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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37 replies »

  1. 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)

  2. 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.

  3. 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!

  4. 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” is framed as the possible loss of something the individual already has, based on an action mostly in the person’s control, rather than a “gotcha”, ruler across the knuckles type of penalty – hence loss aversion. You started on that small but important distinction & I just wanted to underscore it.
    As for ‘securitizing’ health benefits risk, I’m still working on my 500-words-or-less explication. Margalit, Peter, Nate, et al are at their most formidable when skeptical… 🙂 I can suggest that Jim Bertsch has laid out the nub of it.

  5. 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 bad habit outcomes. But who would get the benefit of tax money – in a single-pay system, everyone would, not just one insurance group, because we could distribute it to local hospials and programs that serve everyone. The bad habit taxes would lower the taxes collected from everyone to pay for the system so overall it would not mean more taxes, just replaced taxes. I’ll keep touting single-pay even though I know that Americans just can’t bring themselves to admit they’re still trying to make a failing health system work with failed healthcare ideology, within the framework of a failed monied political system.

  6. 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?

  7. 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 stops operating.
    The market is controlled by whomever makes the pricing decisions. This will always lead to inequities and creates a fertile breeding ground for fraud and corruption.
    If you allow the free market to operate, you remove the right of the individual to choose his insurer or even his policy.
    A better approach is to treat each profile as a direct revenue stream into the health care system. The customer makes the purchasing decision and the provider makes the consumption decisions. The customer buys the right to health care by paying for a health care solution (faux-insurance) and consumes it at no additional cost.
    The health care system becomes judicious about its use of resources. A proactive approach to treating preventable problems dramatically improves patients health and the bottom line.
    If the customer is paying directly into the health care system for the right to use it, what happens to the insurance companies?
    How is risk managed?
    The value insurance companies bring to the health care system is they manage risk. The health care system has a stable source of revenue. Patients (in theory) are taken care of in times of great need.
    When the health care system learns to manage risk, absent the insurance companies, care providers collaborate and cooperate to develop major medical solutions. Each care provider can decide the value of each solution and sell it to other providers, resellers or directly to customers.
    Solutions get layered, grouped and packaged until a faux-insurance solution emerges. Risk and reward are built into the faux-insurance solution. Each provider/vendor chooses an acceptable balance.
    Insurance companies in this model are resellers of faux-insurance solutions.
    By self-vending, health care providers gain the upper hand in negotiating prices with resellers. Insurance companies lose their vice grip on the market place and we are better for it.
    The Internet has put us at the doorstep of great social change. It will soon be possible for health care providers to leverage this new power to dismantle the health insurance industry.

  8. 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….

