Grace-Marie:……Something that allows them
to afford health insurance with higher deductible health insurance
policies that have lower premiums and basically have health insurance
rather than being uninsured. So that’s one of the things that the early
data is pretty predictably showing us that between 30 and 40% of the
people who are signing up for health savings accounts were previously
uninsured. That includes individuals. That includes small businesses.
That were either ready to drop out of the market or dropping out or had
dropped out already, and said, "Well gee maybe I can really afford this
higher deductible policy, and make sure I am protected, my family is
protected, in case something does happen that would cause us to have
really impossibly high medical bills." Which in most instances is the
first step you take into a hospital emergency room.

The
difference really between buying a home owners insurance policy that
covers you against floods or fire or the roof blowing off your house,
as opposed to buying a home owners insurance policy that pays to have
your front door painted. Most people know that would be a prohibitively
expensive homeowner’s insurance policy, so they opt for the policy that
pays for the things that they could not otherwise afford to pay for and
then they do the routine maintenance things themselves. And that’s
really what health savings accounts do. However, they also allow people
to have preventative maintenance as part of their health insurance
contract. So if they need a colonoscopy or a mammogram or even
prescription drugs to help them ward off high cholesterol or high blood
pressure, that could also be part of the insurance contract. So there
are a lot of people who find that is an attractive alternative to
traditional health insurance, that basically for millions of people it
is just unaffordable.

Matthew: OK,
to a certain extent I think that you could, I’d argue that’s not
exactly how they’re being sold. And I think that to lay my position on
the table, I think overall the healthcare insurance market is, well
from your research I think you’d agree with me, is in pretty disastrous
shape. We may disagree about the reasons for that. We may disagree
about the solutions to it, but I think that there’s a fair agreement
that it’s an inefficient marketplace at the moment, especially on the
individual side and as we also know in the group market which is
primarily an employer-based market. Employers are getting out of
offering insurance anyway. 

Grace-Marie:
Well yes there is declining insurance, but it’s actually the small
groups that have a bigger problem than individuals. The individual
market is a lot more robust than we tend to think sort of in this
mythology about the healthcare system. There are online brokerages.
People buy health insurance directly through eHealthInsurance and other
online. Very affordable policies

Matthew: Oh of
course and I’m not debating that there are that you can’t buy it
online. I’m a classic example of that myself. I’ve just bought an
online insurance policy over eHealthInsurance, and somehow or other
this year I managed to get under the underwriting barrier which had
previously throwing me out. And my insurance policy was less than a
fifth of the price I was quoted in previous years from basically the
same company. I’m a perfect testament.

But here’s the problem with that, this year I
got under the underwriting barrier because I didn’t think I was going
to be sick. A couple of years ago, I wasn’t, and there’s a huge amount
of underwriting in the individual market. So I basically just disagree
with you about the fact that the individual market is robust and
useful, because it’s only useful to people who aren’t sick. But that to
my mind is where we are, and I think that you could argue that the
reason that people try to get into group policies of various kinds such
as joining associations or whatever else is because that means they can
merge their health experience with other people. And so only sick
people want to join that.

Grace-Marie:
You really, the important thing is that you can have a policy that you
own and that you can keep for five or ten years, and that policy, your
relationship with that company. They are contractually obligated to pay
for your healthcare costs if you get sick in any one-year and wind up
with 50 or 60,000 dollars or more of health insurance bills. Just like
your homeowners insurance may not hear from you for ten years and then
you have a claim, and they can’t say, "Well, we’re sorry we don’t want
to cover you because now you’re an expensive client and before you
weren’t costing us anything." You have a contract with that insurance
company. That’s where we can move with the system of individual
ownership of health insurance affordability and HSAs really help enable
that.

Matthew: Well,
I mean, again I’d agree with you that once you’re in the system that is
correctly how it’s supposed to work. Although this week we do have the
news that a certain large health insurance company has been canceling
policies, and there is a lot going on that I think you could argue back
and forth over. But I don’t want to get so much into the specifics of
whether or how individual insurance companies underwrite and all the
rest of it. I’m kind of more interested in the comment which I starting
with, which I was hoping that you were going to take up, which is
"What’s the solution for the overall market?"

