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Why Consumer-Driven Health Care Will Fail

The creation of consumer-driven health plans (CDHPs), health insurance policies with high deductibles linked to a savings option and with more financial responsibility shouldered by patients and employees and less by employers, was completely inevitable. The American public likes to have everything, whether consumer electronics or other services, as cheap as possible. With escalating health care expenses rising far more rapidly than wages or inflation, it’s not surprising employers needed a way to manage this increasingly costly business expense.

In the past, companies faced a similar dilemma.  It wasn’t about medical costs, but managing increasingly expensive retirement and pension plan obligations. Years ago, companies moved from these defined benefit plans to defined contribution plans like 401(k)s. After all, much like health care, the reasoning by many was that employees were best able to manage retirement planning because they would have far more financial incentive, responsibility, and self-motivation to make the right choices to ensure a successful outcome.

How did that assumption turn out anyway?

Disastrous according to a recent Wall Street Journal article titled Retiring Boomers Find 401(k) Plans Fall Short.

The median household headed by a person aged 60 to 62 with a 401(k) account has less than one-quarter of what is needed in that account to maintain its standard of living in retirement, according to data compiled by the Federal Reserve and analyzed by the Center for Retirement Research at Boston College for The Wall Street Journal. Even counting Social Security and any pensions or other savings, most 401(k) participants appear to have insufficient savings. Data from other sources also show big gaps between savings and what people need, and the financial crisis has made things worse.

In others words a lot of people don’t have enough money to retire.   The options they have are simply “postponing retirement, moving to cheaper housing, buying less-expensive food, cutting back on travel, taking bigger risks with their investments and making other sacrifices they never imagined….In general, people facing problems today got too little advice, or bad advice.”

Though employers were able to manage retirement expenses, employees paid a significant price.  This wasn’t intuitively obvious in the 1980’s when these plans became more commonplace.  Over the past decade, the less than rational behavior by employees hasn’t gone unnoticed by those who study behavioral economics or those in the government.  As a result, more organizations and companies are nudging employees into the right behaviors with auto-enrollment into 401(k) plans and auto-allocation of these funds with protection from any future liability as noted in the Pension Protection Act of 2006.

The analogies to health care and specifically consumer-driven health plans should be clear.  Workers don’t save adequately for retirement even when in their best interest.  It’s very likely that workers won’t save money adequately to fund future health expenses.  After all, if people can’t fund retirement, something we undoubtedly all look forward to, which one of us is willing to saving for chemotherapy or open heart surgery, which no one wants?  According to the annual Kaiser Family Foundation Employer Benefits Survey, the average annual deductible for single coverage and family coverage is nearly $2000 and $4000 respectively for health insurance plans that are health savings accounts (HSA) eligible.   The deductibles are slightly lower in health insurance policies that are linked to health reimbursement arrangement (HRA).  About 13 percent of employees are covered under either plan.

Unlike those in retirement planning who can work longer, even if not desirable, employees who are ill may not have an option to work to pay for their medical expenses.  There continues to be evidence that people are curbing their health care due to the ability to pay.

Though experts debate on whether this is a good thing (patients are avoiding unnecessary and expensive therapies and opting for less pricey but equally as effective options) or a bad thing (patients are avoiding the preventive screening tests or therapies that overall can decrease future costs), the opportunities to ensure patients make the right choices should be clear from workers’ less than optimal experience with 401(k)s.

If employers wish to help curb medical costs, then they will need to engage workers with programs like employee wellness, assisted decision making (either as second opinions or patient-friendly informed consent), and access to medical experts, equivalent to personal financial advisors, who may be able to help workers make the right choices for their health.  Within the business community, there is some acknowledgment that access to these tools will be necessary to not only manage costs but keep employees healthy and productive.

Done correctly, consumer-driven health care can be what everyone hoped they would be, nudging healthy behaviors and slowing health care costs with workers selecting only cost-effective therapies.  If implemented poorly and organizations simply shift health care costs and financial responsibilities to workers like retirement planning decades ago, the nation will need to accept more than ever that increasingly more people get the medical care based simply on their ability to pay and not on medical necessity.

As a practicing primary care doctor, I hope that day never comes.

Davis Liu, MD, is a practicing board-certified family physician and author of the book, “Stay Healthy, Live Longer, Spend Wisely – Making Intelligent Choices in America’s Healthcare System.” Follow him at his blog, Saving Money and Surviving the Healthcare Crisis or on Twitter, davisliumd.

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  1. Nobody dies because he can’t afford a Ferrari. People across this country suffer and die unnecessarily every day because they can not afford necessary healthcare. Some of these people still have no access to health insurance at all (thanks to the failure to expand Medicaid in many states) and some of them have only access to the fraud known as “consumer driven” health insurance which allows the insurance company to collect a monthly premium for a policy engineered to not pay for their medical expenses. People do not “prefer” comprehensive health insurance – they need genuine access to proper healthcare. What we do not need is a profiteering insurance industry between ourselves and our doctors, however it may be rearranged. We need a comprehensive, national public healthcare system like every other advanced nation has already had for years.

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  5. I thought the article by Dr Liu was insightful, especially and the analogy to
    the promise of 401Ks in the 1980s.

    My family has had a high deductible HSA eligible plan since I retired (after navigating the hazardous complexities of the 401K world) and it is a completely different experience than the managed care plan we were comfortable with, requiring decision making about doctor visits, tests, prescriptions, etc. Beyond that, additional book keeping for HSA accounts and tax filing was required.

    Based on my experience, I think the expectation that the average family can manage their own HSA high deductible plan is a fantasy. Heck, doctors can’t even tell you how much anything costs!

    I think managed care is a good model for health care. Every person for themselves (HSA) is a terrible model for health care and ensures we will have people lined up a emergency rooms for free care.

