By Michael Turpin

As the Supreme Court debates the boundaries of government’s role in mandating the purchase of insurance, the discussion continues on whether the public or private sector is best positioned to drive market reforms necessary to meet our goals of lower costs and higher quality. As the son of a Phi Beta Kappa neo con who believes government should be the size of a sand gnat and as the husband to a British citizen who loves national healthcare and was born through a midwife, I often find myself lost in a political no man’s land with volleys being exchanged from the right and left.  To complicate Thanksgiving dinner further, thirty years of healthcare consulting, including a three-year stint in Europe, hospitalization for pneumonia in the NHS and a tour of duty as a senior executive for a national insurer has left me with my own conflicted convictions about  how we might fix our broken system.

On the eve of the Supreme Court determining the fate of PPACA, strong opinions are in full bloom like cherry blossoms along the Mall.  In his particularly sharp remarks to government attorneys, Justice Kennedy, considered a swing vote by many, cautioned that Congressional intervention to mandate citizens the “duty ( to buy coverage) to act “ was a slippery slope that sets dangerous precedent and impinges on individual rights. Justice Roberts added, “And here the government is saying that the Federal Government has a duty to tell the individual citizen that it must act … That changes the relationship of the Federal Government to the individual in the very fundamental way.”

Justice Scalia was quick to wade in after Justice Roberts questioning, ” what would be next in the role of the government dictating to its citizens ( if the mandate were to be upheld). “I will tell you the next something else (we will next tell Americans to do) is exercise, because we know that lack exercise contributes to illness.” It seems that this debate is indeed creating odd bedfellows as civil liberties advocates are joining conservatives in warning that the next thing the government will be telling people is that they cannot drink sugary soft drinks or that they have to eat broccoli.  It is hard to find a time when a conservative Justice and the ACLU share a common opinion about anything.

Private Versus Public – Who can Enforce Behavior?

If legislators and American business want to reduce the cost of healthcare and engage an entire generation of entitled Americans, the practical answer to Justice Scalia’s rhetorical question is “Yes. Justice Scalia. We must mandate personal responsibility for healthier lifestyles.”

Most Constitutional and human rights advocates would agree that the government’s regulation of the “commerce of healthcare” can become a snare that can tangle any government’s legislative foot in a cat’s cradle of complications.  The need to legislate behavior in an effort to help reduce costs is simply a lap too far.  A government dedicated to reducing costs while preserving quality and competition would need to adopt practices currently employed and bearing fruit in the private sector to moderate medical trend and improve affordability.  The reality is many of these efforts – biometric testing, health risk assessments, population based plan designs, value based reimbursements – require a more prescriptive level of engagement by employees.  While the programs are strictly voluntary, it is clear that the cost of declining to engage in health improvement will begin to create a substantial cost sharing gap between those who participate and those who do not.

How Public And Private Payers Seek To Control Costs Fundamentally Varies

Medicaid and Medicare recipients are largely unmanaged.  Patients are free to access any provider who is willing to accept reimbursement and are generally not consistently under the care and coordination of a primary care provider. Fraud, overtreatment and instability among the chronically ill has led to extraordinary spending in public healthcare.  Unengaged and vulnerable patients freely access a system that has found it difficult to close gaps in care, manage compliance or offer visibility on the where to receive the most efficient care.

In the private sector, larger employers have begun to achieve lower per capita health care costs and market reforms by implementing programs designed to impact the unit cost of healthcare and the consumption of services. In the face of the recent recession, the private sector moved rapidly to de-leverage, right-sizing balance sheets and returning to profitability.  Larger firms have concluded that providing healthcare is neither a right nor a privilege but a benefit — an essential tool to attract and retain personnel.  In providing this benefit, there is an assumed  bilateral contract where each party takes responsibility for their role in health and healthcare.

Employers have done a poor job of enumerating expectations around personal health as many feel the idea of employment based health improvement reeks of Orwellian oversight.  Additionally, wellness and health management only works where there is a culture of trust and communications — two commodities often in short supply in a business environment often reducing staff, freezing pay and struggling to achieve year over year earnings growth.  Yet, firms have proven through the harmonic convergence of culture, communications and mutual accountability that medical trends can be reduced through health improvement.