I’m inclined to agree with you that although
it’s not that the overall solution I think for the whole healthcare
system that at the margin you’re better off having a high deductible
health plan than having nothing. They’ve been around for a long while.
I mean the HSA makes them more attractive to people in the higher tax
bracket, but the policies themselves have been around for some time.
They’re fairly cheap. They’re being promoted a bit more. I’d argue that
the way they’re being promoted now is incenting employers to get out,
particularly large employers with high income populations who can
afford it, incenting them to get out of first line coverage and moving
them towards cost sharing with their employees—which if you look at
Intel that’s clearly what’s happening.But, you know, this is
all stuff at the margin of the system that has many problems. Can we
talk perhaps about the overall concept of having people having a
population buying a high deductible policy or if you like having a
population in which you are a significant amount of the healthcare
costs into a private, self directed account? Is that something that you
think should happen more widely?

Grace-Marie:
Well, I just want people to have this as an option. And I really think
everybody needs to make their own decisions for themselves and for
their families about whether or not this works for them. But I do think
it’s important when you look at our overall healthcare system which has
of course got lots of different compartments from Medicare, and
Medicaid, and the state children’s health insurance plan, and
individual insurance, and employment based health insurance, and we
need to look at those with people in their particular circumstances and
see would it make more sense to you to have a higher deductible policy
so that you can keep your health insurance. We have 45 million people
who are shut out of the health system at any one time. Some of them are
flowing through because they are moving from one job to the next and
they are in a period of several months without coverage. But basically
health savings accounts can give these people an option to have health
insurance that they otherwise might not be able to afford. So it’s not
so much the account as it is the high deductible health insurance that
must accompany the account that I think is beneficial for society.

Matthew: Wait.
Wait. Let me stop you there for a second. The argument you will get,
and I can take you through it, and I’ve been looking for somebody to
answer this for me for a long time, is the issue about beneficial to
society. I clearly understand how, if you couldn’t afford it before and
you can now buy a cheaper insurance policy, that’s a great thing. I
also understand that if you are able to put aside money in an account
and you don’t spend it because you’re basically healthy or you don’t
spend much of it and you get to roll it over for the next year or you
get to keep it, that’s also a great thing. But the core principle
behind insurance and for that matter behind healthcare is the issue
that many people on your side of the political spectrum have
acknowledged but don’t seem to have answered which is the issue that
80% of the costs go to 20% of the people. In fact, it’s more like 90%
of the costs go to 20% of the people, and that therefore everyone else
needs to pay into the pool to fund those folks.If you take
money out of the pool and say to the healthy people, "You don’t have to
put in 40%, 50%, or 60% quote-unquote of the premium or of the amount
you’re putting into the pool, " there’s not enough money left in the
pool at the end of the day to care for the cost of the sick and so
somebody else has to make up that difference. That’s the theoretical
underpinning that you know there’s a mathematical problem that no one
seems to have answered successfully in my view.

Grace-Marie:
The issue really is people can afford the health insurance contract.
Let’s talk about traditional insurance with a $250 deductible and
everything is covered after that at an 80/20 rate. That the person who
has chronic illnesses is pretty quickly going to wind up being part of
the insurance contract, and that’s going to be true whether they have a
$250 deductible or a $2,500 deductible. But for the great majority,
those 80% of people who aren’t going to have high health costs, what
you’re doing is saving them and the whole system from running all those
little bills through the health insurance system and through the third
party payment system and having doctors have to hire batteries of
clerks and having insurance companies having to process all this
paperwork and you and I having to deal with all these forms. Just get
rid of that. Let’s deal with health insurance as a major risk issue
kind of thing.

I mean when you put more people in that pool,
the people who are sick are going to be better protected. You’ve got
people in that pool who are saying, "I’m going there. I’m not going to
buy health insurance." Let’s say you get 10 million, 20 million more
people buying health insurance who were not buying it before, and
they’re helping to subsidize the people who are going to have higher
health costs. That has a way of spreading the risk that they might be
the next one.

Matthew: Well,
there are a couple of pieces to unpack here and I think you have
philosophically totally lost me on the last part. I’m with you on the
issue that yes it’s incredibly complicated. The way we currently buy
health insurance is incredibly complicated. Sorry, the way we buy
physician care and low-dollar care is incredibly complicated and has a
lot of waste.

Grace-Marie: And unnecessary.

Matthew: And
unnecessary waste, no question. I honestly think that’s going to change
much because the typical HSA HDHP product is being sold by a large
insurer, which is still within its PPO-negotiated network. I think that
it’s a physician fantasy that they’re going to end up directly billing
the employee, sorry their patients, with a price list, but maybe it’ll
work out. But take that to the side for the moment. I mean let’s take a
really basic mathematical example. Let’s say you’ve got I don’t
know 100 households spending $10,000 each on medical care, just
roughly.