  6. http://www.nytimes.com/2011/04/15/opinion/15fri3.html

    Representative Paul Ryan and the House Republicans are portraying their budget proposal for the next fiscal year as a courageous effort to finally bring federal spending on Medicare under control. An analysis issued last week by the nonpartisan Congressional Budget Office finds that the Ryan proposal would sharply reduce federal spending — but at the price of shifting more of Medicare’s costs onto beneficiaries and their families.

    How much more? Calculations derived from the C.B.O. analysis show that in 2022, when the Ryan plan would kick in, the typical 65-year-old would pay $6,400 to $7,000 more per year than would be paid for comparable coverage under traditional Medicare.

    Mr. Ryan’s proposal would change Medicare from an entitlement program in which the government pays for a defined set of medical services into a “premium support” program in which the government would give beneficiaries money to help them buy private insurance. He contends that competition among health care plans and more judicious use of health care services by beneficiaries can help bring down the cost of health care and reduce the federal government’s burden.

    But the C.B.O. says a private plan offering comparable benefits would be a lot more expensive than traditional Medicare because the private insurer would have higher administrative costs, would need to make a profit and, in an extrapolation of current trends, would pay hospitals, doctors and other providers substantially more than Medicare does. Beneficiaries would have to pay higher out-of-pocket costs or buy skimpier policies.

    The Ryan plan has no chance of becoming law while the Democrats still control the Senate and the White House. But if health care becomes a defining issue in the 2012 elections — as it should — everyone under the age of 55 is on notice that Mr. Ryan’s plan would impose heavy costs on them when they reach age 65.

    End snip.

    Funny how some non-partisan folk seem to think that costs are going to go up instead of go down or remain the same, despite any efficiencies that are supposed to happen.

  7. That is the market place at work. These absentee payor systems encourage high cost solutions and unproven solutions drive cost up an over time crash the system. Our humanity, the march of technology and are aging population create a marriage! Create a true consumer based system and prices and services level. Look at almost any non covered medical expense over the last twenty years and you will see little or no fee increases and in many situations decreases. My company WellCard Health is working a health product that uses this market based approach. We expect to have over 2 million users by the end of the year. Let’s move risk dollars to more catastrophic and chronic areas of health care.

  8. “Being an A** is not an effective way to generate a discussion or get your point across.”

    Is there a study or any polls at least to back this up? I thought I read someplace that the points of an A** are actually very well know so it actually is a great way to get your point across, might not endear you to many people but effective non the less.

  9. Great insight piece….unfortunatly this discussion is disappointing. Being an A** is not an effective way to generate a discussion or get your point across.

    I love reading THCB, particularly consumer engagement section – but HATE when people are arrogent in their responses, don’t provide support/reserach/articles for their statements and insult those who disagree with them.

    If making attacking statements/insults, at least provide your credentials so we can judge if you are even worth listening to. I don’t care if someone agrees or disagrees – unless they provide support and/or their credentials to make this statement. Research? Literature? Publication?.

    Ug…and as a consumer driven health care advocate in mental health, i am excited to see where this movement goes in physical health, and hopefully take lessons learned.

  10. “Most people in our culture just want a clear price for a service and clear knowledge about what they are getting for their money.”

    I wouls disagree and argue most people want someone else to pay the bill so they don’t have to worry about price at all. There is even less transparency in traditional plans and I don’t see anyone complaining there.

  11. Could some of the dissatisfaction with HSA’s be due to a lack of clear prices for healthcare services? Most of the patients I see are not dissatisfied to know that a medication they need is $3.50 with free shipping or that a needed imaging study is $400 and not thousands of dollars. What patients hate is making a call to a healthcare facility and not getting a straight answer on the price of a service. Or worse yet, getting wrong information and then getting a much higher bill than anticipated in the future. Most people in our culture just want a clear price for a service and clear knowledge about what they are getting for their money.

  12. All American healthcare is the Ferrari where we pay for only Ferrari mechanics, but the only way you get to drive one is removing essential items. Can’t afford a Ferrari, ok, we’ll remove the engine, or the wheels, or the seats, now go drive your Ferrari.

  13. I want a ferrari more then a pontiac that doesn’t take research to prove. Of course people prefer comprehensive plans that cover everything. That doesn’t matter though becuase people can’t afford such plans just like most people can’t afford ferraris.

  14. Research consistently shows patients are less satisifed with HSAs than traditional comprehensive health insurance. The popularity may not reflect that consumers really want it more than they don’t have a choice. Small employer groups are choosing HSAs because of affordability. Consumers are choosing some coverage rather than none.

  15. “the difference between a government panel saying you’re not allowed to have something and not being able to afford something so I won’t even try.”

    So rich people should live (and consume health care resources) and poor people should die? How bout your Granny Nat, will she live or die?

    “How do you tax a habit Peter?”

    How do you enforce diabetic compliance – jail? You tax bad habits like you tax alcohol and cigarettes. Tax calories, sugar, fat – all usually in fast/processed food, and dedicate those taxes to paying for non-compliant diabetics, as well as heart disease and hip replacements from obesity. You’re a pay-as-you-go guy aren’t you Nate?

  16. Well, Nate, if you’re going to combine insult (“Have you not read the bill Joe”…”buzz words”…”throwing some big words on paper”) with not reading what I have actually written (“You haven’t made one substantive comment yet.”), then I am not having a discussion with you. I certainly don’t have the time to once again lay out everything that I am talking about for someone who clearly did not read them in the first place, either in this discussion or elsewhere in The Health Care Blog.

  17. “I see. you believe that the healthcare reform act removed almost all personal responsibility and told people that they are legally allowed to spend as much as they want.”

    Does it require insurance to cover an untold number of preventive benefits at 100%? Common sense these expenses are not insurable risk. Have doctors purposefully misclassified procedures as preventive for years to get them paid at 100% when they really were not? We have doctors call every week asking how to bill something so it will be paid under the preventive benefit.

    Does it impose a low out of pocket max annually? Once someone hits that cap what controls are there on their spending?

