Yet Another Silver Bullet for Health Care


Blocking consumers from using health care resources backfired in a big way. Now the big idea is to put consumers in charge. Is the concept on target?


Yet Another Silver Bullet for Health Care

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Choose article section...Consumer driven health care in a nutshellWeak spotsWisconsin's viewThe quality information voidAnother side of the coin

By Katherine H. Capps and Sandy Mau

Blocking consumers from using health care resources backfired in a big way. Now the big idea is to put consumers in charge. Is the concept on target?

HMOs, insurers and employers blustered about the Supreme Court's April ruling in favor of any willing provider laws, but most experts agree the decision won't make much difference at this stage of the game. Twenty-three states have already outlawed restrictive physician networks, and most insurance companies have already expanded their provider networks to appease consumers. One way or another, restricted networks are no longer considered the silver-bullet in the battle with rising costs and questionable quality. Some observers would award that status to a relatively new solution: consumer-driven health care.

Consumer driven health care in a nutshell

CDHC plans continue to rely on employers for core funding of benefits but transfer to the employee/consumer both direct control of plan choice and accountability for wise use of benefits. Central to the concept is education of the consumer through choice. Historical attempts to manage health care sought to curtail demand by setting up roadblocks like utilization review and prior authorizations. CDHC tries to teach consumers to say, "No" to themselves. Most plans include a web-based component that describes the cost of benefit plans and options. Some include quality information as well.

CDHC plans are touted as the cure for managed care's problems because consumers can choose the level of coverage that best suits their individual needs. Presumably, a more frequent user of the health care system may select a lower deductible plan with a higher monthly premium and a broad network of providers. A less frequent user may opt for a higher deductible and lower monthly premium, with a narrower choice of providers.

CDHC appeals to benefits directors as a means to create longer-term sustainable savings by capping employer contributions at a low level of the benefit array. Employees can then choose the lower-cost plan — which they tend to do1 — or add their own contributions for a higher-priced package.

There are three types of consumer-driven health plans currently in use:

  • Health reimbursement arrangement (HRA) plans establish an account that consumers tap to make health care purchases. When the account is exhausted, enrollees typically must pay out of pocket until they meet an annual deductible, after which the plan becomes a traditional major medical plan. Unspent funds from the spending account revert back to the employee at the end of the coverage year. This type of plan doesn't require a fixed employer contribution.
  • Employee-designed packages allow consumers to choose network and benefit selections, which in turn determine the premium for the individual plan. Employees bear the cost for their selected plan above a fixed contribution from the employer.
  • Customized package plans allow employees to use web-based tools to choose from a predetermined slate of provider network and benefit packages that vary in breadth and richness. This type of plan requires a fixed employer contribution. About 90 percent of the current CDHC market falls into this category.

Because tax questions regarding these plans weren't clarified until 2002, only a few insurance companies offer the products. Most were launched within the past year, offered in tandem with other traditional plans and achieved a 5 to 15 percent enrollment penetration2. About 1.5 million enrollees were estimated in November 2002. Many in the market, however, say they expect the inherent attraction of "consumer choice" set in direct contrast to the limits of managed care will expand CDHC from its present niche to as much as 50 percent of the workplace insured3.

Weak spots

Even advocates admit there is little track record to gauge whether the bud of CDHC will emerge from the hot-house to thrive in the broader market. D'Anne Turner Gilmore, executive director of the Oregon Coalition of Health Care Purchasers, is concerned that most current versions of CDHC plans promote the wrong — and ultimately more costly —choices. The Oregon Coalition is working with the Minnesota-based Patient Choice Healthcare, which she describes as the pioneer of the smart CDHC approach.

The Oregon initiative intended to offer the option to both fully insured and self-funded employers, but thus far it is available only for the latter and very few have taken up the offer. Beyond the inherent challenge of bringing a new idea to market, Gilmore says some key renewal windows were missed and there was initial difficulty with competitive pricing for the insured product.