Grace-Marie: Those are pretty realistic numbers.

Matthew: Yeah.
And you have a million dollars being spent on the care of those
households. If you forget premiums and other contributions to that
pool, a million dollars is being spent and the typical insurance, let’s
say everyone was just buying premiums and had full first dollar
coverage a million dollars and let’s say every family put in $10,000
just in the sort of fantasy world that would be the premium. That’s
kind of the old world that we were taught was going to happen.

Now I’m not denying and let’s take out there
are all kind of problems and there are all kinds of issues around
medical authorizations and all the rest of it, but let’s just say
that’s the case. We know that 800,000 of those dollars are going on 20
of those families, 20 of those households. If you say, instead of each
family putting in $10,000 into a risk pool, but each family takes out
say $5,000. What is the family HSA rate? It’s about $5, 000 you can put
in an HSA now, and it has a high deductible policy. So the family does
that instead. You now have half a million dollars, 250,000 of which is
not being spent on care, because the average person in the healthy
household, the average household, is only spending about two and a half
thousand dollars on its care whereas the the sick household is spending
$40,000.So when you get to the end of the year, you’ll
find that the people in the sick households have blown through their
$5,000 account and you’ve got to spend another $35,000 on each of them.
You’ve got to find $700,000 to cover their care, and you’ve only got
$500,000 in your original pool. To my mind you have to look and see
where that number is coming from.

Grace-Marie:
There are people spending $40,000 every year. Those numbers of 20%,
80%. A lot of that is coming from people who are very sick. They’re the
elderly. There’s Medicare, and there are very sick people who…

Matthew: And I’m not denying that, I’m talking purely theoretically.

Grace-Marie:
…a support system to support that. But what you would find in the
general marketplace is that there may be five families that have
residual every year expenses. And those are the ones you want to keep
in the private insurance pool so that you can really have insurance be
insurance.

Matthew: But
if they are the only people who stay left in the private insurance
pool, where does the money for the pool come from to cover them?

Grace-Marie:
It comes from people who… The problem with your charging $10,000 a
year to people who aren’t using the system very much is what we’re
seeing right now is people saying, "I can’t afford this. I’m getting
out." And you don’t wind up with $5,000. You wind up with zero with a
lot of people saying, "I am going to take my chances, that if something
happens to me and I have to go to the emergency room that Medicaid will
pick it up or it’ll be on the hospital will have to take the cost and
eat it, because I can’t afford to pay."So what you wind up with
is fewer and fewer people participating in the insurance pool because
their premiums are so high, and it actually makes it harder for the
people who have chronic illnesses and who need insurance to have other
people in the pool who are willing to pay in every year on the chance
that something might happen that they need insurance.So I
actually say that the higher deductible policies that are less
expensive are more likely to keep more of their family in the insurance
pool than charging them $10,000 every year for insurance that they
don’t use. And that’s actually, because people spend $10,000, $12,000 a
year for insurance, that’s why they say, "Well, I want to make sure
that every single thing that I use in the healthcare system is covered
by my insurance because I’m paying so much."And what we find
with people with consumer driven plans is they become better accustomed
to looking for value instead of calling, they’re getting their child
wrapped up in the night because he’s got a sore throat and they’re
worried it might be something more serious. They take him to the
emergency room because the insurance will pay.

If it’s coming out of their account, they
say, "Maybe I should start with the nurse hotline first, see if there’s
something that requires me to go to the insurance company, or maybe she
could just call in a prescription to the 24 hour pharmacy and I’ll be
OK." The health system then saves $1,000 it would otherwise have spent
on somebody who could be making better use the system.

Matthew: Well,
I mean you could argue and you go back and forth on this and it goes
all the way back to the Rand health insurance experiment as to whether
or not you get rid of inappropriate care or you get rid of appropriate
care or whether or not.

Grace-Marie:
Well, Rand pretty much showed that spending more on healthcare and
going to the doctor more often does not, over their five year period
seem to have an impact on costs.

Matthew: Now
that and I mean if you want to be a real health economist doctors
actually cost money and we should get rid of them all. But we’re
probably not going to do that. But that’s definitively true, that if
you add surgeons to an area you increase the rate of operations and if
you reduce the number of physicians overall health costs stay the same.
But that not a practical argument. That’s not what we’re talking about
here. What we’re talking about is, what are going to do to that overall
risk pool? And it seems to me, you seem to be arguing that well let’s
take another example. Let’s say all the 45 million uninsured, all those
families, ended up buying a high deductible health plan. How are they?
I still don’t understand how we’re going to cover care for the people
who are really sick in that group in any one-year.