  9. 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 Dutch systems are more complex than the English in terms of the financing mechanism have to do with anything?
    As for the impact of complexity on costs, The Commonwealth Fund did a big study of administrative costs for multipayer European systems and found that their admin costs for financing were about 5%, the same as for single payer systems. Our financing costs are 7-8% (not counting costs of providers to deal with, and game, the financing mechanisms). Do you really think complexity itself is the problem?
    And yes, single payer is a non-starter here for the foreseeable future. I think the battles over even a very modest public option make that clear. So then, what’s wrong with thinking about how to make a multipayer system work better? I agree that “selling” members and their health is a bad direction to go in, but I think you miss the point.
    The point is that we want healthier people, but the financial incentives across the board are set up to punish efforts to make people healthier. So a lot of physicians are half-assed about prevention, viewing it not as their job or as a low-yield activity to be done quickly (I know mine have). Hospitals of course are utterly dependent on people being very unwell. So, why not pay attention to health plans and changes to the multipayer system we have? The point is not to put more money in their pockets as you suggest at one point, but to create the incentives to promote health among institutional players.
    Also, private health insurance actually depends on the “communist” principle that you stated: “Yes, the young pay for the old and the momentarily healthy pay for the currently sick and the rich pay for the poor and everybody pays for kids.” With the partial exception of “the rich pay for the poor,” that’s how private health insurance works! It has always been that way and must always be. Without it, there is only a single person pre-paying for their own medical costs in a health savings account. Yes, some of the rhetoric behind “consumerism” in health insurance downplays this shared-cost principle for short-sighted reasons, but health insurers that seek to provide ever smaller benefits are on a course to put themselves out of existence.
    Finally, this isn’t right: “Use carrots instead of sticks. Most animals respond better to praise, humans included.”
    If you mean to talk about demeaning vs. selectively approving responses, then yes. If you indicate that you don’t like someone, that they are a failure as a person, or belittle them, then this is aversive and people tend to withdraw, lose self-esteem, or become angry and bitter, etc. But giving someone $50 for doing X vs. taking $50 away if they don’t do X isn’t in the same category. Relatively small amounts of money are what we are talking about for carrots and sticks in real-live wellness programs, not psychological warfare in which people are belittled. It demotivates the workforce, which is no secret, so it isn’t done except by extreme outliers. And yes, coupling the money with positive reinforcement from praise, messages of congratulations and social approval is important. That’s part of making wellness part of the DNA of an organization.
    In the context described above, using sticks in the form of small disincentives can absolutely be more effective than using small carrots. People don’t like it, but it works. This comes out of choice theory, particularly the stuff inspired by Thaler and Kahneman & Tversky. If you haven’t read Nudge, definitely take a look. There is a lot of solid research that small penalties are often more effective than small rewards at changing behavior through the phenomenon of Loss Aversion.
    Without the cultural reinforcement as well, the change won’t stay when the financial incentive is gone, but that’s true whether you use a financial carrot or stick to kick-start the change.

  10. 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.

  11. 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 as we go along.
    We’re already taxing people for their care after the age of 65 and for supporting the very poor. So instead of dozens of “financing mechanisms”, some taxed some pre-tax, some subsidized, some nonexistent and all sorts of ratings and calculations by geography, by employer size, by lack of employer, all aimed to extract that extra buck, how about one system, cradle to grave, simply financed by fair taxation?
    Yes, the young pay for the old and the momentarily healthy pay for the currently sick and the rich pay for the poor and everybody pays for kids. That’s how we pay for most other social services (communist blasphemy, I know).
    Oh, but that would eliminate competition now, wouldn’t it? Competition for what products exactly? The two plans that the employer presents to you, the unaffordable one and the outrageously expensive one, unless the employer is self insured and there’s no “choice” really. Or maybe the endless array of “insurance” plans that insure nothing and are being sold to unsuspecting individuals on the “open market”.
    The only real products and services in the health care realm are provider services and pharma/device products. Here is where the competition needs to occur, not in the “free market” for health “insurance”.
    Nate is right on this one. It is not insurance that we are buying, it’s ongoing health services, including but not limited to catastrophic ones.
    Want to increase competition and drive costs down? Use carrots instead of sticks. Most animals respond better to praise, humans included. Give people rebates if they use generics and less expensive treatments and providers. Make gym and other health & wellness expenses tax deductible. Reward the consumer, not the provider/seller, if you really want consumerism in health care.
    A government financed program can do all these things. The health plans add no value other than managing claims and payments. I think the infamous government bureaucrats can manage the much simplified version required by universal care. They already know how to collect taxes. Let the insurers bid to become regional administrators for dispersing payments to providers and control fraud.
    Of course, we can’t do all that because there are “realities” that cannot be ignored. I guess it makes more sense in these “realities” to sell people’s “health profiles” (whatever that means) to the highest bidder, rather than just provide plain, honest and dignified health care to everybody.

  12. 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 most cmjnity rating is, retention is more like 80%. that’s a problem, since it cuts the average duration of membership in half.

  13. 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.

  14. 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 suggested that Kaiser Permanente’s “whole-person perspective may contribute to member loyalty: California members stay enrolled for 14 years on average, compared with four years for competitors.” (McCarthy, et al., Kaiser Permanente: Bridging the Quality Divide, Commonwealth Fund 2009, pg. 6)

    Instead of the highly bureaucratic scheme proposed by Flower (mandated reimbursements based on “true market value” appraisals of the “health care status” of millions of people), health care plans should work on lowering churn rates by promoting long-term health outcomes and increasing member loyalty. In any event, there are much more effective mandates than those proposed by Flower that would increase quality and reduce costs.