    Have you not read the bill Joe or do you somehow believe these are not real world problems that already happen and are being exasperated? You want to keep throwing buzz words out there but that’s all you seem to have. How does feedback loops on price prevent doctors from billing office visits as preventive when they are really treating a cold? What price controlling regulation is going to reign in hospital charges? Do you have anything besides faddy words to explain how any of this helps control cost? What does measurement do to control poor personal health decisions besides telling us people are making poor personal health decisions?

    You haven’t made one substantive comment yet. Your argument seems to be by throwing some big words on paper we will solve the cost problem, ignore the actual real world measureable increases these words are going to do it all.

    Peter you don’t have the intelligence to grasp the difference between a government panel saying you’re not allowed to have something and not being able to afford something so I won’t even try.

    How much should we tax diabetic producing habits?

    How do you tax a habit Peter? Do you want to nationalize your mommy’s swear jar? There is no such thing as a diabetic producing product so sales tax doesn’t work. Maybe we should hire one person to follow around every other person and keep a log of their taxable behavior?

  18. “Is 3 months of extra life worth $20,000 a month in Rx plus additional medical cost?”

    Aren’t you an anti “death-panel” guy Nate?

    “How much should we spend on non compliant diabetics?”

    How much should we tax diabetic producing habits?

  19. I see. you believe that the healthcare reform act removed almost all personal responsibility and told people that they are legally allowed to spend as much as they want. And that it removed all price-controlling regulation, with no caps, no measurement, no feedback loops on price, no price transparency, nothing.

    Okay.

  20. “The answer to our overspending is not simply leaving people to die in the street, it is re-designing the healthcare economy so that it is better able to drive toward real value: the best outcome for the lowest cost.”

    Do you think the way to accomplish this is to start by removing almost all personal responsibility and telling people they are legally allowed to spend as much as they want?

    The problem we have with the past 46 years of Healthcare reform is we are feed statements like yours but the laws passed do the exact opposite. Starting with Medicare the laws have never matched the rhetoric.

  21. the hundreds of thousands of lives we have insured and billions in claims we have paid would disagree with you.

    20% of a population will usually account for 80% of the cost. If 30 or 50% of all care is wasteful it obviously is concentrated in the 80% of high dollar care.

    How much should we spend on non compliant diabetics?

    Should the pool as a whole pay millions of dollars so someone that is unable to have a baby can have 6 eggs implanted and unfortunetly carry all to premature birth?

    Is 3 months of extra life worth $20,000 a month in Rx plus additional medical cost?

    Those are all cases impacted by lifetime and annual limits.

    “Thank you for making the absurd outcome so clear. Of course, no one is proposing such a system.”

    Its not proposed its already in place. The proposal was 2 years ago, now that we see whats in it we have law.

  22. That’s quite a picture you’ve got going there, Nate. And that is exactly what would happen if we built a system as stupidly as possible, if we said, for instance, “Government is bad, regulation is bad, so we won’t have any regulation at all, no caps, no measurement, no feedback loops on price, no price transparency, nothing. Oh, but we’ll have one regulation: The government — or somebody — has to pay every last dime demanded by any provider for anything.”

    Thank you for making the absurd outcome so clear. Of course, no one is proposing such a system. And fortunately, we do not face a choice between such an absurd outcome and simply letting people suffer and die when they have used too many health services because they have MS or are battling cancer or need dialysis. Such extreme cases are not, in any case, the reason why healthcare costs so much in this country. Healthcare waste is driven rather by the waste in routine cases, by unnecessary and unhelpful but common procedures, by neglecting chronic disease until it needs acute attention. The answer to our overspending is not simply leaving people to die in the street, it is re-designing the healthcare economy so that it is better able to drive toward real value: the best outcome for the lowest cost.

    The problem we had been discussing is vastly smaller: Without a lifetime cap on claims, how do you protect a small self-funded group from the rare extremely large claim? I don’t have the answer in my hip pocket, and it may well be that the trend, as you pointed out, is not toward providing an answer but toward simply eliminating small self-funded groups. But it is a problem that could be solved.

  23. “It was written by people with no concept of insurance.”

    “$1,000,000 claims were never seen, until carriers raised their lifetime max to $2,000,000 and $5,000,000.”

    “It wasn’t possible to have $5,000,000 in medical care until HMOs had unlimited max.”

    “We have a system today where 30% of care is unnecessary and wasteful. We spend far more on end of life care than anyone else already. Hospital charges are inflating at a hyper rate with minimal additional value. We are spending way more then we should and getting little for it.”

    Seems private “insurance” has no concept of insurance.

    “Why don’t hospitals regularly keep people alive in vegetative states when they have no hope of ever recovering,”

    They already do. Thank your religious friends who think “miracles” are an everyday occurrence and “only God” can pull the plug.

  24. it never makes sense in any realm to have unlimited liability. This will go down as one of the government’s all time colossal stupid moves. It was written by people with no concept of insurance.

    We have a system today where 30% of care is unnecessary and wasteful. We spend far more on end of life care than anyone else already. Hospital charges are inflating at a hyper rate with minimal additional value. We are spending way more then we should and getting little for it. So Obama decides to remove the cap and allow people to spend even more.

    Why don’t hospitals regularly keep people alive in vegetative states when they have no hope of ever recovering, no one to pay the bill. Why don’t we have 100 doctor teams of specialist hovering over flu patients to make sure they get better, the cost. We already try almost everything to treat people why not try everything even if it doesn’t have a chance to succeed, the cost.

    Under Obama care, that not only gives unlimited benefits but also caps annual out of pocket, once a hospital gets someone over the out of pocket max they get 100% reimbursement for everything and anything they do. There is no restraint on spending, open check book. Why control cost when your given a financial buffet?

    $1,000,000 claims were never seen, until carriers raised their lifetime max to $2,000,000 and $5,000,000. It wasn’t possible to have $5,000,000 in medical care until HMOs had unlimited max. In the HMO at least they had contractual controls.

