Revolution in funding health: you

In a few months, many American workers will be handed much more responsibility over their own healthcare. So should they stand up and cheer - or wring their hands?

The jury is still out, but one thing seems likely: Consumer-driven health plans (CDHPs) are coming. The relentless rise in traditional health-insurance costs - now growing again at double-digit annual rates and far outstripping increases in wages, inflation, or corporate profits - is forcing the move. Businesses, the source of health coverage for 160 million workers and their families, can't absorb the rate increases. So they're raising premiums and reducing coverage, which shifts costs to employees.

That's where CDHPs come in. By next year, as many as one-third of the nation's businesses may be offering them, according to a survey this month by Deloitte Consulting. And that doesn't count the 18 new consumer-driven plans now being introduced to 1.8 million federal government employees. For employers, these plans limit costs because employees choose insurance with high deductibles, usually supplemented by a pot of medical-care dollars supplied by the employer, often called a Health Reimbursement Account.

In theory, the changes ahead should promote more affordable healthcare, say some prominent economists. As employees shoulder a bit more of the cost of their formerly "free" health services, they will demand more and better information about the quality and price of providers (hospitals and doctors). They'll become more interested in steps they can take to prevent illnesses and how they can better manage chronic conditions and avoid costly hospitalization. All of this will drive down costs as the principles of retail economics are finally applied to an industry that economists have seen as a black hole, a void in which simple information - like what medical services really cost and why - is missing.

"I think [consumer-driven healthcare] is going to catch on because there are tremendous market forces pushing us that way," says Glenn Melnick, an expert on health insurance at the University of Southern California in Los Angeles. Once consumers make more of their own decisions, they will demand better information.

"How do you know your doctor is any good? You can learn more about a Motel 6 on the Internet than you can about your doctor," he says. A consumer- driven system not only may hold down costs in the largest sector of the United States' economy - $1.4 trillion, or 14 percent - but it "has the potential to ignite a badly needed quality revolution in healthcare as well," he says.

Though CDHPs are too new to draw any conclusions, some early analyses have raised troubling questions. Some worry that people will forgo drugs or medical treatment to save money only to seek more aggressive (and expensive) medical care later. Because of their lower cost, CDHPs might attract young and healthy workers, who don't expect to need medical services, leaving poorer, older, and less healthy people in conventional plans. Taking the healthy out of these plans could push up premiums drastically, creating what some call a "death spiral" for these types of insurance.

Consumers lack sufficient information to make informed choices about the consequences of their selections in CDHPs, concluded a joint report by the consulting firm Mercer and Harvard University in July. Only a minority of these plans monitor employees to make sure that they don't underuse the services.

In fact, they may be. Those who signed up for CDHPs, though similar to other employees in age and gender, used 25 to 50 percent fewer medical services than those who stayed with conventional insurance, suggested a study last month from the Institute for Health Policy at Kaiser Permanente in Oakland, Calif.

Important concerns

"While it is still too early to reach any definitive conclusions, current evidence raises significant concerns about relying on consumer-directed healthcare to address high costs, quality-of-care issues, and other fundamental problems in the healthcare system," summarized an August report from the Commonwealth Fund, a private foundation in New York that supports research on health and social issues.

These cautions ignore that the current US system is unworkable, with exploding costs and 45 million people uninsured, says Regina Herzlinger, the Harvard Business School professor who coined the term "consumer-directed healthcare" in 1999. A traditional family health insurance policy can cost a family $10,000 to $16,000 today.

"Many people are uninsured because health insurance costs too much," she says. "Is it terrible for them to now have access to affordable health insurance? I think it's great."

For example, an employee can purchase a high-deductible insurance policy for $2,500 to $3,000 to protect against catastrophic medical costs, then supplement it with a tax-sheltered health savings account (HSA) to cover smaller expenses. Unused HSA funds can be rolled over, kept for use the following year.

Besides, this is only the first step in the consumer-driven concept, Professor Herzlinger says. Advocates see the beginning stages of a "let a thousand flowers bloom" experiment, with insurers creating new forms of coverage and doctors and hospitals experimenting in the ways they price and deliver healthcare.

A key to success: consumer access to accurate healthcare data - perhaps mandated and audited by the federal government - so individuals can make informed choices.It's "absolutely, dramatically important," says Newt Gingrich, former speaker of the US House and an evangelist for the movement. Programs such as Medline (, an online database of medical information provided by the US National Library of Medicine show what is possible, he says.

The full impact of CDHPs won't be felt for three to five more years, he adds, which suits him just fine. "Health is the largest single sector of the economy; it's a matter of life and death; it's an enormously complicated system," says Mr. Gingrich, whose Center for Health Transformation is holding seminars on healthcare innovation in November. "And I think you have to view it that way. This is not something that can or should change overnight. I'm very happy with a gradual rollout."

Cheaper by a third

The US ought to take a look at Switzerland, Herzlinger argued recently in the Journal of the American Medical Association. The Swiss have universal health insurance, not from the government, but bought from insurers. It's mandatory, like car insurance, but the poor receive government money to pay the premiums. They still make their own choices.

The result: The Swiss have an excellent healthcare system and excellent outcomes with patients, but with one-third lower healthcare costs,she says. "It shows what a consumer-driven healthcare system can do," she says.

Others remain unconvinced. "We should be focusing on what's out there that's working rather than some theory that if only patients paid more money the cost problems would go away," says Karen Davis, president of The Commonwealth Fund and author of one of the cautionary reports on CDHPs. "There just isn't any evidence that supports that."

"It's probably a good idea to make consumers more aware of what care actually costs and make them a little more prudent," says Laura Tolen, who coauthored the Kaiser Permanente report. But in her opinion CDHPs "are not likely to have the really widespread beneficial impact that people might hope."

Economist Melnick is among those who worry that CDHPs might come too quickly.

"This consumer-driven model assumes that consumers have the information they need to be rational," he says. "We're not even set up for that now."

Herzlinger acknowledges she sees growing resistance, but takes it as a good sign. With giant insurers such as UnitedHealthcare now offering CDHPs, the landscape is already changing. After millions of workers make their next round of health-insurance choices in November, the US will know even more about just how quickly.

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