Consumer-driven health plans may not be the worst way to moderate escalating health-care costs, since they bring a strong measure of free-market principles to an arena largely removed from market forces.
It works like this: employees receive coverage for catastrophic events (after paying a high deductible) and have access to a health-care spending account for less dire medical needs. In theory, this structure motivates people to make good judgments about whether a sore throat really merits a visit to the doctor, and to patronize doctors and hospitals that offer good services at a good price.
But making informed choices about medical care requires the ability to gain data on everything from the merits of specific generic drugs to physician performance records and nurse-to-patient ratios. And that's the catch with consumer-driven health plans. "There is less information on the health-care system than on any other industry," says Helen Darling, president of the National Business Group on Health, in Washington, D.C. Although the situation is improving, people still get most of their medical information from the Internet or, if they have friends or relatives in the medical profession, by word-of-mouth.
Moreover, the price of a service isn't a proxy for quality. Per-capita spending on Medicare by state varies from $5,230 to $8,280, according to research by Dr. Elliott S. Fisher, professor of medicine at Dartmouth Medical School. But, he writes, "there is [actually] a weak negative association between spending and state-level average performance."
Nonetheless, consumer-driven plans are gaining in popularity in the United States. About 6 million people are now covered by one of these plans, and enrollment has doubled each year for the past several years, says C. William Sharon, senior vice president with Aon Corp. Even if growth slows to 50 percent, about 46 million people could be covered through a consumer-driven plan by 2011. Christopher Calvert, a vice president at The Segal Co., says the current growth rate may slow considerably because "employers are concerned about the availability of good-quality data. Wide acceptance of these plans by employees is unlikely until they become simpler to navigate."
Outcome data is complicated by the fact that some of the best hospitals see the most complicated cases, says Richard Gundling, vice president of the Healthcare Financial Management Association, in Washington, D.C. Although published rankings of "top hospitals" are widely available, information becomes harder to find further down the food chain.
Some organizations, including Hospital Compare, rank process rather than outcome, but this too is problematic, suggests Regina Herzlinger, author of Consumer-Driven Health Care: Implications for Providers, Payers, and Policymakers. Although adherence to appropriate medical procedures should lead to favorable outcomes, paying for process versus outcome will suppress innovation, she explains. The emphasis should be on results, such as the rates of complications, Herzlinger says.
Even with the aid of health-care Websites (see "Where to Get Information" at the end of this article), accurate price information is difficult to obtain. Most hospitals negotiate different fee schedules with each of their health-insurance carriers, so price depends on the carrier. Worse, few hospitals have the computer systems needed to automatically track this information. Instead, hospital employees pore over stacks of reports and manually enter the information into a database, says Mike Leavitt, Secretary of Health and Human Services at the U.S. Department of Health and Human Services (HHS).
Choosing a Physician
If information on hospital quality is hard to obtain, finding information on doctor quality is almost impossible. The numbers alone make it challenging, says Ted Nussbaum, director of health-care consulting with Watson Wyatt North America. "There are several hundred thousand physicians, versus a few thousand hospitals."
A few tools are available. Aetna Inc. offers its members cost and quality information for physicians in about eight states, and price information alone for doctors in three additional states.
The measures assess doctors' clinical performance and efficiency, says Robin Downey, head of product development at Aetna. Clinical performance is based on the number of patients suffering adverse effects from an in-patient treatment or readmitted to a hospital within 30 days of a treatment, among other factors. Efficiency is measured by tallying all services, such as lab work, X-rays, and physical therapy, performed during a particular episode of treatment, and comparing that with the treatment ordered by other doctors treating similar patients. While the doctor may not provide all these services, presumably he or she is directing them, Downey notes.
Here again, the measures aren't immune to criticism. Many physician fee schedules provided by insurers overstate the amount doctors actually receive, according to the American Medical Association. "Physicians often receive less than the negotiated rate because of a health plan's medical payment policy," the AMA stated in a report from its interim meeting in November 2005. Most physicians receive 40 cents for every dollar of billed charges, says an AMA spokesperson. "It's the dirty little secret: the charge for the procedure isn't what the insurance company pays," adds Jeffrey C. Bauer, a partner at Dearborn, Michigan-based ACS Healthcare Solutions.