  15. 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 cost by law to get group rates and tax breaks) it means that as a rule it will be a lot cheaper to get your insurance from your employer. That’s the main reason the individual market is so small. If you give individuals the same tax break as corporations or remove the corporate tax break, that will make a huge difference.
    The other big barrier is legal limits on the use of wellness incentives. There are a lot, some of them I think wholly justifiable on public policy grounds. Some not so much. New York has a lot of onerous restrictions, so much that I think they end up harming the pursuit of population health. Typing on my phone so will spare the details.

  16. Would healthy insured need agents to shop the best deal and bargin with insurance companies for them? This idea shows how out of touch with real solutions some people are. Do you really think this will have any effect on a reduction in system costs. Insurance is not the solution, insurance is the problem.

  17. instead of trading me like a baseball card – why don’t insurers do 2 things:
    1. offer me insurance that i can purchase, so I’m not tethered to my employer. that way it follows me across employment, cities, etc
    2. offer me incentives to stay healthy. if i lower my cholesterol, lower my premium
    people who want to stay ignorant to their health and worry about just a co-pay can. people who want to take an active role in their health can be rewarded for it. and the insurance company benefits because they improve the health of the people they insure.
    its like purchasing my car insurance and being rewarded for not getting into an accident. I stay healthier and get incentives to do so, and the health insurer gets a healthier patient and can potentially keep them longer because the patient is no longer bound to the employer.

  18. Now baseball and insurance can have more in common than just being exempt from anti-trust laws. Do you think we can have our own trading cards like in baseball, listing our vital stats. I can just see the Blue Cross Plans getting together to set price caps.
    One of the reasons we have no coordinated HIT system is that we have yet to devise an effective/efficient business model that rewards the investors with the savings (or return. An our insurance model definitely demonstrates our dysfunctional business model to pay for healthcare. Trading “covered lives” doesn’t appear to be a functional business model either.
    What about us “free agents” aka the uninsured?

  19. Since nearly all of the major employers in the country and most government entities are essentially self insuraned that is where we are already seeing this happen.. J&J, Bitney Bowes, King County and soon City of Seattle.
    They keep their employees longer, have a vested interest in the outcome but it is a delicate balancing act for people to give up their personal health information to an employeer so there is usually a third party wellness firm involved. The results are long term though. Hmmm perhaps that is another reason to have a public policy ?

  20. It seems to me like this just raises switching costs for healthier people to change insurers. Sure in this theoretical system there’s an incentive for a health plan to keep me healthier then, but where are the incentives for me, the health plan member, to take care of my health? I think many people overestimate the influence a health plan has over member health. In terms of order of influence on healthy behavior, I’d order it as family, friends, societal norms (ex. body image cultural, anti-smoking laws, etc), personal physician, employer, and then, maybe my health plan. No one trusts the health plans anyway, so what’s in it for me?

  21. Alright now, things are looking up – jd, your post is wondrous in its close observation of health & the health care scene (as always). I will need to come back to post my thoughts about this question you raised:

    What right does the health plan have to earn money on this person’s health after the contract with the insurer is up?

    For now I wanted to note with glee the appearance of this Opinion item in the NY Times:
    Can I Put You On Hold?
    which has to do with cellphone plan pricing as a mirror/manipulator of behavior, and which as a bonus references one of my favorite writers about any topic, Andrew Odlyzko.
    Financing mechanics, whether regarding cellphones or health benefits, have lots to do with interpreting & anticipating human & institutional behavior. And if health care financing is going to break out of the headed-to-ruin rut we’re in, some particularly out-of-the-rut thinking about it needs to take place. Joe has plucked us from the rut.

