Mitt Romney’s/Paul Ryan’s premium support/voucher plan was heavily derided during the dark days of Campaign 2012, but the devil was always more in the details than the theory. While the re-election of President Obama left premium support dead on the Medicare level, health insurers are increasingly turning to the ideas that drove it – choice, competition, and the power of a (carefully regulated) market – to address high costs on the procedural level. Call it the micro-voucherization of health insurance.
This is known by wonks as reference pricing, and its recent results in California are promising: the costs of hip and knee replacements fell by 19%, with no attendant decrease in quality. Using reference pricing is an assault on the status quo that holds the promise of “bending the curve” in a meaningful way, but it faces technical and political concerns that may consign it to the graveyard of promising-but-unfulfilled ideas.
Broadly-speaking, reference pricing is the act of offering a set amount of money for the purchase of a good, where the reference is an amount that can reasonably said to offer meaningful coverage for that good. Sometimes, reference pricing is focused on a given procedure – what I’ll refer to as “inputs-oriented reference pricing”; other times, a given outcome, or “outputs-based reference pricing.”
That’s pretty vague, so let’s use the colonoscopy procedure (which has recently received a lot of attention thanks to an informative New York Times article) to help color this in. The inputs-oriented approach would see the payer asking: given the choice to have a colonoscopy – a procedure which varies wildly in cost without varying wildly in quality – what’s a reasonable price to pay? It would decide this based on some combination of price, quality, and geography, and would inform consumers of its spending cap.
Say it finds that most of its insured population can reasonably access a high-quality colonoscopy for $10,000; if a consumer choose provider that charges $15,000, he or she would pay the $5,000 difference out of pocket. Choice is preserved, but at a cost. The simple chart above shows how this may work.
But, if you read the colonoscopy article, you may be asking a separate question: why pay for a colonoscopy at all?
The insurance industry had a rocky start a century ago. It was clear that there were untoward events that could befall any of us with catastrophic results, from the incineration of a home to the loss of the ability to maintain gainful employment from injury or death.
Insurance offers a mechanism to share this risk. The stumbling block was the possibility that the insured might burn down their home to collect. Once it was realized that “moral hazard” could be held at bay by investigating for fraud, there was little to hinder the growth of an industry designed to serve our risk adverse proclivities. Almost every adult has some experience valuing the expense of sharing risk for a variety of hazards. After all, automobile insurance is generally compulsory and most of us are familiar with notions of deductibles and riders when it comes to homeowners’ policies. The possibilities are not an abstraction; we can envision the house or its contents damaged, destroyed, or stolen leaving us bereft. What would reducing that prospect be worth to us? As is true for many value-based decisions, the answer brings a mix of reason and intuition (1)that can produce surprising outcomes (2).
Health insurance is even more complex, and has always been so. The industrial revolution saw the development of “Friendly Societies” in Britain and the Prussian “Krankenkassen”. These were trade-based institutions that allowed advantaged workers to purchase insurance to provide “sick pay” but there was little else. The sea change was the Prussian “welfare monarchy” (3), an extensive insurance scheme that encompassed universal health care and a complex approach to disability insurance (4). Modifications of the Prussian scheme spread across the industrial world. It made landfall in the United States in time for the presidential election of 1912. Only one component took root in America: Workers’ Compensation Insurance but not as a national insurance scheme. It fell to the each state to regulate an insurance scheme to compensate injured workers for lost income and medical expenses.
This set the stage for state-based regulation of employer-sponsored private health insurance schemes going forward. But forward momentum appears anything but swift or linear in a country that trusted physicians to charge “commensurate with the services rendered and the patient’s ability to pay” (AMA Code of Medical Ethics, 1957.) Health Insurance as both an industry and a product has become a frustrating web of inefficiency and confusion.
It has been a couple of weeks since the landmark Oregon Experiment paper came out, and the buzz around it has subsided. So what now? First, with passage of time, I think it is worth reflecting on what worked in Oregon. Second, we should take a step back, and recognize that what Oregon really exposed is that health insurance is a small part of a much bigger story about health in general. This bigger story is one we can’t continue to ignore.
So let’s talk quickly about what worked in Oregon. Health insurance, when properly framed as insurance (i.e. protection against high, unpredictable costs) works because it protects people from financial catastrophe. The notion that Americans go bankrupt because they get cancer is awful and inexcusable, and it should not happen. We are a better, more generous country than that. We should ensure that everyone has access to insurance that protects against financial catastrophe. Whether we want the government (i.e. Medicaid, Medicare) or private companies to administer that insurance is a debate worth having. Insurance works for cars and homes, and the Oregon experiment makes it clear that insurance works in healthcare. No surprise.