Because transparency in health-care data is such a new concept, some employers are waiting before they move to a consumer-driven plan. That's the case at United Parcel Service of America (UPS), says health and productivity manager Randall Price. "It's not that we don't believe they have a future. But we don't have the data that's central if people are to make the most effective health-care decisions." Given that UPS employs around 427,700 people worldwide, both breadth and depth of data are key. For now, says Price, UPS plans to maintain its indemnity, PCP, and PPO-type plans.
Other employers are making the switch. Harrah's Entertainment Inc. is tackling health care on several fronts. First, the company will operate in-house clinics covering about 70 percent of Harrah's workforce, requiring just a $10 co-payment. The goal is to halt a trend seen over the past few years, in which some employees skimped on preventive care in order to avoid out-of-pocket costs, says Jeff Shovlin, vice president of benefits.
At the same time, the company will replace its traditional PPO medical-insurance plan with a consumer-directed plan using a health-reimbursement account. Enrolled employees will receive $500 ($1,000 for those with family coverage) as a credit to these accounts to pay for nonpreventive care. (Preventive care is covered.) Once the account is depleted, the employee must first pay a deductible, which can vary from $250 to $1,000 for an individual, and $750 to $1,500 for a family. After that, the company picks up the costs.
Harrah's is working with Cigna to offer quality and efficiency information on health-care providers via the Web. Finally, management is helping employees understand the change in cash flow under the new plans, says Shovlin. "With a consumer-driven plan," he says, "you can be lulled into complacency. But once the account is gone, you're on the hook for $500 to $1,500."
A Federal Case
The federal government is making more information available to enrollees in its health-care plans. An executive order issued in August directs federal agencies to provide enrollees in their health-care programs with information on the price and quality of services offered by health-care providers.
Because the U.S. government oversees health care for some 93 million individuals, or 40 percent of the insured population, this change will probably affect individuals covered through private-sector health plans. HHS's Leavitt is asking employers to consider what he calls "the cornerstones of value-driven health care" as they negotiate with insurers. These include interoperable information systems and transparent price and quality data. Employers have responded positively, says Leavitt, who estimates that 60 percent of the 200 largest health-care payers will include these issues in their requests for proposals for the 2008 plan year.
According to The Segal Co., the expansion of programs that share insurers' cost and quality data is critical to the growth of consumer-driven plans. "The true turning point will come with the creation of a neutral third-party agency that helps employees understand and navigate the system," says Segal's Calvert.
The $64,000 Question
As health-care information becomes more accessible, will employees use it to purchase health-care services more intelligently? A 2004 report from the Institute of Medicine states that 90 million people, or nearly half the U.S. adult population, have difficulty understanding and acting on health information.
Employers need to provide assistance. General Electric offers its employees a nurse call-in line to help talk them through health-care decisions, says chief medical officer Robert Galvin, M.D. The nurse records information on the employee's condition, reviews treatment options, and offers quality data. For example, he or she might tell a patient facing back surgery how many similar surgeries have been performed at each local hospital.
Although UPS is maintaining its traditional insurance plans, it did introduce a nurse coaching program in 2006 for individuals at risk for certain chronic conditions, and it is partnering with Aetna this year to provide electronic personal health records for more than 280,000 employees and retirees, plus their eligible covered dependents. Employees can track and manage their health care using a secure online tool that automatically displays claims-based health information such as medicines, lab records, tests, and procedures. They can also input additional medications, and then share all of the information with their physicians.
Nussbaum of Watson Wyatt recommends taking 12 to 18 months to switch to a consumer-driven plan. Employees need to get comfortable evaluating information and options, he says, and providing a greater level of input into their courses of treatment.