Grace-Marie:
Because you’ve got, instead of having your 100 people or families in
the pool, you’ve got 120 families paying. They’re going to be paying
less because their premiums are going to be lower because they’ve got
the higher deductible insurance. You’ve got more people in the pools.

Matthew: Let’s
say that we’ve got 120 families in my example who are paying $5,000
each into the pool. So we’ve now added another $100,000 into our pool.
We still are running short $200,000 because of the sick people we had,
and we’re adding probably we’re adding two more families who are going
to cost another $80,000. I mean the only way to do this.

Grace-Marie:
But those numbers are not going to hold up over time. The insurance
company will…the thing they are good at is pricing the policy that
makes sure that they will be able to cover the costs based upon the
premium they are charging everybody in that pool. You will have the
premiums priced at a rate that will cover the costs of those high-risk
people.

Matthew: And the way they do that is to exclude those people. Sorry too cynical. Say that again. The last part.

Grace-Marie:
The more people you have in the pool, the lower the premiums can be.
But that is not an arbitrary number. It’s a number that is determined
by the insurance company’s actuarial estimates of the usage of that
pool of healthcare costs. And they will price it according to the
expected usage of healthcare. And the individual families will make
their own decisions about, just as they are now, can I afford those
premiums for this protection and is it really worth it for me?

Matthew: You
still, I think what you’re arguing is that because I’m now responsible
for my health services account for the first chunk out of pocket, I’m
going to use substantially less care overall as a household.

Grace-Marie: Some people are more likely to ask for generics.

Matthew: No, no. We don’t have to go through that data.

Grace-Marie:
They are more likely to question the doctor. Do I really need this MRI?
Are you doing this because you want to protect yourself or is it
because I need it? When you find people being more informed consumers
about the things over which they have control.

Matthew: But
the problem is they don’t have control over the vast majority of
healthcare spending because it’s past it’s beyond their deductible. And
most of the money in the pool is required for the people who are beyond
the deductible. It’s being spent on the people who are costing $40,000
each, not the people who are costing $2,500 each.

Grace-Marie:
But they don’t cost $40,000 each every year. They may have one year in
which they have, someone in the family has cancer, and then the next
year their costs are $20,000 and then the next year they may be $5,000.
So you don’t have consistently the same people every year using $40,000
worth of coverage.

Matthew: In that case, why do insurance companies underwrite people?

Grace-Marie:
There are government programs that are subsidized by the taxpayers,
because we know they basically aren’t insurable. What we want to do is
have insurance for the people who are insurable and make that market
work so people have the freedom to purchase the policy and make the
financial arrangements that work best for them and structure their
healthcare financing.

Matthew: All
right. So you’re contention is that the, and just so I understand this,
your contention is that because over time the burden of disease if you
like or sickness or costs will rotate amongst the members of the pool
that go from year to year, that in fact everyone will be better off in
a high deductible pool because they’ll be paying in each year and
although their out-of-pocket costs in the one year when they are sick
will be high they’ll be lower in future years. And that their overall
costs will be low. I mean I think that is what you’re saying.

Grace-Marie:
What I’m saying is it’s better to have more people rather than fewer
people in the insurance pool. What you wind up having when you wind up
with a death spiral in health insurance is that it’s got such a small
pool of only sick people that the premiums get higher and higher and
people drop out. What I want is a broad base of people participating in
the health insurance market, and the only way you’re going to get that,
whether it’s individuals purchasing health insurance on their own or
companies buying it for their employees, is to have those premiums be
reasonably priced and affordable. And I’m saying that I think the best
way to get there is to have a higher deductible policy that is real
insurance that is available to the vast majority of people who want to
buy health insurance and who need it and not run every little small
bill through the insurance company to the point that it gets so
prohibitively expensive that people and companies drop it. I think that
is bad for people and it’s bad for society. They are so expensive that
people, a consumer, can’t afford it unless they are sick or chronically
ill. That’s not the kind of vision I see for costs of the future of our
health insurance system.

Matthew: But it’s expensive because of the expensive people, not because of the little things that are being run through it.