The far more interesting lesson from Oregon is that we should not oversell the value of health insurance to improving people’s health. While health insurance improves access to healthcare services (modestly), its impact on health is surprisingly and disappointingly small. There are two reasons why this is the case. The first is that not having insurance doesn’t actually mean not having any access to healthcare. We care for the uninsured and provide people life-saving treatments when they need it, irrespective of their ability to pay. Sure – we then stick them with crazy bills and bankrupt them – but we generally do enough to help them stay alive. Yes, there’s plenty of evidence that the uninsured forego needed healthcare services and the consequences of being uninsured are not just financial. They have health consequences as well. But, claims like 50,000 Americans die each year because of a lack of health insurance? The data from Oregon should make us a little more skeptical about claims like that.
So what really matters? Right now, we are pouring $2.8 trillion into healthcare services while failing to deliver the basics. To borrow a well-known phrase, our healthcare system is perfectly designed to produce the outcomes we get – and here’s what we get: mediocre care and lousy outcomes at high prices. Great.
In many ways, it had been an exemplary few days for the NCAA and its signature basketball tournament—a weekend that put the madness back in March.
On Friday, Michigan and star guard Trey Burke completed an epic comeback over Kansas. On Saturday, Cinderella team Wichita State crashed the Final Four.
But for many people watching the Louisville-Duke game unfold, a disturbing injury to Louisville guard Kevin Ware illustrated a different sort of madness: the continued lack of compensation for the players who make the tournament so special.
“Pray for [Ware],” columnist Dave Zirin tweeted. “There is no safety-net for the injured NCAA athlete.”
Injury worst seen on TV
Ware’s broken leg—”about the most gruesome injury I’ve seen in a basketball game,” bemoaned analyst Seth Davis—came on a routine play, as he landed awkwardly after trying to block a shot by Duke’s Tyler Thornton.
For a large and growing number of us with meager or no coverage, health care is the ultimate “gotcha.” Events conspire, we receive care and then are on the hook for a car- or house-sized bill. There are few alternatives except going without or going broke.
Steven Brill’s recent Time cover story clearly detailed the predatory health care pricing that has been ruinous for many rank-and-file Americans. In Brill’s report, a key mechanism, the hospital chargemaster, with pricing “devoid of any calculation related to cost,” facilitated US health care’s rise to become the nation’s largest and wealthiest industry. His recommendations, like Medicare for all with price controls, seem sensible and compelling.But efforts to implement Brill’s ideas, on their own, would likely fail, just as many others have, because he does not fully acknowledge the deeper roots of health care’s power.
There’s been a lot of discussion of transparency in health care recently, e.g., a USA Today op-ed and a counterpoint by Paul Ginsburg. The appeal of transparency is obvious. As movingly documented by Steven Brill in Time, prices are high and often differ quite substantially, even across close by providers. However, we don’t know the prices for the health care that we consume, and it’s extremely difficult to find out what these things cost (e.g., this recent study in JAMA).
While the appeal of transparency is obvious, it’s important to realize that buying health care is not like buying milk at the grocery store. A key factor is health insurance. Health insurance is very important — people need to be insured against the catastrophic expenses that can occur with serious illness. Thus people with high health care expenses won’t be exposed to most of those expenses (and shouldn’t) and therefore will have no reason to respond to information about health care prices.
It has always been my assumption that my new practice will be as “digital” as possible. No, I am not going into urology, I am talking about computers. [Waiting for the chuckles to subside]
For at least ten years, I’ve used a digital EKG and spirometer that integrated with our medical record system, taking the data and storing it as meaningful numbers, not just pictures of squiggly lines (which is how EKG’s and spirometry reports appear to most folks). Since this has been obvious from the early EMR days, the interfaces between medical devices and EMR systems has been a given. I never considered any other way of doing these studies, and never considered using them without a robust interface.
Imagine my surprise when I was informed that my EMR manufacturer would charge me $750 to allow it’s system to interface with a device from their list of “approved devices.” Now, they do “discount” the second interface to $500, and then take a measly $250 for each additional device I want to integrate, so I guess I shouldn’t complain. Yet I couldn’t walk away from this news without feeling like I had been gouged.
