The Consumer Can Tame Health Costs

September 7, 2004
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GRAND RAPIDS — Putting more power into the hands of consumers could very well represent a final chance to get runaway health-care costs under control, according to the CEO of one of the nation’s largest health insurers.

After two decades of managed care, capitation and other methods, new consumer-driven health plans appear to have a good chance at finally tackling escalating costs, Humana Inc. Chief Executive Officer Mike McCallister said.

“Everything has been tried but one thing, in my opinion. We’ve never turned to the consumer and said, ‘Why don’t you buy health care the same way you buy other things in your life?’” said McCallister during a Humana seminar last week on consumer-driven health plans.

“I’m a firm believer that whatever people do in the rest of their life and the rest of the economy, they can do in health care,” he said. “We believe in the consumer. We believe consumers can make good choices.”

Early data within his own company, where a consumer-driven health plan has been used for three years, is promising, McCallister said. Since implementing consumer-driven plans for its 14,000 workers in 2001, Humana has been able to cut its health-care inflation rate from 19 percent annually to 5 percent as of 2003.

Humana has made consumer-driven health plans the backbone of its product offering, including in Michigan, where the Louisville, Ky.-based company this year began a major push to gain market share.

After two decades of double-digit inflation in health premiums, minus a period in the mid-1990s where cost increases subsided, McCallister believes the time has come for consumer-driven health plans. With cost trends expected to continue, he sees consumer-driven health plans as the best hope for addressing the crisis.

“It may be the last chance, but certainly it’s the best chance and we have to get it right,” McCallister said in an interview following last week’s seminar. “This is ‘Plan A.’ I don’t see a ‘Plan B’ or a ‘Plan C’ behind it.”

Consumer-driven plans work by providing employees at participating employers the ability to choose from varying benefit packages that are better tailored to their needs, meaning the don’t pay for a benefit they don’t use or want. A key component is providing employees with readily accessible data on health-care providers — hospitals and doctors — that offer the best value of quality and price, enabling them to essentially shop around for their health care much like any other consumer goods or services.

While consumer-driven health plans hold promise, they do face formidable hurdles.

One is a need for employers to communicate early and often with employees about health-care costs and the need for changes in benefit designs.

By preparing employees well in advance of the change and making a long-term commitment to open dialog, Humana was able to implement a consumer-driven model for its employee health coverage that has since affected issues that were driving costs up. As a result, Humana has minimized cost shifting to employees and dramatically curtailed annual premium increases.

While some employees resisted the change, Humana has experienced a 90 percent renewal rate among employees who participate in the company’s health benefits, McCallister said.

Another need is for transparency. In order for consumerism to take hold in health care, insurers and managed care companies need to make information on health-care providers’ cost and quality readily accessible.

Humana is working to provide access to those databases via its Web site, McCallister said.

Perhaps the biggest hurdle is the cultural and social issues involved. While employers are looking at consumer-driven health plans as potential relief from ever-rising health premiums, many wonder whether employees are prepared and willing to embrace what represents a major shift in plan design and coverage — including shifts in the financial burden.

McCallister believes employees can handle the move, although it takes a major, long-term commitment by employers to communicate and articulate the change and the reasons behind it. He argues that employees and employers may have little choice in the matter anyway, saying America faces “a perfect storm around health-care inflation for as long as we can see.”

As health premiums continue to rise sharply, employers will increasingly shift more costs to employees through higher deductibles, co-pays and sharing a greater percentage of premiums.

Through a new way of doing things, employers and insurers can begin to change the behavior that affects people’s health and drives up costs, and get them to make better decisions when they do access the health-care system, which ultimately will begin to affect costs over the long term, McCallister said.

To make his point on the need for change, McCallister asked for a show of hands of people in the audience who were satisfied with the status quo. Nobody among the 140 or so people in attendance raised their hand.

The system for financing health care in America, McCallister said, “is broken.”

“I can’t find an employer who thinks it’s working,” he said. “It is unsustainable on the track that it is on.”    

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