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  • [title appears] Managed care as a health insurance strategy envisioned a collective good, but fell short of its objective because it was fundamentally paternalistic. [bold text appears] It took on for itself the roles [first bullet appears] of managing collective population risk and [second bullet appears] managing cost and quality, [bold text and first bullet appears] but never had the full support of the people, [second bullet appears] or the people caring for the people. 1 [bold text and bullet appear] Its strategy was to control the supply of health care by limiting access and choice. [first subbullet appears] Narrow networks, approaching 50 percent of physicians and hospitals in a region, [second subbullet appears] capitation and deep price concessions, and [third subbullet appears] ongoing utilization reviews were all elements of a “gatekeeper” strategy.
  • [title, blue text and first bullet appear] Cross subsidization by shifting resources from healthy populations to those most in need, along with [second bullet appears] expanding and extending benefits to wider populations in return for tighter controls, were commonplace between 1980 and 2000. 3 [second blue text line appears] After 2000, managed care collapsed under its own weight and [first bullet appears] the rapid evolution of the patient-physician relationship. 4 [first subbullet appears] Consumers galloped from [emancipation appears] emancipation, [arrow and empowerment appear] through empowerment, [arrow and active engagement appear] toward active engagement with their health care systems, [text in parens appears] in part accelerated along by aging demographics and multi-generational family complexity. [second subbullet appears] The physicians stayed largely in step, moving [paternalism appears] from paternalism [arrow and partnership appear] toward partnership models; [approaches appears] from single, one-on-one approaches [arrow and team models appears] toward team models; and [sub-subbullet appears] now are beginning to explore social leadership, advanced communication technology and lifespan management.
  • [title appears] Out of the ashes of Managed Care, Consumer-Directed insurance plans have emerged as part of a [blue box and bold text appear] general movement toward “ownership societies.” 6 This movement, prominent in the United States, but visible elsewhere around the globe, [first bullet appears] emphasizes individual autonomy and responsibility, [second bullet appears] and the self ownership of homes, businesses, retirement plans and now health plans. [third bullet appears] Confidence in the individual and the family to vote their own best interests, and [fourth bullet appears] lack of confidence in collective organizations to make any one size properly fit all, while managing cost and delivery from a central perch, underlies this movement.
  • [title appears] It is against this evolution that Managed Care was judged. The health insurance theories of the 80s combined to support a top-down collective approach to health insurance. [bold text appears] These theories included: [first bullet] that all health decisions are made by doctors and hospitals; [second bullet] that variability in protocols and outcomes were unacceptably high; [third bullet] that open enrollment would deliver savings through economy of scale; [fourth bullet] that insurers were good managers; [fifth bullet] and that the insurance industry had a legitimate and appropriate social mission to bring health care costs under control on behalf of employers, while expanding benefit packages and eliminating waste, inefficiency, and variability. 1 The top-down collective approach recognized [sixth bullet] that 65 to 70 percent of the people were healthy and needed to stay that way. [seventh bullet appears] Succeeding with the healthy allowed unspent premiums to support the 20 percent each year who would become acutely ill, as well as 10 to 15 percent who were chronically or morbidly ill.
  • [title appears] Yet, before these plans could prove they had succeeded or failed, they generated so much hostility among patients, physicians and hospitals, that they became history. In their place has emerged a new brand of plan that acknowledges a current belief [quote and photo appear] voiced by health economist Dr. James Robinson: “The most important characteristics of the private voluntary health insurance market is that individuals differ widely in what they want and are willing to pay for.“ 1 [bold text appears] The new plans therefore offer choice, but much thinner benefits. [bullet appears] Networks are much wider, representing 80 or 90 percent of doctors and hospitals in an area, but are increasingly tiered; [subbullet appears] that is, you can have access to anyone, as long as you’re willing to pay a higher premium in coinsurance and any differences between what the company normally pays for a service and what your high-end doctor and hospital decides to charge. [bold text appears] As for health management, that is now used sparingly and selectively. [first bullet appears] For the well, perhaps the Internet and educational support. [second bullet] For the acutely ill, a social worker might work to shorten your hospital stay. [third bullet] And for the chronically ill, a nurse manager might regularly monitor your care. Whatever you need, there is a choice – a mixture of benefits, network and management support. [fourth bullet appears] But no more “penetration pricing” -- the use of lower-than-market prices to grow market share. And no more “community ratings,” which is pricing some customers above their true costs.
