Presumed Requirements for Success | Consumer-Driven Health Care

Consumer-driven health care must engage and inform the individual on the issues of health care costs by providing information on health care costs, quality, and outcomes, so that individuals can escape the notion that more expensive health care is better care. Consumer-driven health care relies on several presumptions necessary for its success:

• The individual will shop and use health care more carefully when he or she has a greater financial "investment" in that care—and shares in the savings from that shopping and use.
• Once the individual has the health information on the most efficient and least intrusive methods of treatment, no matter who is paying the bill, the patient will choose the least invasive treatment from the highest quality provider with the best outcomes history.
• Accurate quality measures and information sources are being developed and available which make this choice easier.
• These improved sources of information and better health care quality measures are readily available and accessible today through health information technology systems and continue to evolve.

To achieve these goals, proponents of consumer-driven health care believe the employer through the health plan must:

• educate employees as to the true cost of medical services and their role in managing health care spending,
• hold the employee more responsible for medical purchase decisions through innovative plan designs with built-in incentives,
• provide clinical and financial information to enable employees to be true health care consumers, and
• provide proactive clinical management and coaching to optimize provider efficiencies and courses of treatment.

Proponents of consumer-driven health care believe as health care consumers become more financially responsible for the real cost of health care services, both demand and total health care spending will stabilize—and perhaps even decrease.

Elements of Consumer-Driven Health Care

At its most basic level, consumer-driven health care is a variation of the oldest "insurance," which was designed to cover only catastrophic losses and to leave the burden of minor losses on the individual; and, when medical care is needed, selecting the best and lowest cost health care providers.

Consumer-driven health care plans come in various forms. Some simply consist of "tiered" network providers or tiered services. Others literally can permit the insured to design the entire plan, choosing the level of deductibles, copayments, and services covered. The premium is based on those choices. The employer contributes a stipulated dollar amount for the premium and the employee pays the remainder for the plan that he or she designed.

Most consumer-driven health care plans typically combine several of the following elements:

• a high deductible health insurance plan,
• a health account that can be carried over from year to year to cover minor health expenses and/or expenses not covered by the health "insurance,"
• free or very low-cost preventive care,
• information sources and tools both to educate the individual on health issues and to find the highest quality health care providers at the lowest cost,
• a conveniently accessible health "coach" or "consultant" to help plan participants obtain and use existing health information, answer questions about the individual's health issues, and provide guidance on use, choice, and interaction with health care providers, and
• in cases of serious chronic conditions or illnesses, a proactive medical professional who may contact the patient on a regular basis and act as liaison and coordinator among the patient and his or her medical providers.

To date, most consumer-driven health care plan participants are in employer-sponsored health benefit programs. The critical features of these plans are designed to educate employees as to the true cost of medical services and their role in managing health care spending. The plans use innovative plan design with built-in incentives to give the employee freedom in medical purchasing decisions and hold the employee more financially responsible for those decisions. But, importantly, these plans provide clinical and financial information enabling employees to be true health care consumers and to shop for the best "deal." Most also provide proactive clinical management and coaching to optimize provider efficiencies and courses of treatment.

As health care consumers become financially responsible for more of the real cost of health care services and receive more information on treatments available, outcomes, and the quality of the health care provider, proponents of consumer-driven health care plans believe these plans will motivate employees to purchase more efficient and effective health care. This motivation will then reduce both demand and long-term health expense.

E-Health Development Stages

Managed health care is an excellent industry for capitalizing on the benefits of e-commerce, the collective aspects of which are referred to as e-health. The development of e-health capabilities for managed health care companies falls broadly into the following stages:

1. Quality web page awareness is the simplest stage in development, with web page development now readily available through business and consumer software applications. Virtually all health plans have at least a basic web page, with company information and product portfolio information. While the basic web page may allow hyper links to other Web sites, most information is static and no transactional capabilities or data inquiry are allowed.
2. Building basic interaction capabilities with constituents, which includes members, providers, and plan sponsors. Virtually all national and many regional/local health plans and carriers have varying abilities to provide e-mail communication and to access detailed databases for information retrieval. However, these interactions tend to be limited to specific functions, such as accessing on-line provider directories or pulling down health plan information.
3. Building self-service capabilities for constituents marks a critical leap in the use of Internet technology since it requires real-time transactional competence combined with the ability to coordinate data from various information systems. This stage is the biggest growth area for health care plans in the 2000–2002 time period, as they increase their ability to offer on-line enrollment, referrals, and claim submission. While this stage will greatly improve the administrative quality of plan operations, most transactions are still "stove-pipe," with the constituent interacting in a specific function.
4. Transformation into seamless integrated operations is the ultimate stage in e-health development for health plans, wherein all transactions are real-time and span end-to-end across different operations, without interruption. Cross-functional electronic capabilities will enable specific business areas and systems (e.g., claims, plan eligibility) to interact simultaneously to serve the customer. In addition to further improving administrative capabilities, this stage holds significant potential for accelerating a patient's access to proper treatment, such as in the integration of information needed for effective disease management programs.