    There is no good way to reinsure infinite. Once you allow for infinite claims you will start to have infinite claims. There is no logical reason for a person to ever consume 20,000,000 in healthcare at today’s dollars. Society can’t allocate that much in resources to one person and survive.

  25. “Done correctly, consumer-driven health care can be what everyone hoped they would be, nudging healthy behaviors and slowing health care costs with workers selecting only cost-effective therapies.”

    Thanks for the thought provoking article. One missing element in the discussion is the issue of price transparency. When physicians and patients both have access to clear, transparent price information, better decisions can be made that make economic sense for all parties. As a primary care physician, I made http://www.HealthScepter.com to address the issue of price transparency so that health consumers would have access to clear prices for labs, imaging, medications and more. When prices are transparent, we can lower the cost of our healthcare system and increase access to care.

  26. Still, the concern does make some sense: If we ban lifetime caps, then the liability could be infinite. If the goal were not for some other reason to phase out small-group self-funded programs, what else would solve that problem? A better form of reinsurance? Perhaps even government reinsurance at a certain level?

  27. http://www.gao.gov/archive/1996/he96161.pdf

    The NAIC has adopted a stop-loss model
    act that attempts to define the levels of risk that can be assumed by
    stop-loss carriers for determining which state insurance laws should
    apply. State insurance regulators are concerned that some employers may
    purchase stop-loss coverage in which the stop-loss carrier assumes most
    of the risk and believe, therefore, that the plan should be subject to state
    health insurance laws.7

  28. When they pass a law saying groups under 50 lives are not allowed to self fund I think that is an intended result. Same with the NAICs studies and position papers on small groupo self funding. They are arguing against the small group self funded market specifically.

    http://www.siia.org/i4a/pages/index.cfm?pageid=3417

    See Self-Insurance and the Potential Effects of Health Reform on the
    Small-Group Market

    by Kathryn Linhan

    discussing the potential negative impact of self funding on PPACA.

  29. Interesting. Though even allowing your argument that these things make self-insurance difficult, your argument was highly intentional, that is, that government at state and federal levels is “trying” to drive companies away from self-insurance, rather than that being an unintended (possibly unnoticed) consequence of poorly-written and poorly-implemented regulations.

    Do you have evidence that this is intentional?

  30. Groups must have a minimum number of lives
    minimum specific deductible
    NAIC is distributing a policy paper trying to say small groups can never really self insure for lack of risk transfer
    Minimum aggregate ratios
    Unlimited lifetime max, hard to reinsure infiniti
    Back in the day the HMO Act
    NY Purchasing pool
    COBRA and HIPAA regs that are administrative nightmares while failing to accomplish anything close to their goals. i.e. <2% of people take COBRA but the administrative cost and liability is huge

    Medicare secondary is a great example. Self funded plans operate on 12 month reinsurance policies usually. If a hospital sends a claim to Medciare that should have gone to a self funded plan medicare has a lifetime to find the mistake then come back after the self funded plan for reimbursement, on a claim the plan never knew about. Since their reinsurance expired they are liable for the claim. It has bankrupted businesses before.

    I could write a book with everything the government has done to ruin healthcare/insurance in this country

  31. That’s a charge I have not heard before. Could you point me to some cites that show exactly what “Washington and a number of states” are doing in this attempt?

  32. As is typical any time government gets involved, the biggest hold back is regualtion and government. The most aggresive, and I would argue successful programs are being done by self funded employers. They are free to test new ideas, quick to implement, and quick to change and improve on what works.

    Instead of fostering these solutions, and maybe actually improving healthcare in America, Washington and a number of the states are trying to drive people out of self funded plans and into a few mega national carriers. The same mega national carriers they and most everyone else complain about.

  33. > CDH oriented programs put out by payers.. are very shallow…believe that consumers don’t know that stuff and believe that telling that will bring change in behavior…make no attempt to understand what the real problems are by differing health profiles…

    That is true of the programs that it is true of. There are some that are quite deep and that make serious attempts to customize themselves not only to the consumer’s health profile, but the consumer’s preferred way of communicating and interacting. And some of the best employer-driven programs are the same. And they are showing significant results — cost savings and measurably improved health markers — over periods of months, not decades.

  34. Very interesting take and debate on this. It takes political hues as it implies people don’t have ability to deliver on their responsibilities.

    While it is clear enough that results are’t encouraging, there is yet to be analysis on why it is so. Also consumer profiling for healthcare has not been performed the way it’s done in retail sector. So we get choice of imagining what the consumers are as per our convenience, just as Nate did above.

    There is a very deep and reverend view about medical system. I am into many alternative things and when I share my views which are not congruent with evidence based medicine, the tension with audience is very palpitable. I don’t know what it is, but that deep psyche of intense belief and faith is driving consumer values towards healthcare.

    Now regarding CDH oriented programs put out by payers- payment estimator, provider search & ratings, wellness program etc are fine. Still they are very shallow. They are shallow because they believe that consumers don’t know that stuff and believe that telling that will bring change in behavior. They are also shallow because they make no attempt to understand what the real problems are by differeing health pofiles. Just to give an example, vegetable consumption has not increased over a decade inspite of all the FDA pyramid of food ads.

    Intuitively it’s right thing to do and let people take some responsibility of their care and over decades it might show some results. In meanwhile what the system needs to do is to help people who are sincere about their health. ‘On demand’ health profiles can’t be helped.

  35. Joe, I think your numbers track well. I previously ran a national managed care program for large employers using custom built networks of care providers and our customers routinely reported reductions in medical costs in the 30 to 40 percent range when measured against prior costs.

    By the way, I only trust payer reports of savings.

  36. “Just imagine how different healthcare would be today minus medicare and medicaid and in their place some modest programs that subsidized the 13% that needed help.”

    Yes, just imagine.

    “One-third of children and over half (59%) of low-income children are are insured through Medicaid or SCHIP.”

    “Medicaid payments currently assist nearly 60 percent of all nursing home residents and about 37 percent of all childbirths in the United States.”