  • [title, photo and bold black text appear] Rather, we see the active return of medical underwriting, which, according to Dr. Robinson, [quote appears] is “the attempt to predict future expenditures for particular groups and individuals based on demographical characteristics and historical claims costs, and to set future premiums accordingly.” All of which is to say, [blue text appears] no more cost shifting. [subtext appears] All products and all customer segments must be profitable all of the time. You asked for choice, you got it. But you’re going to pay what it costs.
  • [title appears] Now, into the brave new world comes the Health Savings Account (HSA). [bold text appears] It’s a financial instrument like an IRA. [first bullet appears] You or your employer can put the tax-free money in the account (as long as you have a high deductible health plan) [subbullet appears] to cover your initial deductible, which for the average HSA participant in 2005 was $2,790. 7 [second bullet appears] After that you’ll pay 20 to 30 percent coinsurance for services up to a maximum ceiling. [third bullet appears] Then you are into catastrophic coverage and the plan pays 100 percent of charges. [fourth bullet appears] If you are healthy, your HSA money stays in your account and can be rolled over to the next year. With former insurance plans, your premiums, unspent because of your good health, were lost to you. [subbullet appears] You “use it or lose it”. Well not really lose it. It went to help support the high costs of someone who was sick that year. But with this new approach you “lose it or save it” and [fifth bullet appears] that sick person has his or her own plan, theoretically priced right, which is to say it’s much higher than your plan.
  • [title appears] So what is the future of these new consumer-directed plans? [dark blue box and bold text appears] First, the strengths. [first bullet] There are broader choices, [second bullet] better access (for some), [third bullet] a healthy shift of responsibility to the individual and family, and [fourth bullet] increasing focus on cost conscious, prioritization of services. [light blue box and bold text appear] How about the weaknesses? [first bullet appears] Well, the new plans do not have a heavy focus on managing supply, [subbullet appears] but rather ask consumers to control their demand. But since 5 percent of those under age 65 generate 56 percent of the health costs, and 10 percent generate 69 percent of the costs, and since catastrophic coverage is central to these plans, [sub-subbullet appears] high consumption is predictable. 8 [second bullet appears] Secondly, by exploding choice, you explode complexity. And, in general, [subbullet appears] with complexity comes increased administration expense, consumer mistrust, litigation, and ultimately regulation.
  • [title and photo appear] Finally, we have the erosion of social pooling of risk, central to the original purpose of insurance. On this, Dr. Robinson speaks with great clarity: [blue box and quote appear] “The language of individual ownership weakens societies’ sense of collective responsibility for its most vulnerable members, but emphasizes the importance of individual effort on generating the economic resources that underlie any system of care.” 6 [right-hand blue bold text appears] What’s next? [first bullet appears] Look for information technology to attack complexity, [second bullet appears] and public-private partnerships to expand safety net coverage for our most vulnerable. For Health Politics, I’m Mike Magee.
  • Slides Consumer Insurance

    1. 1. Where Health Care Meets Policy with Dr. Mike Magee
    2. 2. Consumer-Directed Insurance is Here – But Will It Work?
    3. 3. Assumed Roles • Managing collective population risk • Managing cost and quality Lacked Support • Of the people • Of the people caring for the people Gatekeeper Strategy • Control supply of health care by limiting access and choice - Narrow networks - Capitation and deep price concessions - Ongoing utilization reviews Managed Care Envisioned a Collective Good, But Was Too Paternalistic to Reach Its Objective Sources: Robinson JC. Reinvention of health insurance in the consumer era. JAMA . 2004;291:1880-1886. Robinson JC. Managing consumers in health care. Health Affairs . 2005;24:1478-1490.
