By the early 2000s, both employers and health plans were beginning to realize that the managed-care jig was up. Managed-care organizations had seemingly wrung much of the obvious waste out of the healthcare delivery system, and measures designed to further tighten the noose — such as requiring that patients pass all care requests through gatekeepers — were proving to be very unpopular with consumers. As a result, prices were spiraling upward.
It was then that Regina Herzlinger, a Harvard Business School faculty member, published a paper that would serve as one of the touchstones for the next generation of health plan benefit design. In her July 2002 paper appearing in the Harvard Business Review, Herzlinger argued that it was time to “put consumers in charge of health care.”
Citing no direct evidence, the paper contended that employers could control healthcare costs in some important new ways, including:
*Giving employees the right to make more health coverage decisions, including their choice of health plan benefits, out-of-pocket maximums and provider organizations
* Charging employees actual premium prices rather than subsidizing those premiums
* Allowing providers to set their own prices for both integrated care bundles and individual episodes
* Providing employees with quality and price-efficiency ratings on specific doctors and hospitals
Since its publication, Herzlinger’s paper has been cited hundreds of times and has clearly had a major impact. However, health benefit planners, employers and even the architects of the Affordable Care Act seem to have lost the plan along the way.
Since then, most health plans have plucked a few premises out of this research and acted as though that would somehow magically be enough. Though there’s little or no transparent healthcare pricing available to most consumers, competition between insurance companies has fallen due to mergers and provider choices are more limited than ever, fans of this model still feverishly insist that consumers will somehow shift the entire healthcare cost curve by purchasing care differently.
Instead, the truth is that if anything, consumers are even less in charge of their health care spending than they were two decades ago. Despite decades of pro-CDHP/HDHP propaganda, nobody has convinced me that when you assault some average middle-class family a with $15,000 deductible, they’ll somehow become healthcare purchasing geniuses.
In fact, though I don’t have space or time here to cite research chapter and verse, the gist of what I’ve seen suggests that high-deductible health plans have exactly the effect you might imagine. Funny thing: It appears that if you make something super-expensive, people won’t buy it unless they are facing an emergency. And when grandma’s dying, they’re not going to spend time shopping around for a hospital or heart surgeon offering a discount. (Oh, and by the way, isn’t it obvious that poor people don’t have enough money to pay the deductible in the first place?)
Because I loathe CDHPs/HDHPs and the fractured reasoning that went into adopting them, I could go on all day here. But instead, I’ll offer you an alternate model that just might work.
What if we gave consumers a share of the profits when they use care efficiently? In other words, why not align their health purchasing incentives with employers and health plans? Doesn’t that make a lot more sense?
Admittedly, this scheme only works if you give up on the insane idea of expecting consumers to pay first dollar healthcare costs for most of their healthcare expenses. Instead, it makes a sensible assumption, which is that health insurance companies should make money by keeping and getting people better.
Imagine we reset the health plan business back to where it was 20 years ago or so. While many plans still include features (such as lifetime caps on payouts) that can harm some consumers, out-of-pocket expenditures are relatively low. And we resume treating health insurance as a place you turn to stay healthy, a model which the industry has sworn by since the 1970s or so.
Because we know by this point that fee-for-service reimbursement models are failing, we mix things up and give consumers a smart incentive to help plans control costs. How do we do that? One way to start is to give consumers a few choices of providers for given high-ticket services, then if they choose the less-expensive provider, they get to split part of the money saved.
Hey, employers have seen some success already by rewarding employees for having services and procedures performed by qualified overseas providers (e.g. smart medical tourism). Why can’t this work at home?
Yes, this approach doesn’t ask consumers to avoid needless expenses, but let’s be honest, how the heck were they ever going to be able to sort the needful from the necessary anyway? I’ve managed care for myself, my husband, my kids and adult parents, along with writing for health industry publication for 30 years, and I wouldn’t know where to begin evaluating price and quality trade-offs.
The truth is, most of the conditions necessary to make consumer control of healthcare prices possible aren’t in place – and many may never exist. But if we simply assume that health insurers should pay for necessary care and that managing care is between plans and doctors, we can turn this last bit of provider strategizing over to consumers.