    “the fastest growing aspect of Medicaid is nursing home coverage.”

    “Poverty in the United States is cyclical in nature with roughly 13 to 17% of Americans living below the federal poverty line at any given point in time, and roughly 40% falling below the poverty line at some point within a 10-year time span.”

    Medicaid does not count the number of working poor who still can’t afford health coverage but do not qualify for assistance due to the restrictive income/asset requirements.

  37. “Why can’t we try the simple things first, before turning the entire system on its head and handing over a few more freedoms to institutions in the process?”

    So you don’t vote for Democrats Margalit? Medicare turned the system on its head for everyone over 65 instead of simple solutions for the 13% of seniors who needed help. This latest Democrat bill turned the system on its head for 300 million people instead of allowing simple solutions.

    Every time Democrats turn the system on its head they make the problem considerbly worse. Just imagine how different healthcare would be today minus medicare and medicaid and in their place some modest programs that subsidized the 13% that needed help. We wouldn’t have any of the problems we have today.

    Remember this next time you vote.

  38. I certainly will. I am all about trumpeting good news. I keep running across models that are working, that do healthcare better in one way or another. I will blog here about it when I find out.

  39. Joe, if you ever find out what the numbers are, I would very much like to know. Good news in this industry is hard to come by these days, so anything would be welcome.

  40. To be clear, there are several incentives to use the onsite clinic. There are no co-pays or deductibles, no insurance claim, no payment at all. The drugs are free. And it is way more convenient—it’s right down the hall or in the next building. You don’t have to take the whole afternoon off and drive downtown.

    > I also doubt that it will have much effect on the bottom line.

    That is a matter for measurement, not opinion. So far I have not put my hands on any reliable figures. One company that builds and operates onsite clinics claims that it reduces the overall healthcare costs of those who use the clinics (not just their primary care costs) by 35% (depending on the facility, its hours, its overall use, and all that). I have heard anecdotally that Cisco claims the same savings, but I have not found anything online backing that up. That’s what they projected when they opened, but I haven’t seen any recent numbers. I have calls in to several Cisco PR people asking for any real numbers.

    And by the way, one of the independent company’s stellar examples was built by a union in industrial marine services in the South.

    If we imagine that those numbers are real, and if we imagine that something like those numbers could be applied to the healthcare system as a whole, they are huge. 35% is about $800 billion, 8 times what it would take to insure all Americans.

  41. I might have misunderstood you, Joe. So the employer effort is limited to providing a nice free clinic on premise, with no strings attached. The employee is not penalized for choosing any other provider. There is no financial incentive/disincentive. Just a convenience, in which case as I said above, I don’t see problems with an on-site clinic any more than an on-site bank, or Starbucks, but I also doubt that it will have much effect on the bottom line. Perhaps I am wrong.

    Paying more for primary care does not mean paying more for procedures, unless you use the term procedures as in CPT and include office visits and E&M services in the definition. Those are the items we should pay more for, and following the logic that we get what we pay for, we will get much more time spent with patients and that is what most people want, and I think this is what ultimately brings expenditures down. As to PCMH, yes, it is a fantastic concept as it was originally defined. The implementation though leaves much to be desired, as TransforMED found out. Perhaps we need to try harder and stay closer to the original definition of a medical home.

  42. >People do what you pay them to do. Pay more for individual procedures, you will get more individual procedures, more overtreatment.

    Only in an unmanaged system.

  43. > turning the entire system on its head

    Where? What we’re arguing about here is a little addition to the system: Employer (or other payer) who is already paying for healthcare as part of compensation, throws in something extra, a voluntary program (and maybe even a free clinic) with complete privacy, to help people toward something they presumably want, better health.

    > handing over a few more freedoms to institutions

    Where? What freedoms? Everything we are talking about is voluntary, and protected by HIPAA. Could the system be abused? Will it? Sure, every system is somewhere. That’s not an argument against it. This is a straw man.

    > pay a lot for primary care

    Great idea, but pay for “primary care,” not “procedures delivered through primary care” as in a fee-for-service system. People do what you pay them to do. Pay more for individual procedures, you will get more individual procedures, more overtreatment. You want to pay docs more to really “be your doc,” pay attention to you, do all the preventive things that help you stay healthy, keep good records, be pro-active about your health problems? Great idea. It’s called “medical home.” It’s being more than piloted, its being implemented a lot, and it works, when done right. Oh, and these onsite clinics? That’s the whole idea.

  44. Margalit: “Surrendering the management of health care to those most accustomed to manage bottom lines (and top lines), even with some nebulous quality constraints, may not provide such great alignment. Perhaps for the immediate short term and perhaps for this one organization, but I am not convinced that this alignment can hold over decades and on a national basis. I do however agree with your general proposition, Peter.

    I must learn to express myself more clearly. The management of care must be put in the hands of those concerned only with appropriate care, not bean counters, revenuers, government agents, actuaries, or claims adjustors. Realistically, only the medical community can managed the care given by providers.

    Your last point is right on. The focus has to be on the primary docs. Ultimately they control utilization. If they overtreat, over refer to specialists, over utilize tests and studies, we get what we have now. It’s pathetic, really.

    We can’t get to where we want to be, piecemeal. If we continue to nibble at the heels of the elephant, we’re just going to get trampled.

  45. Joe, if I am not mistaken, the basic thinking behind trying all these new things, like employer shepherded health care, or ACO manage care, or any other institution managed care, is that the independent medical profession has failed to control costs of care and we need new and innovative solutions.
    I would argue that the medical profession indeed failed, but this is because we placed it in the wrong “box”. The marginalization of primary care through reimbursement is all due to Medicare and the lack of imagination of private payers who follow Medicare blindly.
    Surrendering the management of health care to those most accustomed to manage bottom lines (and top lines), even with some nebulous quality constraints, may not provide such great alignment. Perhaps for the immediate short term and perhaps for this one organization, but I am not convinced that this alignment can hold over decades and on a national basis. I do however agree with your general proposition, Peter.

