

sense of collective responsibility for its most vulnerable members, but

emphasizes the importance of individual effort on

generating the economic resources that underlie

any system of care.” – Dr. James Robinson

Sources: Robinson JC. Health savings accounts – the ownership society in health care. NEJM. 2005;353:1199-1202.

What’s next?• IT to attack complexity• Partnerships expand safety net coverage for vulnerable

Release Date: 2/1/2006

www.healthpolitics.com

withDr. Mike Magee

Consumer-Directed Insurance is Here – But Will It Work?