Ten Tools for Achieving Consumer Driven Health Care
2003-10
For too many years Americans have been divorced from the consequences of their health care decisions. Third-party payment has enabled us to see a doctor, purchase medications, and receive surgery, without a thought about cost. In some minds this is a wonderful thing – get all the health care services you need without agonizing over affordability.
But being unconcerned about affordability carries a price. If we as consumers are not worried about cost, we spend more than we would otherwise. That puts pressure on the people who actually pay the bills. If we are not worried about cost, they certainly are. They will not give us a blank check. They will limit our access to services, one way or another. Regardless of the kind of third-party involved, whether an insurer, an employer, or the government, they will decide what is worth paying for and what is not. That is the cost we pay for “free” care provided by a third-party.
Ultimately, there is only one way to put patients back in the driver’s seat. Give them control over the resources, so they can make their own value judgments and trade-offs about their own health care priorities.
Getting from where we are today to a system in which people have control over their own health resources is not going to be easy. Fortunately tools are being created to help us make the transition. These tools are still pretty primitive, but they will get better every year. They will be improved and fine-tuned as we get more experience in this new era – provided the government allows the process to go forward. Some of the tools currently available are described in the Policy Brief available at www.washingtonpolicy.org. A short summary of these tools is provided here:
FSAs enable workers to place part of their salary into an account for paying directly for health care expenses. The accounts can only be set up by employers, and carry a use-it-or-lose it provision that requires unspent funds to be forfeited to the employer at the end of the year.
MSAs require a high-deductible insurance plan, with no coverage below the deductible. The accounts are actually owned by the employee, and unused funds stay in the accounts and may build interest over time. Account holders may withdraw money for non-medical purposes by paying taxes and a 15% penalty on the amount withdrawn.
The IRS approved HRAs in June 2002. They are the core concept of “consumer driven” health plans. They may accompany any kind of insurance plan, they may be for any amount of money, they may include first-dollar coverage, and they may rollover and build-up over time. HRAs are still new enough, and flexible enough, that the market is experimenting with the optimal design.
Unlike third-party payment systems, indemnity insurance is a “two-party” contract in which an “insured” pays a premium for future protection, and the insurer pays money to the insured when a loss occurs. The consumer is paid the benefit directly, and is then responsible for paying the health provider. There is no expectation that the insurer have anything to do with the provider of care.
“Defined contribution” means the employer provides a fixed payment dedicated to employee health insurance benefits, and workers then use that contribution as core funding for a variety of benefit plans or benefit structures, often supplemented with their own funds. This approach is the opening salvo in a move to ensure more individual ownership and portability of a benefits plan.
In an economy that is characterized by two-income families, mobile workforces, and part-time employees, it no longer makes sense for companies to take an all-or-nothing approach to health benefits. Workers should be allowed to take their employer’s contribution in cash and use it to supplement a spouse’s coverage, or for both earners to pool their funds to purchase coverage for the whole family.
These approaches have been offered to employers as an alternative to more consumer-based ideas. They have been widely adopted in prescription drug programs where generic drugs have a very small copayment, name brands a higher one, and off-formulary drugs a substantially higher one. The conceptual problem with these arrangements is they fail to give people any understanding of the true cost of the service. Ultimately, these programs are not “empowering,” but punitive to patients.
There is a growing movement in the physician community to opt-out of insurance plans and the Medicare program. Many doctors are switching to a cash-based system, either independently or as part of a network of similarly inclined physicians such as SimpleCare. Others are moving into “boutique” medical practices. These physicians are finding substantial savings in overhead costs, which enable them to charge less for services.
While not as far along as physicians, there is at least discussion of hospitals operating on more of a cash basis, with fixed fees for defined services. Particularly interesting is the growth of cosmetic surgery centers in tropical areas where patients can combine elective procedures with recuperation in a vacation spot. These facilities may be the leading edge of a trend that ignores national borders, relying on telemedicine and low-cost airfare to attract patients to an offshore facility.
This is the mortar between the bricks. Few of these changes could happen without the transactional power of the Internet. Individuals are able to identify their resources and match them up with preferred coverage or services. Other services available on-line include doctor quality and price information, making appointments and getting follow-up care, on-line billing, information on treatments and finding disease-specific support groups.
There is today a burst of innovation and energy going into creating a new approach for health care financing. The new era will put patients back where they belong – in the driver’s seat of the health care system. After all, health care is not primarily about doctors, hospitals, insurers, and it is certainly not about employers and the government. Health care is about people. The best way for people to express their needs, values and desires is through a market-based system that gives them the power to spend resources in keeping with those values.