The Benefits of E-Health Development

At the center of the e-health evolution is the health plan member, who is the ultimate consumer of medical services as a patient. Eligibility data, enrollment data, claims data, treatment data, payment data all converge on the member/patient. Members are becoming more self-sufficient as they become more empowered with usable information, which in turn helps them maximize the value of their health plans. For members, the benefits of e-health include:

1. Maintaining personal health and family eligibility information;
2. Selection of a primary care physician as well as being able to inquire about other types of providers;
3. Checking on claim status, family eligibility, and flexible-spending account reimbursements;
4. Accessing health plan information such as the summary plan description; and
5. Searching general health care information about specific illnesses or general health topics.

Empowered and satisfied members reduce the administrative burden on plan sponsors. With e-health tools to speed up and improve operational duties, the plan sponsor can concentrate more on tailoring its benefit programs to best fit the needs of its employees. For plan sponsors, the benefits of e-health transactions include:

1. Plan set-up and maintenance, which can review for state benefit requirements and proper underwriting of benefit plans;
2. On-line member enrollment, which can provide immediate notification of enrollment errors and provide for direct production of member ID cards; and
3. On-line summary plan description, booklet, and certificate of coverage editing and production.

Similarly, with reduced manual intervention and paperwork, medical providers can return to practicing medicine and focusing on the best medical solutions for their patients. For providers, e-health benefits include:

1. Ability to submit claims electronically;
2. Checking patient plan benefits and eligibility;
3. Maintaining patient rosters for each type of health plan; and,
4. Receiving reimbursements electronically.

The E-Mergence of E-Health

Perhaps no single nonclinical factor holds greater promise in fostering the continued evolution of health care delivery and financing in the United States than the explosive growth of "e-health," which uses the Internet and Web-based technology to dramatically enhance communication and information transfer among various health care constituents.

Information technology has been vitally important to the health insurance industry for decades. In fact, the insurance industry was one of the earliest, broad-scale users of mainframe data systems for record keeping and claims processing. Today, few health plans could operate effectively without fully automated eligibility, billing, claims and medical management systems.

However, the advent of the Internet has dramatically changed business operations throughout the country, in virtually every industry. The impact in health care is monumental, with the ability to greatly expand the flow of information among providers, health plans, plan sponsors, and consumers unlike any venue to date.

Realities of Managed Care Today

Managed care is the prevalent means of health care coverage for most Americans. As a result, the vast majority of medical claim payments today are already discounted or reimbursed in some negotiated manner. With the continued consolidation of managed care organization (MCO) and health care systems, coupled with the tremendous financial pressures placed on hospitals and health care systems because of Medicare/Medicaid payment reductions in the late 1990s, discounts in many metropolitan areas have reached practical limits. While there will continue to be active management of unit costs, the days of purely discounted managed care are past.

Similarly, the days of micro-inspection forms of utilization management are waning. Many of the largest MCOs have significantly loosened or eliminated their prospective methods of utilization approvals for many medical services. Some HMOs have even eliminated the referral management systems between primary care physicians and specialists. In lieu of a prior PCP referral, these plans often have higher copayments for direct, self-referred specialist treatment. Such "open access" plans provide greater flexibility for plan members in seeking care as well as eliminating the time-consuming processes previously required for referrals.

As managed care continues to evolve, it is evermore apparent that the key to effective health care is getting the right patient the right medical service at the right time. Central to facilitating this process is the need to significantly change communication and knowledge-sharing within the patient/provider relationship, including:

• Immediately accessible and correct data on plan benefits, member eligibility, and claims status;
• Increased patient knowledge of illness and treatment options;
• Continuous communication among the patient, the provider, and the health plan to aid in the timely and appropriate level of medical service.

Increasing consumer demand in health care delivery is aiding this evolution. As information becomes more timely, more accurate and more usable, consumers will be more willing to accept responsibility for their health care, and to be more involved in specific decisions regarding the quantity, quality, and cost of health care selected. This degree of increased "consumerism" is leading a paradigm shift in an industry which traditionally placed the patient largely outside of the decision-making circle.

Realities of E-Commerce Today

Virtually all sectors of American business have incorporated some degree of e-commerce strategies into their business operations, whether through sales distribution on external Web sites or e-mail communications with other business partners through the Internet. The growth of business-to-business (B2B) relationships has improved communication and information management among suppliers and business vendors. Likewise, the growth of business-to-consumer (B2C) applications on the Internet has generated new sales and marketing opportunities as well as a wider variety of direct customer services.