Grace-Marie:
It’s expensive because… There’s a new study out by America’s Health
Insurance Plans a product done by Price Waterhouse. And it looked at
where the cost increases for health insurance are coming from. Some of
it is just general inflation. A lot of it is utilization, and a lot of
it is defensive medicine by doctors that are prescribing tests and
prescribing drugs and prescribing treatments that they’re doing to
protect themselves. And there is no check on that for consumers to say,
"Do I really need this?"And unless we begin to delve into some
better constructs to help people be more active in their care. One of
the things we see with high cost patients like those folks with
diabetes is if you engage them through consumer directed healthcare
programs by getting them better educated, giving them incentives to go
to the doctor, making sure they are taking their medicines and making
that as part of an active consumer directed product, that you can cut
costs for diabetics. So it’s not just that you are saying forever that
high cost patients will always be high cost patients. Let’s engage
ourselves in making sure they are also partners in managing not only
their health but their healthcare costs.

Matthew: And
you are right to say that, but you can do that many other ways. The
Disease Management Program that has been run inside of the Kaiser
system or been run within the VA have been very effective at reducing
costs. And you know you’ll get no argument from me that consumers and
patients should be more involved in their healthcare and all the rest
of it.

Grace-Marie: You can’t say there is nothing to be gained.

Matthew: No of course not. But that’s got nothing to do with how you finance the actual care.

Grace-Marie:
Oh, sure it does. People are just saying, "I don’t care how much I’m
spending on healthcare. Somebody else is paying for it." If you’re
saying, "Gee, I’ve got a stake in this."

Matthew: But
that’s already the case in Kaiser and the VA. Somebody else is already
paying for it, and they’ve shown huge savings and huge quality
improvements. How do they manage to do that?

Grace-Marie:
And they also have a population of people who have chosen those
policies. Both Kaiser and the HMOs have chosen those policies because
that fits well with their philosophy. They’re much more likely to be
compliant with the recommendations, much more likely to accepting of
some of the restrictions the HMOs and the VA place on people. But
that’s not going to work for everybody, and what we need to do is
engage people more actively in managing both their healthcare and their
healthcare finances. And McKinsey, as I was about to say, did a study
recently, and it solved that people with consumer directed healthcare
plans were more likely to engage in prevention, to become more aware
more active participants in making decisions about their healthcare.
And they asked them, "Why is that?" And they said, "Because if I take
better care of myself, I’ll save money in the long-run."

Matthew: Well,
there’s also, I mean, Grace, we could argue back and forth about these
studies. The Price Waterhouse study also said the main cause of
increased costs was technology, which has been clearly the case.

Grace-Marie: That was one of the contributors.

Matthew: Yeah.
But that’s been the case, if you look at studies done across national
comparisons, Anderson’s study in Health Affairs show that actually
utilization it stated wasn’t the prime change in healthcare costs, it
was more the pricing.

Grace-Marie: There was Mark McClellan and Medicare.

Matthew: And
Mark McClellan’s study of defensive medicine was responsible for maybe
8%, if you were very generous with the way you counted it, of all
healthcare costs and overall costs are going up at 10% a year. It all
comes down to the point that if you’ve got a group of high cost people
I just simply do not see if you say that we’re going to sell low
premium insurance plans to healthy people that there will be enough
money left in that pool. And you may get more people buying into it but
the only way it’s been done successfully by the insurance company
selling this is to underwrite out the people that you think are going
to be sick. Because according to your logic, there should be no
underwriting.

Grace-Marie: There are 45 million people who are not participating in the health insurance market.

Matthew: I know.

Grace-Marie: How can it not be helpful to get them to purchase health insurance at a more affordable premium?

Matthew: I’ll tell you why. Because the…

Grace-Marie: It’s a broader base for health insurance. That’s the premium.

Matthew: The
problem is the way the HDHPs are being sold with HSAs at the moment is
more as you said. OK so if you believe the numbers that what is it 40%
of the people buying these products are uninsured, that give you 60%
who are leaving the insurance pool from the employer side. Who
basically…

Grace-Marie: No, that’s not necessarily true.

Matthew: Well, where are they coming from?

Grace-Marie: You said 40% previously uninsured?

Matthew: I think that’s the number you quoted.

Grace-Marie: Yes, so that means 60% are moving from some other kind of insurance to high deductible policies.

Matthew: Which
is almost certainly coming from employer based insurance, which as you
said has been falling off. So you’re seeing less money being provided
by employers into the pool and less money by the individuals in the
pool. So overall, it’s reducing the amount of money going into the
pool. So how does that help the system?