    Everybody seems to agree, including the employer arrangements, that proper primary care is the prerequisite for lower costs and better care. So why not switch the “box” in which medical professionals operate?
    We keep saying that we get exactly what we pay for, referring to fee-for-service and proliferation of services. So let’s pay a lot for primary care, double at the very least, and by the same logic, we should be getting more primary care and less superfluous referrals and tests and invasive procedures.
    Why can’t we try the simple things first, before turning the entire system on its head and handing over a few more freedoms to institutions in the process?
    Can we at least pilot this concept somewhere, in parallel with all those ACOs and employer plans?

  46. “This is how people would like to imagine the struggle but there are more then enough studies to show the real competition is between smoking, drinking, and other vices and healthcare.”

    Is that why you have to manage the employees and their use of the their employer’s health care in your groups Nate?

  47. Employer sponsered medical cliniics are important to the extent that they show that an alliance of interests is actually possible in health care. When the interests of the patient, provider, and payer are aligned, we can sit back with our Manhattan or Magarita, kick our feet up, and declare the medical cost crisis over.

    Employer clinics can succeed when they control overtreatment
    (estimated to be more than $600 billion a year and rising).

    Our greatest difficulty is in overcoming the inertia of our current system of medical care. The necessary elements are already there, they just need to be rearranged.

    The docs and providers are there. Just create a national network of primary care docs, all paid fairly, who agree to treat appropriately and not overtreat. STG, they will do it, I’ve seen it.

    Sprinkle in patients who actually need care, and who appreciate the docs who now have time to talk with them (remember, the docs are being paid fairly). Patients who like their docs, amazingly, sue them less frequently.

    Relieve the payers of the necessity of managing care or controlling medical costs by creating an independent medical entity to manage the care of all these patients as partners with the docs. Margalit, this is your ‘”right” to manage’ resides. With the medical community, not government bureaucrats or claims adjustors.

    Allow the insurers to concentrate on what they like best – writing insurance and selling policies. Insurers know that they are getting appropriate care for their policy holders which means that their losses are minimized. What’s not to like about that?

    All parties and their interests are aligned.

    Whew, sorry to drag that out. I hope it makes some sort of sense.

  48. @ Margalit Gur-Arie

    “There are really two issues here. One is CDHP, which is another term for shifting financial burden to patients under the guise of ’empowerment’ and ‘personal responsibility’, and the other issue is whether employers should actively engage in providing health care (not just paying for it).”

    I’ve had an HSA for about six years and I’ve socked away more than $15,000 in my HSA that would otherwise be in Aetna’s bank account (or that of BlueCross; or that of the local clinics or pharmacy). Each year my employer deposits $2,000 cash into my HSA on top of paying the vast majority of the premiums for my high-deductible plan.

    But it is a misnomer that employers pay for employee health coverage. Economists have long agreed the company health plan is just a non-cash portion of workers’ total compensation. It is not just another cost of doing business. If more workers understood this – that they are spending the equivalent of something like $15,000 annually just to be able to see a doctor for a $20 co-pay; get their prescriptions for a $35 co-pay; workers would probably demand greater control over how their health care dollars are spent. Just asking questions like “doctor, do I really need this?” would go a long way to reducing some of the rising cost day-to-day medical care. And maybe if our health care system wasn’t spending so much time paying small claims, it would have more time to better manage the large claims.

  49. Extending the “onsite clinic” model of fair and prompt payment to include all primary care is essential to fixing what’s broke. Salaries are not required, just decent payment for services.

    The reasoning is simple. We cannot fix the overtreatment problem without the willing cooperation of the primary docs. Not unless we are prepared to enslave them.

    The “onsite clinic” model is just one example of paying docs fairly. I’m suggesting that it can be done systematically by slightly rearranging some of the parts. If we don’t approach it in its entirety, we won’t fix it.

    We need a revolution, not evolution.

  50. No mention of paternalism at all. In terms of retirement planning and setting the default position as auto-enroll into 401k plan and auto-escalate (increasing contribution to 401k over time), employees if they do on their own, these options do not apply. It’s about designing systems to enable the right behavior. I agree people have to be responsible for their own behavior, but how do we minimize the barriers so they are more likely to do the right thing?
    http://www.youtube.com/watch?v=sf9SaySaQZA&feature=youtube_gdata_player

  51. Margalit: That would certainly be a concern if these onsite clinics were run that way—if, for instance, there were no privacy wall between the clinic and the employer, and the employer were free to use the health information to prune their work force, and free to force employees to use health maintenance programs. None of those things is true of the way these clinics are designed and run. I believe HIPAA would prevent the sharing of clinical information in that way in any case. Most of them are run by outside firms set up to do just that—build and run onsite clinics. No patient-specific information of any kind passes to employer.

    In the current situation, in which both because of HIPAA and anti-discrimination laws an employer is largely unable to use health data from their clinic to fire people, it is in the employer’s own interests that employees feel safe to use the clinic for their primary care. Why set up the clinic if your biggest users of healthcare are scared to go there?

  52. Joe, as I said, I think on-site clinics are a very nice value added perk that a large employer can provide and I don’t see anything wrong with that. I am not sure why the physicians need to be salaried (by the employer, I presume), but even if they are, and the on-site clinic is not mandatory, it is nothing more than any other perk large employers provide.
    The problem in my mind starts when we start tinkering with the benefit design. So every employee must undergo some sort of health screening prior to employment, and then follow a certain regimen as condition of employment and/or health coverage, and maybe the employee’s wife and obese kids have to do the same, and maybe if the prospective employee has a kid with disabilities, he/she should go look for another job, and everything gets rolled up and reported to the employer. And technology jumps in and helps out with mHealth and all sorts of real-time monitoring tools and on-site vitals machines that scan you when you walk in (this is not fantasy, by the way).
    Now, there is no question in my mind that this is all good for your health and perhaps this is the type of stuff we will end up doing in the future anyway, whether run by employers, or payers, or civic groups, or government agencies. But right now, I think we should pause and contemplate the decisions we are about to make, because whoever acquires the “right” to manage your health and wellness (other than yourself), will be heading down a path of managing a lot more than that.