Furthermore, the Internet has created a time compression in information exchange previously unseen in corporate business, especially within service-based industries. Web-based service models, which rely much more on the use of automated assistance, can be created, changed to meet consumer preferences, or completely eliminated in much shorter time periods than traditional service models, which were largely dependent on human assistance.

Through Internet-based technology, many service-based companies and consumer product manufacturers, can make changes in product/service type and distribution and can even respond to market pricing changes in a fraction of the time previously required. As consumers grow increasingly able to access this quicker form of information, those companies who do not take full advantage of Internet technology will find themselves at a great competitive disadvantage.

The Internet also facilitates the ability of different companies to blend their specialized expertise in various new combinations. With the formation of unique partnerships, "virtual" companies can create end-to-end product/service development and management. This permits the quick formulation of new types of products, often faster than a single company could devote internal resources to accomplish the same objective.

The Overshadowing of the Uninsured

Despite the increased emphasis on health care issues in the 1990s, the number of uninsured Americans continues to steadily rise. While economic growth generally increased family income levels over the past 15 years, the costs of health coverage have risen faster dampening the expansion of health coverage for many working families. Wherein 34.7 million people, about 13.9 percent of the U.S. population, were uninsured in 1990, an estimated 44.3 million Americans, or 16.3 percent of the population, were without health insurance by 1998.^[28]

According to U.S. Census Bureau figures, the total percentage of uninsured Americans moved up to 15.6 percent by 2003, as shown in Figure 1.

Source of Health Funding	2003 U.S.Population (millions)	% of Population
Employer Funded	174.0	60.4
Direct Funded	26.8	9.3
Subtotal Private Coverage	200.8	69.7
Medicare	39.5	13.7
Medicaid	35.7	12.4
Military	10.1	3.5
Subtotal Public Coverage	85.3	29.6
Uninsured	44.4	15.4
TOTAL U.S.Population	288.2	See below
Note: Numbers and percentages do not add up to 100 percent, as many Americans have duplicate coverage or may be covered by more than one source (e.g., retirees who have Medicare coverage and also supplemental private coverage). Source: "Inventory, Poverty and Health Insurance Coverage in the United States: 2003," U.S. Census Bureau; Department of Labor, www.census.gov.

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Figure 1: Sources of Healthcare Funding 2003

The disparity of the uninsured is most evident when the data is examined by race: 10.6 percent of white Americans are uninsured, as compared to 19.6 percent for African Americans, 27.5 percent for native Americans, 18.6 percent for Asian Americans and 32.8 percent for Hispanics (regardless of racial origin). Geography makes a difference, with the highest rates of uninsured in Texas (24.6 percent), New Mexico (21.3 percent), California (18.7 percent), Nevada (18.3 percent) and Wyoming (16.5 percent).

Aggravating the problem is higher costs of health insurance for smaller businesses, which do not have the same ability to spread risks or to self-insure as larger companies. Other concerns deal with employers who feel pressured to pass along additional costs to their employees if health care costs continue to increase faster than general inflation, or if employers face additional costs due to legislation permitting plan members to sue plan sponsors.

Some studies also point to a fundamental structural change in the movement of employment in explaining some of the reduction in employer-based health insurance. Employer funded healthcare accounted for 64.2 percent of healthcare funding in 1987, which dropped to barely 60 percent in 2003 (see above). During the same period there was a similar reduction in the number of Americans working in the manufacturing sector, from 24 percent in 1987 to 18.8 percent in 2002. Many of those workers shifted to the personal services sector, which hosts a significantly lower rate of health insurance coverage; 69.4 percent in manufacturing in 2002 compared to 43.2 percent for the personal services sector.

The growth in public and private initiatives on ways to extend coverage to the uninsured, especially children, underscores the societal importance being placed on tackling this issue. Without consistent health care coverage, medical treatment is often deferred until conditions reach acute stages. Patients lacking health insurance often flood hospital emergency room, many seeking primary care that would normally be delivered in a physician's office. The number of ER visits jumped 23 percent over five years, from 89.8 million visits in 1998 to 110.2 million in 2002, General health also can be further jeopardized without regular preventive care and recommended screening tests.

The apparent correlation between increases in health care costs and the growth in the number of uninsured persons underscores the importance of continuing to evolve managed care in a manner that can continue to control costs and make benefits more affordable. As public policy is shaped to further extend coverage, managed care programs will continue to be an important vehicle used to deliver health coverage.

Development of Defined Contribution: Consumer Driven Health Plans

An increasing number of plan sponsors are considering a new strategy for their health benefits, to maintain control of employer costs while giving plan members an increasing degree of choice and decision-making. While managed care continues to be the main component of most employers' health benefits, employees are demanding a greater ability to select those plans which best suit their individual needs—another aspect of increased consumerism.