Gouging is the practice of charging extra for someone for something they have no choice but to get. I need a lab interface, and the EMR vendor (not just mine, all of the major EMR vendors do it) charges an interface fee to the lab company, despite the fact that the interface has been done thousands of times and undoubtedly has a very well-worn implementation path. This one doesn’t hurt me personally, as it is the lab company (that faceless corporate entity) that must dole out the cash to a third-party to do business with me.
Doing construction in my office, I constantly worry about being gouged. When the original estimate of the cost of construction is again superseded because of an unforeseen problem with the ductwork, I am at the mercy of the builder. Fortunately, I think I found a construction company with integrity. Perhaps I am too ignorant to know I am being overcharged, but I would rather assume better of my builders (who I’ve grown to like).
Yet thinking about gouging ultimately brings me back to the whole purpose of what I am doing with my new practice, and what drove me away from the health care system everyone is so fond of. If there is anywhere in life where people get gouged or are in constant fear of gouging, it is in health care. Continue reading…
In a world where health care costs are rising and consumers are taking on a growing share, it is critical they have easy access to understandable information about the quality and cost of their care. While we have made decent strides in making quality data available, consumers still have little to no information about health care prices, making it difficult if not impossible for them to seek higher-value care. Numerous studies and articles have explored this problem, such as a recent UCSF study, highlighted in JAMA, which found routine appendectomies can cost as little as $1,529 or as much as $183,000. As PBGH Medical Director Dr. Arnie Milstein so eloquently stated in the Wall Street Journal, “Fantasy baseball managers have more information evaluating players for their teams than patients and referring physicians have in matters of life and death.”
Now Catalyst for Payment Reform (CPR), an independent, non-profit corporation working on behalf of large employers and other health care purchasers to catalyze improvements in how we pay for health services, has just released a suite of tools to catalyze price transparency. The suite includes a first-of-its-kind Statement by CPR Purchasers on Quality and Price Transparency in Health Care, endorsed by several partner organizations, that takes plans and providers to task: give us price data by January 2014.
Gregg Masters reports on a recent Kaiser Health News article: Hospitals Look to Become Insurers, As Well as Providers of Care”.
This is the dumbest idea I’ve heard since “I’m going to invest all my money in Facebook’s IPO and get rich!”
Here are six reasons why:
1) You’re too late. Health insurance was an attractive and profitable business in the 00s, but after passage of the Accountable Care Act it’s been commoditized.
First, the health plan business model of the past decade is dead. That model was — “Avoid and shed risk” — or more simply, avoid insuring people who are already sick (preexisting conditions) and get rid of people who become sick (rescissions). Under the ACA, health insurers must take all comers and they can rescind policies only for fraud or intentional misrepresentation.
Second, the ACA institutes medical loss ratio restrictions on health insurers. Depending the the type of plan, insurers now must spend at least 80-85% of premium dollars on paying medical claims; if they spend less, they must return these “excess profits” as rebates to customers. As a result, health insurance has become a highly regulated quasi public utility.
This is why you see health plan CEOs like Mark Bertolini of Aetna declaring “Health insurers face extinction”. The old health insurance model is on a burning platform, and health plans are reformulating themselves as companies involved in health IT, analytics, data mining, etc.
2) You have bigger fish to fry. Focus on developing accountable care capabilities. The AHA estimated that hospitals will need to spend $11-25 million to develop an ACO. Get going.
Most people are getting their health insurance through their employer. That has been changing slowly, but with healthcare reform, many more people will be left to select their own plans without the pre-selection and help from their employer. What used to be a choice among 3-5 plans is soon to become a selection from dozens of health insurance companies each offering a dozen plans to choose from. And selecting an insurance plan is not like getting car insurance; family makeup, prior health issues, future healthcare needs, and affordability – they all matter. In other words, it’s very personal.
As in other insurance industries, there will be a number of options to help consumers, such as agents and brokers. Cost is one of the most important criteria, but the problem of predicting the impact of plan choices on out-of-pocket costs is much harder, since selecting a plan is such a personal choice. Our needs and therefore expenses also change over time, as we go through different life stages.
As in many industries, there is a lot of data one can harness to help with these decisions. One benefit we see emerging is the availability of personal power tools (similar to financial planning tools) that allow for detailed modeling of an individual or family’s situation. These tools predict likely health care needs and allow one to compare the detailed expenses given different insurance plans. Starting a family? Entering your fifties, with its slew of clinically advised exams? Dealing with the ups and downs of a chronic condition? Those factors can all be taken into account to provide detailed plan options and price comparisons to help choose the optimal health plan.