  22. Interesting concept but a bit impractical don’t you think? Large employers spend millions each year (my employer over $2 million a year) on all sorts of wellness and healthy lifestyle programs with a very stable workforce. The problem is that you can’t really prove the savings from these program. A current issue of this company publications touts these programs and the assurance of an ROI for their costs on one page and another in the same publication talks about overall health care costs and includes a chart that shows our costs have gone up virtually the same rate as the national average for the last six years…go figure.
    In addition, while statistically accurate perhaps, I suspect there are a number of people in the supposed unhealthy category who actually incur very little in health care costs for a long part of their lives.
    I relate my practical experience in dealing with all this for the last 47 years on my blog

  23. This is a good theory! I would love to be rewarded for positive changes I make to my well-being. Incentives drive even the most adamant of people. Perhaps if insurance companies worked this way they would save money and actually take the time to learn about their users on a more individual basis.

  24. This is great… another way for insurance companies to game the system (and dehumanize their customers in the process).
    A much better solution is to have a single payer system where the benefits of good behaviour accrue to everyone and no one is penalized for getting sick (even if it not their fault).

  25. The primary reason I believe patients smoke is as a form of comfort and stress relief.
    When you feel overwhelmed by the psychosis you are going through, smoking is the one thing that can connect you to the mundane, ordinary world that you have become so disconnected from. It is a physical process and you also view it as a ‘normal’ activity. It helps you to feel that you are not so much different to anyone else, and it also helps provide structure to your day…(lack of structure being one of the root caues of schizophrenia I think). If you have a mental routine where you know where and when you are going to smoke, this provides a little more structure and routine – important elements in surviving any period of time in the mental health system. While smoking is obviously unhealthy, I don’t believe that patients should be denied access to them simply because they are under mental health care. If they have not gone voluntarily, the removal of cigarettes will probably cause alot of mental distress. Even voluntary patients should be permitted to smoke. When you are in the depths of psychosis, unhealthy as it might be, it is still an important lifeline. I don’t smoke at all now, but back in 1999 when I was very poorly, it would have been unthinkable to be denied a cigarette at one of the lowest points of my life.

  26. really, now many people do not pay attention to their health, perhaps by reducing the consuming of alcohol, fast food and switch to organic food will thus keep the family stay healthy.