Some analysts see the defined contribution concept as being driven by the convergence of several factors, including:

• General backlash against the restrictive nature of managed care plans;
• Broad popularity and acceptance of 401(k)-style retirement plans where the member acts much more as a "informed consumer" of their benefits package;
• Rapid rise of Internet access to help members gain information about medical care choices; and
• A sense that accountability demanded by end-consumers will have more real impact on health plans and providers than can be demanded by the plan sponsor (e.g. members ultimately vote by their enrollment).

Historically, healthcare plans have been "defined benefit" in nature. The plan sponsor defined the benefit by picking the plan fetaures (e.g., copay levels, deductibles, coinsurance, etc.) which then applied to all covered participations—much in the way pension plans were historically "defined benefit" with a rigid formula for determining benefits at retirement age.

The new defined contribution form of healthcare plans is conceptually akin to today's popular 401(k) retirement plans in that the plan sponsor would contribute a fixed amount for each employee's health benefits, often tied to either the lowest-cost plan available or some composite index of available plans. Then, plan participants typically would be able to select from several types of health plans often including several managed care plans and perhaps traditional fee-for-service.

Any difference between actual plan premiums and the plan sponsor's contribution would be paid by those participants who select that particular health plan. In this manner, the fixed contribution serves to cap current and future plan sponsor costs, with any future premium cost increases being borne in whole or in part by plan participants.

Several impediments still remain before defined contribution health plans gain broader acceptance, including:

• Lack of consistent performance data among competing managed care health plans, or no data in the case of traditional fee-for-service plans;
• Plan sponsor concerns about employees making poor selections relative to their health needs or high-risk employees being able to qualify for affordable coverage;
• Rising health care costs, and employee contributions, forcing some participants to drop coverage altogether further increasing the number of working uninsured.

Nonetheless, there is significant plan sponsor interest in the development of the defined contribution health plan strategy. Key changes to the federal tax code included in the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 may help foster greater plan sponsor move towards defined contribution health plans. The law extended and expanded the concept of health savings accounts (HSAs) which allow members to set aside dollars for medical expenses on a tax-favored basis and to roll over unused funds year to year, from job to job or into retirement.

HSAs must be set up in conjunction with a high-deductible health plan (HDHP), which for 2005, requires a minimum $1,000 deductible for an individual and $2,000 for a family. A "safe harbor" list of preventive services may be covered at 100 percent, before the deductible, such as annual physicals, immunization and certain screening services. Otherwise, the HSA, which can be funded either by employee contributions on a tax-free basis or by employee contibutions on a pre-tax basis through a cafeteria-style plan, serves to cover most or all of the high-deductible, after which the plan starts covering expenses at a coinsurance level.

The plan can be integrated with a PPO network, such that different coinsurance rates apply, after the deductible, for network versus non-network physicians. UM controls can also apply for selected services (e.g., precertification for hospital admission).

The whole concept is centered around putting the member more in charge of the utilization of services, by making tax-preferred funding available to handle the more common but less-costly healthcare decisions that typically face an individual or family. The concept has been dubbed consumer-driven health care (CDHC)

Managed Care Outlook and Evaluation

At the start of the 21st century, the health care insurance system in the United States is at a brink. Managed care plans have grown to dominate the system, as noted above. While managed care has saved plan sponsors significant costs over the past 20 years, as compared to traditional fee-for-service plans, the system is now facing increased criticism from virtually all constituents for its complex processes, administrative burden, and perceived access restrictions to desired providers. Some believe that managed care plans have effectively run their course and, as a result, many provider organizations and legislatures, at both the state and federal level, are pressing for fundamental changes to dramatically revise or eliminate much of what the managed care industry has built.

However, proponents of managed care generally see beyond the immediate system problems and point to an ongoing evolution of the health care delivery and financing system. Managed care, in this context, is not an end point, but a continually improving process to control costs and demonstrably improve the quality of care delivered. At the center of the evolution is a huge paradigm shift in health care accountability, with members in much greater control of information and selecting those health plans and providers who demonstrate results in improving quality of healthcare and controlling unnecessary costs.

This shift towards increased consumerism in health care challenges the long-held premise that important health care decisions were primarily delegated to physicians and that health plan costs were primarily hidden from members through the third-party insurance coverage system. Health plans are investing heavily in new technology and data management systems to help members get access to information that can support a much broader role for them in making health decisions.

They also are using these new tools to help physicians practice evidence-based medicine. Improved performance will be increasingly expected as providers gain greater exposure to the best practices and outcomes measurement. Transforming health care delivery into a systematic, evidence-based approach based on best practice also will require proper realignment of financial incentives with clinical practices. Provider compensation models, which historically have relied on discounted fees in a managed care environment, also will continue to evolve to reward demonstrated quality.