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Sell Patients like Baseball Players – Seriously

Joe Flower Here’s a health care reform strategy that I have not heard anywhere else. Think about this:

Why aren’t health plans more aggressive in promoting the long-term health of their members, like getting them to eat better, stop smoking, get a little exercise, and all that? Because of “churn.” For something that has immediate consequences,  helping their members stay healthy has an immediate payoff for the health plans. But most of the big things that would make you healthier take a longer time to manifest: You quit smoking or start eating better, you will have a much better health profile in five years, but it won’t make as much of a difference in, say, one year.

“Churn” is the industry term for the annual percentage of  members who leave a health plan, and it can be surprisingly high. If each year 20 percent of a health plan’s members go to some other health plan for whatever reason (they move, lose their job, change employers, get Medicare, find a better deal), then it is not worth it for the health plan to invest in their members’ long-term health. If the health plan invests time and effort (which means money) to get you to quit smoking, and you then quit and become someone else’s customer, they lose that investment – and the other company gains, by getting a customer who is less likely to need expensive long-term treatments.

But what if they did not lose that investment?

What if your long-term health profile were a corporate asset of your health plan? What if, when you changed health plans, the new health plan had to pay the old health plan for the rights to insure you? Call this a health plan member’s Net Asset Value. If you don’t smoke; have a body mass index of 26 or below; and your cholesterol, blood pressure and resting heart rate indicate basic cardiovascular fitness and so forth, the new plan has to pay a high price for those rights, because you’re a valuable customer: You will pay your premiums, and have a lower risk of making expensive claims. If, on the other hand, you have diabetes, are obese, or smoke (or all three), you have a low Net Asset Value, or none.  The new health plan has to take on the risk of your medical expenses (in an environment where they can’t exclude you for your pre-existing conditions), but at least it does not have to pay anything to get you as a customer.

The idea would have to be established and enforced as an industry standard, presumably by some semi-governmental body similar to the Financial Accounting Standards Board, and enforced by state insurance regulators. But there is no reason that the price of such Net Asset Values would have to be set by any official body.

They could be bundled and bid for in auctions that would dynamically find the true market value of a member’s long-term health status in each regional market.

Ironically, older patients who changed to a healthier lifestyle would create more value than younger ones. A 22-year-old who smokes is not likely to get COPD or lung cancer by the age of, say, 27. If a 22-year-old quits smoking, it doesn’t change their 5-year health profile as much as it would for a 60-year-old who quits smoking. So, as you get older, the health plans’ eagerness to help you get healthier increases. Yet, unlike schemes that would increase premiums for the less healthy, this eagerness is never coercive on the individual patient, and makes no assumptions about why a particular patient has a poor health profile, or how much it is actually under their control.

It has been estimated in various studies that some 70 to 75 percent of all health care costs derive from chronic conditions. You may be dealing with a heart attack, for instance, but that is an acute manifestation of chronic heart disease. It is similarly estimated that some huge fraction of health care costs derive from, or at least vary with, behavior. That is, to a large extent, what patients do drives their health status, through their addictions, whether they exercise, whether they text while driving, whether they smoke, how they eat, how they handle stress.

So there are vast sums (and we are talking, literally, trillions of dollars) to be saved by getting people to change their behavior – but almost no one in health care actually has any incentive to help them do that.

Health plans compete now in all kinds of ways to lower their risk by getting healthy customers and avoiding sick ones. What if they could also compete by creating healthy customers for other health plans? What if they could recover the invested value in customers that they lose? They would have a much greater incentive to help their members become as healthy as possible, not only for the short term, but for the long term.

We hear a lot about “perverse incentives” in health care: Your disease benefits a lot of players in health care, your staying healthy does not. Smart people have been asking, “Why isn’t anybody really paid to help me stay healthy, rather than to just treat me when I am sick?” To answer that question, we have to identify what economic value is created by your staying healthy, and who gets that value. If we could make sure that value accrues to an organization that has some leverage in keeping you healthy, we will have created a powerful economic engine for health.

Selling patients: Remember, you heard it here first.

With nearly 30 years’ experience, Joe Flower has emerged as a premier observer on the deep forces changing healthcare in the United States and around the world. As a healthcare speaker, writer, and consultant, he has explored the future of healthcare with clients ranging from the World Health Organization, the Global Business Network, and the U.K. National Health Service, to the majority of state hospital associations in the U.S.  He has written for a number of healthcare publications including, the Healthcare Forum Journal, Physician Executive, and Wired Magazine.  You can find more of Joe’s work at his website, www.imaginewhatif.com, where this post first appeared.

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matthewEllenRJim BertschMGGary O. Recent comment authors
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inchoate but earnest
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inchoate but earnest

MG – now that you’ve pointed out that financiers are taking another look/another try at securitizing life ins. policies, go ahead & point out the problems with doing that for health status (my personal feeling is that to have the remotest chance of feasibility, conventional health insurance policies, with their short term orientation,do not have adequate duration; but I digress).
There are problems with the idea, and possibilities in it – why not lay them out, as you see them? (Yes, I am too lazy just now)

MG
Guest
MG

This whole conversation avoids talking about the most basic issue – that you could get the broader population healthier through much cheaper means by broader public health initiatives and other policy planning issues that have a pretty direct impact on health. This country though has always treated public health funding as the red-headed stepchild of funding (especially at the state level) and there are powerful & vested interests that prevent much of anything from being accomplished at the federal level.