Anecdotal evidence suggests that consumers become more comfortable using information over time. Visits to www.mycigna.com's cost and quality information pages jumped from about 1,500 per month in 2005 to between 6,000 and 10,000 per month in 2006, says Jim Nastri, Cigna's vice president of new-product development and cost and quality transparency.
Since about 2001, General Electric has been sending employees E-mails with quality measures for different health-care providers. Early surveys and focus groups revealed that initially employees didn't believe that significant differences in quality existed, says CMO Galvin. They questioned the source of the information and the motives behind the E-mails. "At first they thought we just wanted to save money," he says.
Over the next several years, employees came to realize that the information was legitimate. Eighty-five percent of respondents to current surveys say they believe different providers offer different levels of quality. "It's a culture change," Galvin says. "Not long ago, if you saw a nice hospital with big pillars, you thought it was OK."
Of course, the real question underlying the move to greater transparency is whether it is likely to have an impact on health-care costs and quality. Transparency can have some effect on prices, says Nastri. For example, doctors' costs vary depending on which hospital they admit to. In many markets, Cigna members have a choice of several hospitals they can use for elective procedures. Many doctors who admit to higher-cost hospitals are working with hospital administrators to understand and reduce cost drivers.
In addition, Cigna employees analyzed 38,000 members' use of consumer-driven health plans. They found that costs for these members were 16 percent lower than costs for those enrolled in traditional plans, says Nastri.
This supports a 2004 study in the journal Health Affairs, which showed that patients who received more information and understood that they could participate in decisions regarding their care were less likely to choose elective surgery than was a control group.
When it came to back surgery, for instance, 26 percent of the patients who were more involved in the decision-making process chose surgery, compared with 33 percent for the control group. "People tend to be conservative," says Floyd Fowler Jr., president of the Foundation for Informed Medical Decision Making, in Boston. "Physicians tend to be more enthusiastic regarding surgery."
Ultimately, there is a limit to the number of health-care decisions that will be influenced by cost and quality data. In an emergency, of course, stopping to evaluate information on health-care providers isn't really an option. In addition, "if you look at the cost of health care, it is heavily skewed to the sickest patients," says Margaret O'Kane, president of the National Committee for Quality Assurance, in Washington D.C. Ten percent of the sickest patients account for about 70 percent of all health-care spending, reports the Commonwealth Fund. Their conditions are usually complicated, and it's rare that a single medical professional coordinates these individuals' care, ensuring they get the services they need but are not subject to excessive treatment.
Most likely, greater transparency will slow the rate of cost increases in health care rather than actually lower prices, says Leavitt. The goal, he notes, is to cut the ratio of health-care spending to the U.S. gross domestic product. In the early 1950s, health care accounted for 4 percent of GDP; by 2006, it had quadrupled to 16 percent.
Getting there will take some work, Leavitt adds. People want to think that the system can move with the speed of a Formula One race car, he says. "But what we have is a pile of wheels, a small frame, and a lawn-mower engine, and we'll assemble it into a go-cart."
Karen M. Kroll is a freelance writer based in Minnetonka, Minnesota.
Where to Get Information
Employers can direct their employees to several sources of reliable information on health care. Most major health plans offer basic information on such common hospital procedures as coronary bypass surgery. At www.mycigna.com, for instance, Cigna members can find average cost ranges and patient outcomes on about 45 procedures. The information is based on data the hospitals report either to Medicare or state regulators.
Some state agencies also offer information on hospitals. Through Wisconsin PricePoint (www.wipricepoint.org), a subsidiary of the Wisconsin Hospital Association, a consumer considering, say, a knee replacement can check the number of similar procedures performed, average length of the hospital stay, and charges at his local hospital and compare that data with results for all other hospitals in the county and state.
Hospital Compare (www.hospitalcompare.hhs.gov), a joint initiative of the U.S. Department of Health and Human Services and the Hospital Quality Alliance, lets consumers check several quality measures at hospitals across the country.
In addition, a handful of independent sources help educate consumers. For example, Subimo (www.subimo.com or www.myhealthcareadvisor.com) is a subscription-based service that lists hospitals' experience and reputation for different procedures. — K.M.K.