The debate between public and private insurance inevitably breaks down when discussing how to best control costs.  A single payer system relies primarily on global budgets, rationed access and reimbursement based on a complex clinical and financial calculus that balances medical necessity and cost. Inevitably, the specter raised is whether restricted access to quality care suffers when rationed reimbursement is peanut butter spread across all providers who often have highly variable outcomes.  While every physician claims to have graduated first in their class, we know that some providers charge multiples of other providers but cannot clinically prove that their outcomes are significantly more favorable across a similar population.  The private sector has figured out that open access PPOs that promise 90% reimbursement for any in-network provider is contributing to the very problem they are trying to solve – paying for quality outcomes, not for units of care.

There is a case to be made that market based reforms can and would do a better job of preserving quality by reducing not only unit cost prices but also reducing consumption of services and preserving quality. The question remains whether the private sector has the will to convert an entire generation of reluctant and at times, recalcitrant employees who see open access, non managed healthcare as an entitlement.  Employers are now deciding whether they would prefer to take on the thankless task of redirecting employees and their dependents to narrower and more prescriptive primary care based networks or whether to drop coverage and abdicate the role of population health management to the government.

Several Supreme Court justices have already indicated that they do not believe government should play a broader role in regulating the “commerce” of healthcare. The question remains whether employers have the will and the skill to drive this process. Consider five reasons why the private sector needs to work harder to preserve employer based healthcare on the behalf of 180M working Americans.  In doing so, employers could end up preserving a system that rewards higher quality care and achieves lower cost without imposing universal reimbursement rationing.

1.     The Government Can’t Enforce Health Engagement.  Many Employers Won’t. There is a difference. – 50% of all private sector claims are driven by less than 10% of an employer’s population.  We know in many instances, these individuals develop chronic illnesses borne out of poor lifestyle choices.  The issues are difficult to solve for and are complicated by socio-economic issues such as lack of access to primary care, lack of access to healthier diet alternatives and a lack of education about the consequences of poor lifestyle choices.

Medicare and Medicaid do not have the means nor the ability to drive lifestyle based incentive plans or more prescriptively direct care for their recipients.  Less than 15% of Medicare is managed and those recipients are covered under Medicare Advantage plans that are driven by commercial insurers.  For Medicare to make advances, it would need to partner more closely with the very constituency that it vilified in an effort to get reform passed – managed care companies.  Meanwhile states are turning to managed care to help mitigate costs and improve care quality.  Medicaid costs are ballooning and without the ability to improve public health, better dictate access points, close gaps in care and manage the intensity of services being rendered while a patient is in the medical system, the public sector can only ration cost as a means of achieving cost management.

2.     Employers can design plans to reward engagement and health improvement – Employers are now committing resources to population health management – – conducting biometric tests, requiring health risk assessments, implementing rewards based plan designs that offer lower costs and richer benefits for engaged employees.  The result has been behavioral shifts that are fundamentally changing the way employees access care.  The combination of better tools to understand the variability of provider costs for similar procedures, education, rewards and disincentives have all combined to lower trends for many employers committed to driving loss control for healthcare.  The challenge for employers is true engagement requires time and resources.

3.     The Brokerage Community Has Done a Mediocre Job in Managing and Resourcing Health Improvement for Employers.  If you subscribe to the maxim that there are no bad students, only bad teachers, the sluggish move toward population health management, self insurance and aggressive loss management programs has as much to do with the limited intellect and resources of those advising employers as it does the employer themselves.  In the new normal, brokers must become advisors and have access to actionable data analytics, clinical resources, underwriting and actuarial services to more effectively forecast and show a return on investment for health.  The golden age of low transparency, limited access to claims experience, opaque premium and embedded broker remuneration is ending and giving way to an era of accountability where advisors will be paid for value and less for bedside manner and low value administrative support services.

4.    The Key To Quality is Reducing Higher Health Costs that Do Not Correlate to Better Outcomes – Employers have a lot of ground to make up.  After rebelling against HMO plans that had achieved close to zero trend in the mid-1990s but achieved it primarily by focusing on aggressive medical management and redirecting patient’s to lowest unit cost providers, employers demanded a more laissez faire system of access and oversight for employees. Choice and minimal third party intervention was the mantra which resulted in happier employees and annualized trends that swelled like waistlines to over 14%. As premiums soared, insurers and broker remuneration increased.

Over the last two decades, many employers have gravitated to larger, open access PPO networks that offer a wide range of provider choices for employees and also highly variable charges for similar procedures.  To complicate the need for consumer engagement, these variable charges are normally reimbursed at the same co-insurance or co-pay level – as long as they are incurred in network.  Often, the most expensive providers are perceived to be the best.  Employers must commit to narrowing networks and measuring quality based on outcomes over an entire episode of care.