Gilmore thinks the key to success is not to have CDHC as a stand-alone product for most purchasers, but instead to incorporate this approach in all health plans (both fully insured and self-insured) that want to promote value and contain costs. She fears that some versions of CDHC "are missing the fundamental core," arguing that the greatest weakness of most CDHC plans is the lack of understandable, consumer-centered, standardized information from unbiased sources for making decisions based on risk-adjusted total costs. Gilmore emphasizes that total cost factors in performance and outcomes, not unit price alone.

While efforts are underway for standardized data reporting from hospitals and other institutional providers, structures that allow consumers to make good choices based on quality and cost are not widely available. Almost no physician-specific quality information is available. Until consumers can access information relevant to local providers, cost will drive their choices — and not necessarily to the benefit of employers.

"You hear a lot of talk about how consumers have been protected by employers from the true cost of care, but the truth is we have all been fooled, " Gilmore said. "Most employer purchasers look at unit price instead of total cost of care and current products may push people to the least efficient systems as there is a demonstrated business case that the total cost of care in a system is often unrelated to unit price."

Gilmore points to a six-year experience with a Minnesota business coalition comparing the cost of total patient care in 19 care systems. Taking into account the overarching cost of episodes of care, care systems with the lowest unit price didn't usually deliver the lowest-priced total performance.

Gilmore believes that this is not unique to Minnesota and that the reverse may also be true in other markets: those groups with the highest price per unit may be the lowest total cost systems. "Hospitals with a low unit price, but more infections, falls and medication errors will cost more than the high unit price, high quality hospitals, " said Gilmore. "Physicians who do a bad job managing care for patients with chronic disease will see those patients a lot more and the patients will end up in the hospital more often," Gilmore added. And, this results in higher total costs — even if the price per visit is much lower.

If unit price simply doesn't correlate with actual total cost, then employers who believe that price-based CDHC plans will steer employees toward cheaper providers are more likely to end up seeing higher overall benefit costs.

Wisconsin's view

The Alliance, a 160-member health care cooperative based in Madison, Wis., has introduced its own consumer-based plan. Alliance CEO Chris Queram likens the move to the shift from pension defined benefit plans to individual retirement accounts in the mid-1980s.

Rayovac Corporation, an Alliance member company, will launch its own version of CDHC when it opens a new $20 million distribution and packaging center complex in Dixon, Ill., this spring. "What's good about offering this plan option is timing," said Thom Weiss, director of compensation and benefits for Rayovac. "We have just started hiring employees, and this plan is going to be their only plan choice at the facility." Weiss said the CDHC model fits with the new plant's targeted culture of "teamwork, self-direction, contribution to the business, and rewards based on how the business runs."

"We all have a responsibility in the outcome of this facility," Weiss said. "It's a beautiful facility, with computer kiosks and training for employees to become computer literate. We want them to not only have information, but be able to manage their individual account."

Even Queram admits the overall model is still immature. He points to two potential difficulties, starting with the fragmentation of risk pools. If younger, healthier employees flock to high-deductible, HRA-type accounts while older and sicker employees remain in the higher-cost, traditional plans, the cost of insuring the 5 percent of people who incur 45 percent of health care costs will rise precipitously. His second concern echoes that of Gilmore: lack of cost and quality information that is "accessible and comprehensible to people of all levels of income, education and literacy."4

The quality information void

Consumers must be ready to make a practical adjustment to seek information from an unbiased source, which is a major obstacle.

Despite local efforts by employer groups and nationally sponsored initiatives, there is no reporting and regulatory structure comparable to that which supported the rise of 401(k) retirement plans. Claims-based data is the most accessible information, but it doesn't reflect the total cost and quality picture. Some say that claims information can paint a distorted picture of quality if used for that purpose. Most alarming is that physicians often do not see it as credible and reliable.

Outcomes studies are particularly appealing to physicians, researchers and policy wonks, but don't have broad consumer appeal — and they are expensive to collect on an ongoing basis.