Grace-Marie:
It’s a matter of are you sending that whole $10,000 of to the insurance
company, or are you putting $5,000 into an account which is $5,000 into
insurance and $5,000 into the account, and it still comes out even for
the company. Then that one person may have expenses in one year of only
$2,000 so they have $3,000 to roll over to the next year. Next year
they have $8,000 in the account. So individuals instead of sending al
that money every year off to the insurance company, individuals start
building their own accounts.

Matthew: Look, you don’t have to tell me. I understand the rhetoric about building money over time and all the rest of it.

Grace-Marie: It’s really just the numbers.

Matthew: Look
for the employers it’s great because you’ve now got out of half the
cost. You’re telling the employers to put their money in. If you look
at it, and that’s why Intel dumped their first dollar coverage. They
said, "If you’re going to join, you’re either going to pay for your
premiums for the expensive full-benefit health program, or we’ll give
you a $4,000 deductible which we’ll cover premiums for the cheap part."
And I understand how that’s working out. I mean I’m a realist about the
way the market’s working out, and what employers are likely to do. What
I’m arguing is that you’re just as likely, you’re hurting the pool by
the new people who are contributing to the high-deductible plans as you
are helping it by getting some money into the pool from those that are
uninsured.

Grace-Marie:
More money in the pool. That’s got to be helpful. People putting money
in the pool who aren’t using health services and are willing to make
that trade-off because they’re saying, "The premiums are lower. I can
afford this. There is the risk that I get hit by a truck or someone in
my family gets cancer, and I want to make sure I get insurance coverage
if that happens." They’re much more likely to pay that premium if it’s
lower than if it’s higher and they say, "I just can’t afford this high
cost health insurance, especially when I don’t ever use the healthcare
system.".

Matthew: So this is only good if we’re only attracting healthy people into the pool. What about uninsured people who are not healthy?

Grace-Marie:
What I’m saying is, I think there is a huge potential pool of healthy
people. 45 million uninsured. Many at home could purchase health
insurance, not only with the some of the subsidies that Congress and
the White House are considering, but also if the health insurance were
more affordable. We are shutting out tens of millions of people from
buying health insurance by saying, "You can only have traditional
policies with a $250 deductible and $10 out-of-pocket copay, and by the
way it’s going to cost you $1,000 a month." A lot of people can’t
afford that.

Matthew: But
there are two things going on. One is that high deductible policies
have been around for a very long time, and we’ve had the uninsured for
a very long time.

Grace-Marie: Not really.

Matthew: I had one in 1998.

Grace-Marie: Just a few individuals and some farmers had high deductible policies, but it’s a new thing for American businesses.

Matthew: It’s a new thing for employed people. I’ll give you that.

Grace-Marie: Yes.

Matthew: And
you could go back and forth, but the chances of, we know the majority
of the 45 million uninsured are workers in low wage businesses who
aren’t likely to be offered insurance. You might argue that giving a
tax credit of two grand a year each or five grand a year per household,
they may be able to purchase these policies. That would be great. The
other problem though, if you add them all into the system, and they’re
only putting in say you add 45 million into the system. Twenty-percent
of them in any one year are going to cost 80% of the dollars and we’re
only catching as you said maybe half, maybe less than that in the
premiums.

Grace-Marie:
And I said what we need to do is figure out a better way to not just
throw money at people who are sick but do a better job of engaging them
in managing their own care.

Matthew: No
one’s arguing with you about that. But we also know that most of that
money is not spent at the choice and discretion just of consumers. It’s
also spent at the choice and discretion of the providers and the
doctors and hospitals who make most decisions about very sick people,
and that’s true across any insurance pool. If you ask me there are
plenty of things we can do in that area, but that’s not really a part
of this discussion.

Grace-Marie:
When you have a third party payment system that’s based upon paying
doctors for doing things to people you wind up with a system for
example that will pay for a diabetic to have a $300 or $400 dialysis
treatment or. God forbid, a $10,000 amputation, but they will not pay
$75 for nutrition counseling and exercise counseling. So you wind up
with a system that is totally oriented towards paying medical
professionals for procedures rather than reinforcing these people to do
a better job of being participants in their care. That’s really where I
think consumer directed healthcare, of which HSAs are one example,
involve people in "How can we partner together in doing a better job of
managing healthcare and healthcare costs?"

Matthew: I can’t argue about that.

Grace-Marie: How can they care for yourself if you’re not taking good care of yourself?