  53. That’s true, Nate. Yet in our current system we often charge people for the very services that would help people understand how to make better choices…as well as for the programs that would help them learn how to stop smoking, moderate their drinking, eat healthier, and so on. That’s a “penny saved, pound foolish” policy.

    There is a portion of the population that just doesn’t want to do what it takes to get healthier, and is resistant to any effort to help them. But the results of a lot of different projects tends to support the idea that there are a lot fewer of those people than we might imagine.

  54. “In the day-to-day of their lives, deductibles to see a doctor or consult a diabetes nutritionist compete with the rent and food on the table and gas in the truck”

    Joe I would strongly disagree with the way you frame this. This is how people would like to imagine the struggle but there are more then enough studies to show the real competition is between smoking, drinking, and other vices and healthcare.

    http://thelede.blogs.nytimes.com/2008/03/21/american-smokers-and-income-charted/

    Pot is another one that would disprove people are buying healthcare or starving.

  55. Peter: “Why don’t we talk to physicians…We could try something totally unique. Pay primary care physicians promptly and fairly and ask in return that they provide appropriate care and not overtreat.” The problem is that physicians, like everyone else, do what they are paid to do. Under the current system, doing what you ask would drive most of them to bankruptcy. That’s why we need to find different ways to pay them.

    That’s one of the things I like about the “onsite clinic” primary care model: The doc gets a decent salary, spends zero time screwing with insurance company stuff, has zero incentive to overtreat or undertreat. Employer (or other payer) gets a monthly invoice for the actual costs of the facility, salaries, drugs and such. The employer’s “return on investment” is in lower healthcare costs—so the employer has zero incentive to try to pressure the clinic to undertreat. The employer’s incentive is to keep the employees as healthy as possible, and the cost at the clinic level is not an issue, because the costs such treatment avoids is so much greater.

  56. Margalit: One thing to notice here is that the argument for or against things like aggressive health management, smart benefit design, and onsite clinics is not actually an argument about who is the payer, government or employer. Any payer working intelligently could do these things. “Onsite” clinics would work to lower costs and improve health anyplace a payer has enough clients within easy transport distance of one site. You could do it for a dense concentration of Medicaid patients in an inner city, or of Medicare patients in a large long-term care facility. Patients can go anywhere they want, but the clinic is more convenient, there’s no co-pay or deductible involved, and the drugs are free.

  57. Imdoc: “People act imprudently/paternalism vs. individuals become responsible adults and masters of their own destiny.” This is a false dichotomy. For the people who don’t take care of themselves, from their point of view in their particular situation, with the information and incentives they have, they are often making a rational economic choice. In the day-to-day of their lives, deductibles to see a doctor or consult a diabetes nutritionist compete with the rent and food on the table and gas in the truck. I’m not sure what “paternalism” would mean here except “doing something that benefits someone who works for you.” There is no force involved. Smart benefit design drives down the employers cost and the employees cost and makes the employee healthier. It’s not a choice between “paternalism” and “individual responsibility.” The choice is: If you are providing health benefits to someone, you want to do it smart or stupid? Do you, as an employer, want to cost yourself and your employees more money or less? Do you want them healthier or sicker? The evidence about how to do this right is out there.

  58. Unfortunately, history has shown that people don’t always act in their own best interest. A significant number of the diseases we treat are related to bad choices and behaviors committed by patients over years of abuse to their bodies. Smoking, excess alcohol consumption, poor dietary choices and lack of exercise are but a few that have long term negative consequences on a patient’s health.

    People, for most part, dont look after themselves in their day to day lives. I don’t think it’s reasonable to assume that they will suddenly learn to save to pay for their failing health that all those years of self inflicted abuse have caused.

  59. So, one argument is that people will always act imprudently in regard to their own welfare. This being the case, we need a paternalistic authority to put away the funds for healthcare, retirement, etc. This is simply the Progressive liberal point of view once again.
    Alternative view: individuals become responsible adults and master their own destinies.

  60. Somewhat interesting argument by analogy but does it not really miss the point? Dr. Liu starts by correctly identifying the problem:

    “With escalating health care expenses rising far more rapidly than wages or inflation, it’s not surprising employers needed a way to manage this increasingly costly business expense.”

    If we wish to control or manage health care costs, why don’t we talk to physicians who are ultimately responsible for $600 billion in unnecessary treatment and medical cost?

    We could try something totally unique. Pay primary care physicians promptly and fairly and ask in return that they provide appropriate care and not overtreat. I know this is a difficult concept to grasp. The thought that a professional would accept fair compensation for doing the job he or she was trained to do must seem hopelessly naive.

    One can dream.

  61. ” One is CDHP, which is another term for shifting financial burden to patients under the guise of “empowerment” and “personal responsibility”,

    I know you hate to be bothered with facts Margalit but how does an HSA that has a deductible 100% funded by the employer shift cost or financial burden to the employer. A large percentage of CDHPs I see put in place actually lower the members maximum financial liability. I would estimate 80-90% of CHDPs have lower maximum liability then the traditional plan they replace.

    Reality is the exact opposite of your assumption.

    “I do have a problem with employers assuming an “altruistic” role in driving health care costs down because I cannot see a genuine alignment of interests here between employers and people”

    Unlike the hugely successful relationship between government and Medicaid members?

    Employers have a vested interest in their employees and families being healthy, government at most needs your vote every 2 or 4 years.

  62. There are really two issues here. One is CDHP, which is another term for shifting financial burden to patients under the guise of “empowerment” and “personal responsibility”, and the other issue is whether employers should actively engage in providing health care (not just paying for it).