The public sector equally rations reimbursement across all providers irrespective of outcomes or unit cost, shifting the burden to find a quality doctor to the patient.  The ability to reward quality with higher reimbursement while forcing greater transparency in outcomes and costs to better understand who is actually delivering the best care can only be achieved through extensive analytics and an employer’s willingness to begin to reward utility of better providers. While CMS has committed to pilot programs to begin to drive this migration to quality, the private sector has the ability to move more rapidly – but only if employers are willing to tolerate the disruption that this may visit on employees who prefer the status quo.

5. Rationed public reimbursement leads to cost shifting which undermines provider quality and accelerates affordability of private healthcare. Peanut butter spread reimbursement rewards mediocrity and creates the incentive to drive a higher volume of services to make up for rationed reimbursement.  As doctors and hospitals receive less from state and federal reimbursement, they will naturally attempt to shift these wholesale arrangements to retail commercial customers.  As medical trends spike in commercial health insurance, premiums become increasingly unaffordable with more employers choosing to drop coverage.  Private employers already pay an estimated $1.22 for every dollar of healthcare to compensate providers for public sector underreimbursement. The cycle eventually leads us to more employers dropping coverage and a larger and larger population of uninsured workers.  With 50M uninsured,  a call has rung across the land for public policy intervention to solve for the crisis of affordability and access.  Not unlike Dorothy in the Wizard of Oz, employers have always had the ability to reduce costs but have chosen to pass on cost increases and reduce benefits instead of tackling the more difficult and disruptive process of driving payment reforms and behavioral change.

It’s Now or Never– While CMS is attempting to change reimbursement methodologies to reward higher quality outcomes and to penalize poor management of services such as infection and readmission rates, the private sector still holds the trump card being able to drive more onerous consequences for poor medical delivery.  Determining medical necessity and driving reimbursement reform is tricky business and often disintegrates into political food fights as evidenced by contracting disputes that often arise between payers and providers.

When it comes to refusing to cover certain procedures or penalizing outlier behavior, commercial insurers find it increasingly more politically expedient to wait for CMS to change policy on Medicare reimbursement to provide air cover for their own policy changes. Historically, it has been in vogue for employers to blame insurers for certain reimbursement practices rather than take responsibility that payers are merely administering the employer’s plan document.  Employers need to own their medical spend and they need to reinforce with their employees the bi-lateral agreement that comes with financing care.  In the face of mounting pressure to reward engagement in the workplace, consumer advocates are now complaining that employers are becoming increasingly too prescriptive about population health management. Personally, I support the view of Steve Sperling of Hewitt who recently retorted to criticisms about employer driven health incentives, “House money, house rules.”

The healthcare system is changing as we debate the need for change.  The tectonic plates of hospital and provider delivery are shifting causing great upheaval and alterations in the strategies of large systems, community based hospitals and across a range of stakeholders.  According to a recent Credit Suisse report,  the US still ranks at 150% of the unit cost of services and a full 60% higher than other industrialized nations for overtreatment/consumption of services.  While we can boast higher cancer survival rates and a system of R&D that props up the innovation occurring across the globe, we are not getting enough value for our spend.  It is unsustainable. The Supreme Court now has the dubious honor of killing or upholding PPACA.  Irrespective of the outcome, private employers are our best chance to help fix the problem.

Given the nature of politics and the nature of human behavior in healthcare, it’s my belief that government can fix the cost problem rather quickly but would likely throw the babies of quality and public health improvement out with the notion of private reimbursement.  The private sector has the green light to drive market based reforms that can reduce pricing variability, reward quality and improve public health.  However, it’s a tall order at a time when companies are seeking to reduce administrative costs, are focused on the business of the their business and are lacking the will to burn social capital with workers by playing Big Brother when it comes to health improvement.

In one scenario, the government may want to reduce healthcare spending but really, at the end of the day, the Supreme Court is saying “you can’t. ” In the other case, employers have a golden opportunity to step up and start demanding value for their spend and force greater transparency and conformity around health improvement.  But up until now, they won’t.

Michael Turpin is frequent speaker, writer and practicing benefits consultant across a 27 year career that spanned assignments in the US and in Europe. He served as the northeast regional CEO for United Healthcare and Oxford Health from 2005-2008 and is currently Executive Vice President for Benefits for the New York based broker, USI insurance Services. He writes at Usturpin’s Blog.