Matthew: I
can’t argue with you about that because that’s the core behind disease
management. That’s also the core behind capitation, which was created
essentially as a way to get physicians and medical groups to absorb the
risk as an incentive to get people to use cheaper care, and as you said
the loss of restrictions and things that didn’t go well with HMOs
because of that. There was also no regulation to stop people from
shirking the market against it. But I haven’t seen anywhere a high
deductible plan that is talking about reducing fee-for-service which is
really the basic incentive for physicians to do more, not get it right
the first time, not involve people in their care and you end up being
paid on procedures rather than being paid on the…

Grace-Marie:
Once consumers start to ask questions, I think that will be the next
step. A consumer asking a hospital, "How much would you charge for the
gall bladder surgery? And I want to know the price for the whole
procedure." This idea of package pricing comes. Consumers are going to
start shopping, and they’re going to want to look online and find out
quality and outcomes.

Matthew: But we have that.

Grace-Marie: You’ll see a real transformation.

Matthew: And
this is an argument between people from the Enthoven  school, which I
am in, and people from the Porter school. To my mind there is a place
we do that, which is a package price for how much it is for you to take
care of me as a diabetic, as a healthy person, whatever it is. And that
there is a number there, which is if you like the "capitated" premium
number, per member, per month, or whatever. And you can argue back and
forth. Of course they’re opaque. Of course there is multilevel pricing.
Of course there’s a whole bunch of cross-subsidy in which may or may
not be a good thing, and there’s no transparency. No one’s arguing that
the way it’s happening is a good thing. But if you’re going to focus on
the individual getting clearer pricing of piecemeal activity, when what
we need is better care of a population of certain people over the
course of that population, that’s the wrong thing to look at.

Grace-Marie:
There are people saying, "How much is this going to cost, and am I
getting good value for this dollar? Are you the best person to do this?
I’ve heard that there are other people doing this procedure in a
different way." And people are going to start using health advisors. A
whole new phenomenon I think is going to evolve in the marketplace. And
they are going to become smarter users of the healthcare system rather
than passive participants in a paternalistic system treating that’s
people like cows. They are going to become engaged.

Matthew: But
this new bit that you’re talking about is not coming from the fact that
people are paying in a different way. That’s coming from a larger wider
consumer movement that’s been building up for the last 15 years.

Grace-Marie: But if people don’t have control over the finances, they can’t act on that information.

Matthew: But at the moment they don’t have any incentive.

Grace-Marie:
They will have more discretion and more control over how they use the
healthcare system. And the only way they can do that is being able to
say, "I can direct my resources to a different place because I have
done the research and this is where I want to go for gall bladder
surgery." Rather than be told by their health plan or by their employer
this is where you have to go.

Matthew: Well,
again, you can argue that. It seems to me that that’s the wrong unit of
analysis, but you know you can argue that back and forth. Because in
the end it doesn’t matter if you shave off let’s say the cost for,
let’s say you’re diabetic and no one cares about you, you haven’t been
to the program which has looked after your care and you need your leg
amputated. Yeah, you may be able to go out and bid out the amputation,
but you’d be better off if you paid a fee over years.

Grace-Marie: That is totally the wrong end of the equation. What you want to do is have a guy who will say, " I know I’m diabetic."

Matthew: So they want to choose the best program.

Grace-Marie:
They have an incentive to do the very best job and help me manage my
medications, understand my blood sugar, and make sure I’m on a
treatment regimen so I never have to go to the hospital for an
amputation.

Matthew: And I
agree. I think what you’re saying is that’s a provider based level and
in our procedural based provider system, the only way I see you can do
that is if you are to fund that entity, that Diabetes Center, on an
annual basis or monthly basis for the care of that diabetic.

Grace-Marie:
That’s what’s happening. In fact, the Medicare Modernization Act
actually is providing a new way of having doctors define how they are
going to do a better job of coordinating care for patients with one or
more chronic diseases. And they will be paid based upon their success
and how they do at making sure those people stay healthier, and they
have a big incentive to engage the patient as well in being a
participant in doing a better job. I mean, they can’t be standing over
their patient every single eon making sure they’re eating right. They
have to find new ways to engage participants in their own healthcare.

Matthew: But
of course. But this is being done primarily by innovative provider
based quote unquote managed care organizations. And they’re the people,
you can look at Intermountain, you can look at Kaiser, you look at the
groups who are funding Medicare. That thing keeps on changing its name.
The CCIP it used to be called. It’s now called Medicare Health Support,
I think the program you just mentioned. I think this is a great thing,
and I’m completely in favor of it and you seem to be a great advocate
for managed care which somewhat surprised me at the beginning. It’s
cool, but I mean I’m still confused as to how these different things
are predicated on having high deductible policies. It strikes me that
the financing doesn’t work.