MG
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MG

Hell, they have started to securitize life insurance policies now by rolling them up into CDOs, chopping them up into risk corridors, and selling them to interested buyers. Let’s do the same with health insurance policies!

inchoate but earnest
Guest
inchoate but earnest

jd, tip of the cap for referencing Kahneman/Thaler et al in this discussion’s context. Nudge is a tepid serving of behavioral econ, but may help Margalit & others begin to re-imagine the “how do we provide health care better from here?” problem, get them over their comfortable presumptions of villainy (tip: even if there are villains where you’re looking, they’re gonna be there tomorrow, so learn to subvert them), and refresh their view of the challenges involved. One point re: the (sometimes, in some situations) greater power of penalties vs rewards: that seems mostly true in situations where the “penalty”… Read more »

Peter
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Peter

jd, glad to see you posting again. Yes, insurance is only part of the problem, but it is the first part of the problem that if left as part of the system prevents advances that will actually bring down costs. I don’t believe the battle can be won trying to change cultural bad health habits (at least anytime in the next 100 years), but trying to use wellness programs in the present system will not work because of churn and the doubtful payback to any one insurer. Tax bad habits so that at least the money collected can pay for… Read more »

EllenR
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EllenR

Screw the insurer!
Why aren’t people mindful of their health value?
Doesn’t it ever occur to anybody that if they keep their BMI below 26 and stop smoking and attend to their chronic problems that they’ll feel better and live a happier life?
Argh…

Jim Bertsch
Guest

It is an interesting idea to treat insuree profiles as assets that can be bought and sold. It reminds me of mortgages that are bought and sold by banks. The bad risk profiles cannot be traded when they have negative value so bad risk profiles are bundled with good ones and sold. Seem familiar — we end up with the same kind of toxic financial junk that collapsed the real estate market. Original insurers are consumers of unbundled profiles. In a free market they make the purchasing decisions. When they are compelled to make a bad purchase, the free market… Read more »

Margalit Gur-Arie
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Margalit Gur-Arie

jd, I think you are right. I don’t think we can have a single payer system, or even a multi payer system that provides universal care and is regulated like in several European countries. At least not in the very near future. I’m starting to agree with Matthew that things will need to get a lot worse before they can get better.
As to various health & wellness programs run by insurers or employers, I guess I suffer from a fundamental disbelief that the right goals can be achieved by actions taken for the wrong reasons.
I will look that book up….

jd
Guest
jd

Margalit, I think you’re dealing with caricatures here in some cases. Several of us also noted the simplest way to solve the problem of health and wellness efforts not being financially rewarded is to create a single payer system. There would be no switching from one plan to another, leaving the efforts of one plan wasted from its point of view. However, there is no reason to think we’ll get healthier as a nation if we switch to single payer from a reasonable multipayer system. Are the English healthier than the Swiss? What does the fact that the Swiss or… Read more »

MG
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MG

This strikes me as one of those provocative pieces you see in a policy wonk journal or from a think-tank that sounds interesting but would be very problematic to set up and be open to heavily political influence and gaming by insurers.
As for the baseball free agent analogy, I would suggest another one. There are some similarities but some key differences too including the basic fact that the baseball draft applies only to amateur talent in the U.S. Everywhere else it is spend as much as you want including players from Latin America and Asia.

Margalit Gur-Arie
Guest
Margalit Gur-Arie

This is ridiculous. I’m fairly certain that Joe’s post was in jest (I hope). So first my indignant reply was ridiculous (my apologies) and then all this debate on the financial feasibility of doing this crazy stuff is actually funny now that I read it all together. Cell phones minutes? Interpreting & anticipating human & institutional behavior? Healthcare financing is in a “headed-to-ruin rut” because it’s too complex. There are too many variants and too many stake holders, all needing to make a buck. It’s a bureaucracy dream come true and we keep adding more and more layers of it… Read more »

Jd
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Jd

Gary, how many of these causes of member churn would be impacted by increasing member loyalty? From Joe: “(they move, lose their job, change employers, get Medicare, find a better deal)” no matter how good a health plan is you’re going to get churn of close to 10% a year on a member basis. It can be lower than that for groups. 90% retention is good enough to invest a lot in wellness for community-rated products on the health plan side, or ASO and to a lesser extent experience-rated products on the employer side. Unfortunately, in the small-group market where… Read more »

Jd
Guest
Jd

Peter, incentives are the problem, along with corruption, ignorance and a lack of political will.
In the current system insurance contributes to the mess, as does every other part of the medical-industrial complex. Obviously, insurance is not parr of the problem in places like The Netherlands, Germany or Switzerland.

Gary O.
Guest
Gary O.

Flower has is backward. He contends that high “churn” rates are the cause of health plans failing to be “aggressive in promoting the long-term health of their members.” More likely, high churn rates are the result of health plans failing to promote the long-term health of their members. Kaiser Permanente’s integrated model of care focuses not only on the spectrum of medical care that a patient may need at any one time, but also on members’ interactions with the organization across time and the continuum of care—clinic, hospital, home, hospice, or extended care[, including preventive care needs]. It has been… Read more »

Jd
Guest
Jd

Tom, believe me a lot of people in insurance have been thinking about this and even taking steps to do it. But government creates barriers. Let me say this before Nate gives a nastier version: taxes and restrictions on rewards are among the biggest problems. Taxes are a problem because employers get a tax break for the cost of insurance, so the net cost to insure you is cheaper for an actuarially equivalent benefit set. When you consider that on top of this employers subsidize over half the cost of health insurance (and are required to cover some of the… Read more »