In a recent study of consumer views on the health care system, researchers noted a number of obstacles to moving consumers to a position of informed health care choice initiator.5 First, medical practice and its evaluation is complex and intimidating for consumers. Any information has to be readily accessible and in an easy-to-understand format, two requirements that can be made more difficult by socioeconomic gaps. And while consumers want to work with physicians in personal decision-making processes, the evidence suggests that they don't want bottom-line responsibility for treatment plans.

Another study6 of how consumers compare the quality of care among different providers showed they would first seek out a friend or family member, followed by a doctor, nurse or other health care professional. At the bottom of the list of most trusted sources fell more objective sources: a printed booklet with quality information, a state agency, a toll-free number with recorded quality information, or a section of a newspaper or magazine listing quality information. So not only is there a dearth of unbiased, risk-adjusted quality information available, but there is also no reason to believe consumers consider such information valuable in making health care choices.

Once consumers are given the reins to choose their own plans, is it likely that health care providers will respond with useful materials for these new decision makers? Will information or image resonate among consumers? We have seen their response to pharmaceutical advertising. Some campaigns have driven sales without ever mentioning the product's name. Others have named the product but described its intended effect only in the most general terms of sunshine and happiness.

Finally, there is the challenge of providing consumers with information they need at the decision-making moment. The window of consumer interest in quality issues is usually confined to the onset of or treatment for a particular health condition, which rarely coincides with an employer open-enrollment period.

Another side of the coin

Even with consumer direction, we still need to focus on the supply side (hospitals, physicians and allied professionals) of health care and manage the health plan to ensure that financial rewards are aligned to support quality. If we only manage the demand side (consumers) through financial incentives and consumer information, CDHC is destined to fail.

"I think that the future of tiered CDHC models is very dim unless they (those offering CDHC plans) get very smart about it," said Gilmore, who advocates insurance plans to partner with groups like Patient Choice Healthcare to better account for the total cost of care and market consumer-directed products. "Unless you can get the providers, consumers and buyers the information they need, I don't think it will be successful. Or it will be successful to drive people to plans that perform poorly and ultimately cost more."

We know (but refuse to accept) that for the health care consumer to have choice and the market to work in the way we envision it, we must have publicly available information on total costs, comparisons of outcomes, quality products and services, and information on provider performance. That is sorely missing for the health care consumer today, and we are a long way from having it available on an ongoing basis.


1 Gabel, Lo Sasso, Rice, Consumer-Driven Health Plans: Are they more than talk now? Health Affairs, 20 Nov. 2002. HealthPartners and Human said employees tended to move down one notch in the continuum using Web-based customized plans (when employers offered a defined contribution).

2 Gabel, Lo Sasso, Rice, Consumer-Driven Health Plans: Are they more than talk now? Health Affairs, 20 Nov. 2002.

3 Ibid.

4 Christopher Queram, "Consumer-centered health care: A new and promising model?" Wisconsin Academy Review, Fall, 2002.

5 Pillettere, et al., "Exploring Consumer Perspectives on Good Physician Care: A Summary of Focus Group Results," a study by The Commonwealth Fund, January, 2003.

6 Henry J. Kaiser Family Foundation, National Survey on Americans as Health Care Consumers: An Update on the Role of Quality Information (Kaiser Family Foundation, 2000).

Katherine H. Capps is the founder of Washington-based consulting firm, Health2 Resources. Her firm works with the National Business Coalition on Health tracking changes in how employers buy, pay for and manage health care — market to market. She can be reached by phone at (703) 319-0957 or by e-mail at Sandy Mau, project manager, is a communications specialist with Health2 Resources.

More Business & Health Articles on This Topic:

B&H talks to . . . Peter Kongstvedt, MD, Cap Gemini Ernst & Young (Feb. 14, 2003)

How long can employers hang on? (The State of Health Care in America 2002)

Resource Links:

National Business Coalition on

Oregon Coalition of Health Care Purchasers


Katherine Capps, Sandy Mau. Yet Another Silver Bullet for Health Care.

Business and Health

Jun. 1, 2003;21.

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