    4. 4. Managed Care’s Lifespan Managed care collapsed under own weight (after 2000) • Rapid evolution of the patient-physician relationship - Consumer changes Emancipation  empowerment  active engagement (accelerated by aging demographics and family complexity) - Physician changes Paternalism  partnership One-on-one approaches  team models  Now exploring social leadership, advanced communication technology and lifespan management Sources: Luft HS. Why are physicians so upset about managed care? J ournal of Health Politics, Policy and Law . 1999;24:957-966. Robinson JC. The end of managed care. JAMA. 2001;285:2622-2628. Nash, D. Connecting with the New Health Care Consumer. New York, NY: McGraw Hill, 2001. Cross subsidization was commonplace (1980-2000) • Shifting resources from healthy populations to needy • Extending benefits to wider populations in return for tighter controls
    5. 5. The Emergence of Consumer-Directed Health Insurance Movement Toward Ownership Societies • Individual autonomy and responsibility • Self ownership • Confidence in individual and family to vote own best interests • Lack of confidence in collective organizations to make one size fit all Sources: Robinson JC. Health savings accounts – the ownership society in health care. NEJM . 2005;353:1199-1202.
    6. 6. Health Insurance Theories of the 1980s Combined to Support a Top-Down Collective Approach Theories • All health decisions are made by doctors and hospitals • Variability in protocols and outcomes were unacceptably high • Open enrollment would deliver savings through economy of scale • Insurers were good managers • Insurance industry had a social mission to bring health care costs under control for employers, while expanding benefit packages and eliminating waste, inefficiency, and variability • 65% - 70% of people were healthy and needed to stay that way • Unspent premiums could support acutely, chronically, morbidly ill Sources: Robinson JC. Reinvention of health insurance in the consumer era. JAMA . 2004;291:1880-1886.
    7. 7. Consumer-Directed Health Insurance Supports Consumer Differences New plans offer choice, but thinner benefits • Networks are wider, but increasingly tiered - access to anyone, if you’re willing to pay Health management used sparingly and selectively • For the well: Internet and educational support • For acutely ill: social worker might work to shorten hospital stay • For chronically ill: nurse manager might regularly monitor care • No more penetration pricing or community ratings Sources: Robinson JC. Reinvention of health insurance in the consumer era. JAMA . 2004;291:1880-1886. “ The most important characteristic of the private voluntary health insurance market is that individuals differ widely in what they want and are willing to pay for.” – Dr. James Robinson, Health Economist
    8. 8. The Price of Choice Return of medical underwriting “… the attempt to predict future expenditures for particular groups and individuals based on demographic characteristics and historical claims costs, and to set future premiums accordingly.” – Dr. James Robinson No more cost shifting All products and all customer segments must be profitable all of the time Sources: Robinson JC. Reinvention of health insurance in the consumer era. JAMA . 2004;291:1880-1886.
    9. 9. Into the Brave New World Comes the Health Savings Account (HSA) HSA: financial instrument like an IRA • You or your employer put tax-free money in an account (must have high deductible health plan) - Can be used to cover initial deductible • You pay 20% to 30% coinsurance for services up to a maximum • At catastrophic coverage point, plan pays 100% • Unused money gets rolled over to next year - Unlike former “use it or lose it” plans • Plans are priced differently for different people Sources: Robinson JC. Health savings accounts – the ownership society in health care. NEJM . 2005;353:1199-1202. Uyoo H, Chovan T. Number of HSA plans exceeded 1 million in March 2005. America’s Health Insurance Plans, Center for Policy and Research, May 6, 2005.
    10. 10. The Future of Consumer-Directed Plans Strengths • Broader choices • Better access (for some) • Healthy shift of responsibility to individual and family • Increasing focus on cost-conscious prioritization of services Sources: Berk ML, Monheit AC. The concentration of health care expenditures, revisited. Health Affairs . 2001;20:9-18. Weaknesses • Lack of focus on managing supply - Ask consumers to control demand  High consumption is predictable • Choice brings complexity - Complexity brings administration expense, consumer mistrust, litigation, regulation
    11. 11. Erosion of Social Pooling of Risk “ The language of individual ownership weakens society’s sense of collective responsibility for its most vulnerable members, but emphasizes the importance of individual effort on generating the economic resources that underlie any system of care.” – Dr. James Robinson Sources: Robinson JC. Health savings accounts – the ownership society in health care. NEJM . 2005;353:1199-1202. What’s next? • IT to attack complexity • Partnerships expand safety net coverage for vulnerable
    12. 12. Release Date: 2/1/2006 www.healthpolitics.com with Dr. Mike Magee Consumer-Directed Insurance is Here – But Will It Work?

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