  27. Well, I happen to work for a health plan and part of what I do is in precisely the kind of health and wellness program that Joe Flower is talking about. Regardless of the merits of “selling” members, it is certainly true that a major barrier to better programs and a deeper investment in wellness among health plans is that people leave. Whether the rate is 10% a year or 20%, it’s enough that health plans look for an ROI in the first couple years of a program for it to pay off on a medical cost basis for insured business.
    But that’s not the only potential pay off. There is also a pay-off in terms of marketing and customer satisfaction. This is part of why these programs are marketed more to large business: not because the people stay longer (more on that in a minute) but because the groups are more sophisticated about wellness as a financial benefit and demand wellness programs in order for health plans to win/retain the account. Wellness programs, along with health information technology, appear in almost every RFP for a very large business. They aren’t even on the radar of most small businesses.
    Which is a shame, because putting aside group retention, health plans benefit very little from wellness for large employers, if the health plans are insuring those employers in experience-rated products.
    There are three main cases to consider: community-rated products, experience-rated products, and ASO products.
    For an experience-rated product (mid-sized groups, usually) premiums track medical costs for the group after a lag of a year or so. As the medical costs go down due to wellness, the premiums will tend to also. Moreover, 1/2 to 2/3 of the savings from better health come in the form of productivity gains rather than medical cost reductions. So experience-rated groups benefit coming and going, while health plans benefit not so much, even if everybody stays and turnover is low. In fact, health plans have a less severe form of the same problem that providers have: as costs go up so do revenues. Fewer claims–lower premiums–and with static margins that means lower profits.
    Note that all this talk of the impact of wellness assumes that the wellness program is actually effective. Part of the problem is that a good wellness program is kind of like a good EMR: the human and the institutional/cultural factors are critical. You can’t treat them like simple problems where you hire a few people and create a few programs. You need to change the culture of the institution. The CEO needs to get involved and set an example. Lifestyle change needs to get pushed into the DNA of the institution for it to work. This is part of why ROI studies for both EMRs and wellness are all over the map: from nothing to big multiples.
    Back to the topic: In the case of ASO products, a large group that self-insures pays for wellness as a vended product. The insurer is not at risk, so it is a service and a small additional revenue stream. If a health plan is going to do any “selling” of members here, it won’t be of members who are healthy or sick, but of members who are more likely to want to use wellness services that could then be charged to the self-insuring group.
    It’s in the case of the community-rated group, usually small business, where the health plan has the most to gain from wellness if it can keep the member, and where the market for “selling” members might somehow get underway. Because it is here where risk selection really matters (NOT in experience-rated or ASO products). Having more healthy people in your risk pool allows the total cost of care for the pool to go down, and thus the health plan can either get a lower premium than competitors and gain market share, or pocket the difference between premium and lower medical cost in the form of higher profit than competitors.
    But I still don’t see how Joe’s market gets going. What right does the health plan have to earn money on this person’s health after the contract with the insurer is up? Are we to imagine that when joining a health plan, you also sign an agreement that when you leave the health plan you cannot just choose to go where you wish but your old plan has the right to shop you around first? Hard to imagine how the first health plan to try that gets away with it…maybe a Blues plan in a rural state that has 80% market share. Still, I don’t see it. Not with public attitudes towards insurers being what they are today.
    It would be easier for insurers to improve their risk pools prospectively than retrospectively for community-rated products. Give a big enticement in the form of free gym memberships to attract healthy individuals and health-conscious small employers. Some may find this suspicious, but I see it as a win-win scenario.
    I’m not sure that free gyms or similar enticements actually work to get healthier people, but if they do all it means is that a new arms race begins in which health plans compete for the healthy by offering more programs to promote health. And one of the nice things about these programs is that those who are not-so-healthy actually can benefit from them even more than those who are already healthy.
    When I think about corporate wellness I think of a target demographic of people 40-65 years old who don’t eat very well and don’t get enough exercise, but are close enough to normal in appearance and lifestyle that they have no idea they have high cholesterol, or are pre-diabetic, or have hypertension and are at 30% higher chance of a heart attack or stroke in the next 10 years. Enlighten them, give them the right opportunities, bring social inducements or pressures to change behavior, and reap the rewards for everyone: employer, individual, health plan. Conspicuously not sharing in the reward is the medical system.
    But again, this is for community-rated products. If health reform makes everything either community-rated or ASO, watch for more wellness. Whether or not health plans can ever “sell” their ex-members.
    Which brings us back to Joe’s starting observation: even in the post-reform community-rated world I’m imagining, the fact that people change health plans relatively frequently creates a drag on the investment in wellness programs. Miles Hochstein had a very cheeky, but you’ve got to admit dead-on solution to the problem: create a single payer. Alternatively, you could make it easier for people to keep their health plan when they change jobs or lose their job by detethering health insurance from employment. That might reduce turnover, and would create a powerful incentive for health plans to create “sticky” features that make people not want to leave. Maybe they’ll invent non-tranferable credits that function like minutes in a cell phone plan, but are good for health and wellness activities. Hey Joe, you heard it here first!

  28. How about this for a “radical” idea: If you go in for yearly physicals and routine checkups, you don’t get charged a co-pay for the visit! If you don’t go in yearly, you have to pay.

  29. Some large, self-insured companies do spend money on internal wellness programs (exercise, diet, weight-loss, stress-reduction, asthma control, etc.) Is this cost-effective for them because their individuals have a lower turnover rate? Or because it helps reduce their turnover rate (thus reducing recruiting costs, as well as health costs)? Or because their population profile remains consistent, even if their turnover rate is similar to other insurers? Or another reason?