Grace-Marie: I
just want kind of the whole constellation of things involved in
consumer-based healthcare. And the bottom line for me is allowing
consumers to be able to be participants in making decisions about their
healthcare, be actively engaged, find new incentives to do that. If I
want millions more people to be able to have health insurance, and if
we can get that insurance to them by making premiums more affordable
that’s great. But I also want people to have more of an incentive to
see the cost consequences of their behavior. And if they will stop
smoking and lower their blood pressure they may see that they not only
feel better but the healthcare system will benefit as well from
engaging consumers as the managers of their own care and their
healthcare dollars.And whatever the financing question is,
let’s figure out some way to get them. For some it’s the high
deductible policy. For others it’s a much more actively engaged better
chronic care management program. For others it may be a health savings
account. But there is a whole mosaic of things in getting any consumer
to be a more active participant in making good decisions about their
healthcare instead of feeling that they are cogs in a system in which
they have no control, no authority, and no responsibility. In a system
that that is cost-based, we have people wanting to participate, wanting
to take better care of themselves, wanting to purchase health insurance
and being unable to do that because it’s not affordable. High
deductible policies are great. If you can find some other way to do it,
fine. But that’s my goal.

Matthew: I
understand completely, and you’re going to get no arguments from me
about the beauties of having people more involved. And there will be
arguments from me about how much impact people can actually have in
impacting their overall health costs, especially the more expensive
people, but you know you can go back and forth on that. Clearly, there
are a lot of things we can do both with patients and with providers to
improve adherence to practice guidelines and all the rest of that.
Let’s talk about a couple of other things. One is the issue of
underwriting. If we end up in a system, which seems to be where we are
going to, with far more individuals unable to being pushed one way or
another into the individual market, which in most states is heavily
underwritten.

Grace-Marie:
Why do you say that? I think there are a lot of public policy changes
out there that will allow people to be a part of groups in different
ways. Maybe not just the employment groups but perhaps labor unions or
professional trade organizations or even church groups. I think that if
people pool themselves in different ways other than just through work.

Matthew:
Here’s the fundamental problem with that, and this is well known in the
health care literature. If you allow an association to voluntarily
form, and I was just in one by the way, you will attract the people.

Grace-Marie: That’s not allowed. They have to be formed for some other reason besides health insurance.

Matthew: Yeah,
whatever. For whatever reason there is an association. The people who
are buying health insurance for that association are going to be the
people who can’t get it cheaply in the individual market, which is
underwritten.

Grace-Marie: That’s not necessarily true.

Matthew: Of course it’s true.

Grace-Marie: They may find that they could get more affordable health insurance through a group rather than personally.

Matthew: But
they can only do that if they’re sick. I was in one of these
associations. I paid 200 bucks a month for health insurance which I’m
now buying for 100 because I’d been previously quoted 400 in the
individual market. I joined an association like that. And then
eventually I got well enough, or by the way the association got thrown
out of the group it was buying insurance through. But that’s a separate
problematic issue. And when I got re-underwritten, somehow or other I
made it into the healthy group, and my insurance premium was 100 bucks
for exactly the same coverage. If I could have bought it for 100 bucks
in the individual market, I would have done. I wouldn’t have paid 200
bucks to go through the association. So these things automatically have
a death spiral and that’s been the case with all of them .(NOTE Matthew’s
right—the PacAdvantage buying Association went out of business in
August 2006–-4 months after this conversation)

Grace-Marie:
But that’s a very shortsighted view that I think most people don’t take
with health insurance. One of the problems is that everybody thinks of
health insurance as a year-to-year contract. We need to think of health
insurance as a five year or ten year contract. You want to be in a pool
because if one year you wind up with high health costs then you’re
protected because you’re in a pool with other people who are paying
premiums for your health insurance. Over the long run most health
insurance, especially the economics of it, is cheaper than individual
insurance.

Matthew: But
that’s not how people buy it. I agree with you completely, and I think
we should have one big pool by the way in which the whole country is
in. But that’s beside the point.

I want to say we’ve had a wide-ranging
discussion. I want to thank Grace-Marie Turner from the Galen Institute
for chatting with me this afternoon and we look forward to seeing her
in San Francisco.

Grace-Marie: Thank you so much.

Matthew: You take care. Good bye.

Transcription by CastingWords