    I agree that shifting more burden to patients is inevitable, considering that health care unit costs are rising and nobody is willing to regulate those. The problem I see with CDHP is that the burden is not equitably spread across populations. The hardship for those that happen to be poor and sick is disproportionately higher than for those who happen to be healthier (at the moment) and wealthier.
    Financing health care through taxation seems to me to be a better solution, and this does not necessarily imply single payer and/or single provider.

    As to employers entering the health care provider market, if large employers wish to provide the benefit of on-site clinics, on-site gyms, on-site cafeteria, on-site Starbucks, on-site daycare, etc. I have no problem with that.
    I do have a problem with employers assuming an “altruistic” role in driving health care costs down because I cannot see a genuine alignment of interests here between employers and people (I don’t like the term workers). Of course, as long as employers are forced to foot the bill for health care, they will actively try to minimize liability and engage in efforts to keep the people that work for them healthy, and some of those efforts will even look pretty good, Joe.

    But is this what we really want? Are we ready to concede that we cannot manage our own health, our hospitals and doctors cannot do their job and our elected representative cannot manage any of this, but Cisco can? Is what Cisco wants and we want really the same? Have we really reached a level of dysfunction where we are willing to abdicate our responsibilities to unelected, uncontrollable, clearly self-interested entities just to keep the trains on time?

  63. I certainly didn’t make the case of a symbiotic relationship between employers or employees because I don’t believe even remotely in the analogy you suggest. The reality is that people spend far more time at work than in the doctors offices. Employers increasingly are discovering that the American health care system is unable to keep the country healthy. They don’t want the responsibility, but as a result they are trying to find solutions. One of them, unfortunately, is consumer driven health care. Others may be better including having primary care doctors at the worksite. Whether these are better only time will tell.

  64. Dr. Liu is exactly right. When I read the title, my immediate reaction was, “Of course they’ll fail … if you don’t do them the right way.” And of course, many employers will not — and that will not only hurt their employees, it will hurt their own bottom line. Employers and insurers need to get much more involved. But the image given by Dr. Goel of a “paternalistic” employer, and given by Ms. Gur-Arie of “surrendering your health to an all-powerful employer” reminiscent of plantation days ignores the better new models arising in the employer healthcare market, such as fully privacy-protected onsite clinics like Cisco’s, that both improve the patients’ health and lower costs for both patient and employer. Done right, there is no downside to it.

  65. “The ironic thing is that we’ve also discovered that defined benefit pension plans don’t always do so hot either — e.g., social security, many public sector pension plans, several large manufacturing companies…need I go ”

    The reason they may not do so great is inadequate contributions. SS is easily fixed with more FICA contributions and public sector contributions from employers and employees also need the same. What we see in state plans is legislators skipping or reducing their part of the contribution contract to balance budgets they messed up to begin with. But you know, the business community doesn’t want good worker savers and planners because that would reduce what they could spend on their products. They’d rather see workers spend all their wages on stuff now and not save for the future. It’s like the company owned store in remote mining communities, The workers wages and what the company store charged never allowed for savings – just an indebted and obligated workforce. All this might be OK unless you ponder what an explosion of baby-boomer poor old people would do to the economy. We can also add this lack of pension/healthcare savings to already devalued middle class home equity and debt obligations courtesy of the well bonus-ed thieves on Wall Street. Consumer driven health care is just another carrot too far.

  66. The ironic thing is that we’ve also discovered that defined benefit pension plans don’t always do so hot either — e.g., social security, many public sector pension plans, several large manufacturing companies…need I go on?

    The huge local, state, and federal budget deficits illustrate that leaving financial decisions to others is literally a bankrupt strategy…one way or another, consumers will need to figure out how to manage their health care to affordable levels, the way they have to in every other part of their life.

  67. Not sure I get your reasoning here. Because employees are making choices that you think don’t make sense, the employer needs to be more paternalistic?

    The era of a company taking care of people worked when companies were built to last and the expectation was that you would work your way up the ladder at one institution for your career.

    In today’s economy, big players go bankrupt overnight. Do you want to have Enron holding your pension? Or GM without the bailout? Didn’t think so.

    You diagnose the right problem…people don’t save appropriately for health issues nor retirement. The root cause however, isn’t that they need more gudiance…it stems from a broader decline in the work force where they aren’t making enough to fund expensive versions of retirement at 65 (for 30 years) or medical care into their 80’s.

    What matters more is enabling a marketplace where cheaper alternatives can attract more customers. Today’s incentive and licensing models lock them out…and then we wonder why we can’t afford anything.

  68. “…increasingly more people get the medical care based simply on their ability to pay and not on medical necessity…… I hope that day never comes”

    That day came and went. Precisely because we continue conversing about “workers” and how employers are interested in keeping them “productive”, and thus will be engaging in all sorts of wellness and beneficial health management activities. You could make very similar arguments (and they were made) about the symbiotic relationship between plantation owners and their “work force” a couple of centuries ago.

    I tend to agree with Dr. Rothschild that wellness and health management are the job of physicians, not employers. I would prefer that medical decision making is facilitated by someone who actually went to medical school and is not evaluating the person in front of them (and his/her children) as a business asset or liability (same goes for legal and financial decisions).
    Surrendering your health, and your family’s health, to an all powerful employer is a throwback to darker times and it needs to go away.

  69. Your assumptions are so on point, for example I dumped all of my 401K when my older child hit college and there it all went. Immediate needs will often trump planning for the future when consumers are left to prioritize their healthcare, as with retirement. We are a “now” oriented culture.

  70. Well-reasoned article. You write the following: “If employers wish to help curb medical costs, then they will need to engage workers with programs like employee wellness, assisted decision making (either as second opinions or patient-friendly informed consent), and access to medical experts, equivalent to personal financial advisors, who may be able to help workers make the right choices for their health.” Good point. Isn’t this essentially what PCPs should be doing, at least in the ideal world where we are reimbursed adequately for engaging in these activities with patients?

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