  30. So, we’ve got Margalit and Bev wringing their hands with concern over vaguely imagined potential violations of personal “rights”, where no violation of same is contemplated (I’m afraid they actually took your “selling people” remark LITERALLY, Joe!); and Miles, who misconstrues Joe’s concept and decides he’s already thought it up, too!! (get in line, bub).
    A crude analogue to Joe’s concept is found in cap & trade proposals for creating a pollution abatement credits market. A very similar shell game (and yes, that’s what cap & trade is, a shell game – any honest economist will admit as much. The point is there’s nothing especially wrong with that).
    Numerous financial models extant in the real world operate in the same way, pushing & prodding at recalcitrant human nature to produce viable financial results. At arms length, they don’t make much sense; but they pass the “good enough” test for big swaths of the populace. (Don’t believe me? How do you feel about your cellphone minutes plans? C’mon, you know you have ’em, and you know you don’t understand ’em…)
    Joe’s broached a truly imaginative line of thinking about the economics of health care & health reform, & the best we can do is to tut-tut about hazy conceptions of liberty, rights, and Medicare for All? Certainly we’re capable of better.

  31. This 20% (or more) “churn” rate mostly applies to Individual Business, which is about 5% of most major insurers’ membership.
    Small Group (2-50 lives) has a bit lower lapse rate, and the rates and annual rate increases insurers can charge are limited by regulation.
    For some “large groups” and for all ASO customers (large companies like Walmart, Mcdonald’s, GE, etc.), every administrator has many programs designed to keep members healthy, and to help them if they have a chronic condition.

  32. Wow, this post is a sign of exactly what desperate shape our health care “system” finds itself in. It’s even scarier than the health care bill itself. (:
    While we’re trampling on rights, why don’t we just outlaw cigarette companies and fast food instead. It would be a lot simpler.

  33. Hey, cool idea. Let’s take it one step further. The problem is that if a noble health insurer invests in health status for an individual, it loses the individual and its “investment” through churn and all its good works are lost. A sad situation by any measure, and obviously a tremendous deterrent to an insurers natural inclinations to promote public health.
    But I have an even more way cool idea that guarantees the insurer will recoup ever penny of investment at zero costs for tracking and exchange management. Just put everyone into one giant mega insurer, pay for all those investments out of one big pool of money, and that way each investment in health is guaranteed to benefit the entity that originally paid for it, plus we can avoid hiring all those accountants to keep track of which company spent what, and how its “assets” moved around. We could call it… I don’t know… maybe Medicare Part E or Medicare for All.
    Seriously, I played with ideas such as these many years ago in a pediatric context (what’s the point of keeping children healthy if they just go on to have low costs for some other insurer, decades in the future? Maybe we could find a way to give an insurer of children a cut of their future reduced health costs resulting from its munificent care? Pretty clever, no? It was way too clever.)
    Like my explorations, this proposal is a bailing wire and chewing gum idea for a broken and fundamentally flawed system. It has a pedigree, by the way, if you care to research it.
    Sure I grant the highly excellent job creation potential for accountants and regulators… so valuable in these hard economic times, but still those upsides don’t begin to balance that GDP drag created by layering a Rube Goldberg scheme on top of a Gube Roldberg industry.
    Miles Hochstein

  34. Joe, not such a crazed idea at all. 20+ years ago I proposed this sort of “securitization of health” to, among others, Bruce Shutan, then with Employee Benefit News.
    Sometime later, I tried the concept out on Milton Friedman at a health care conference, a few months before he died; he replied that he was confident he did not understand the thrust of my proposal 😀
    Of course, the recent economic meltdown has soured many on the notion of derivative constructs of all kinds, most based on more conventional assets than health status. Currently it has all the political appeal of cap & trade, but with considerably greater technical hurdles to overcome.
    So the idea is not completely new. However, I’m quite willing to cede my authorship claims in return for guest lecturer status at your website 😉

  35. Why don’t we just give up the entire privacy and freedom and liberty and Democracy and all that crap?
    Why don’t we just acknowledge that we are all in indentured servitude to employers and insurers and big business in general?
    Selling people is not a new concept and selling people in good health always brought more money to the seller in various public auctions.
    We should add people to the commodities exchange right alongside pork bellies.
    I suggest that insurers also engage in breeding the right kind of people, so they can sell them based on pedigree.
    That’s not new either.

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