insurope 24th general meeting stockholm 2004 consumer directed healthcare the next american...

Insurope 24th General Meeting Stockholm 2004

Consumer Directed HealthcareConsumer Directed Healthcare

The Next

American

Revolution

The Next

American

Revolution


Why are We Here?Why are We Here?

New Health Benefit Model in US

– impacts employers with US ops

–may impact PMI: UK & elsewhere

–may be model for future benefit developments in other nations

New Health Benefit Model in US

– impacts employers with US ops

–may impact PMI: UK & elsewhere

–may be model for future benefit developments in other nations


Healthcare, US StyleHealthcare, US Style

Medicare (over 65 & disabled) Medicaid (low income) Employer Sponsored (workers)

–Employers pay c. 70% of cost

–Employer sets benefits

–Employer chooses carrier

Medicare (over 65 & disabled) Medicaid (low income) Employer Sponsored (workers)

–Employers pay c. 70% of cost

–Employer sets benefits

–Employer chooses carrier


The History of US HealthcareThe History of US Healthcare

No Insurance (<1945) Indemnified Care (‘45 - ‘90)

–Doctors rule

Managed Care (‘70 - ‘00)– Insurers rule

Consumer Directed Care–Patients rule

No Insurance (<1945) Indemnified Care (‘45 - ‘90)

–Doctors rule

Managed Care (‘70 - ‘00)– Insurers rule

Consumer Directed Care–Patients rule


Why the old models failed?Why the old models failed?

After 1945, the person purchasing the care was

no longer the person paying for the care!

After 1945, the person purchasing the care was

no longer the person paying for the care!


Enter CDHCEnter CDHCUnleashing the power

of free market economics on the

health care delivery system

Unleashing the power of free market

economics on the health care delivery

system


Why CDHC WorksWhy CDHC Works

Members share in the economic consequences

of their health and healthcare buying

decisions.

Members share in the economic consequences

of their health and healthcare buying

decisions.


What is a CDHC Plan?What is a CDHC Plan?

ANY health plan, so far as it...–empowers patients

–shares economic consequences

– rewards good health

–promotes consumerism

–provides health/healthcare tools

– improves healthcare quality

ANY health plan, so far as it...–empowers patients

–shares economic consequences

– rewards good health

–promotes consumerism

–provides health/healthcare tools

– improves healthcare quality


CDHC: The PremisesCDHC: The Premises

A free market can’t work unless the consumer is also the payer

Healthcare costs won’t moderate until patients shop for care like they would for a car or TV

The best way to cut healthcare costs is for people to get healthier

A free market can’t work unless the consumer is also the payer

Healthcare costs won’t moderate until patients shop for care like they would for a car or TV

The best way to cut healthcare costs is for people to get healthier


Sample CDHC PlanSample CDHC Plan

Plan pays first $1,000 @ 100%– Health Reimbursement Account: HRA

Patient pays next $500 @ 100%– plus 20% of $2,500 thereafter–maximum patient cost = $1,000

Plan pays the balance in full– 100% of claims > $4,000

Plan pays first $1,000 @ 100%– Health Reimbursement Account: HRA

Patient pays next $500 @ 100%– plus 20% of $2,500 thereafter–maximum patient cost = $1,000

Plan pays the balance in full– 100% of claims > $4,000


How HRA WorksHow HRA Works

Any HRA funds ($1,000) not spent by the patient in the first year automatically roll

over to the next year and are added to that year’s HRA

contirbution.

Any HRA funds ($1,000) not spent by the patient in the first year automatically roll

over to the next year and are added to that year’s HRA

contirbution.


The ResultsThe Results

70% of patients get 100% coverage

–after office visit & Rx co-pays

– + they roll over funds to year 2

–average rollover = c. $500 20% of patients spend < $1,000 10% of patients spend $1,000

70% of patients get 100% coverage

–after office visit & Rx co-pays

– + they roll over funds to year 2

–average rollover = c. $500 20% of patients spend < $1,000 10% of patients spend $1,000


3 “Plans” for 3 Populations3 “Plans” for 3 Populations

< $1,000 claims = “healthy”– wellness tools & incentives

$1,000 - $4,000 = “transitional”– claim cost sharing incentive

> $4,000 = “unhealthy”– disease management– quality of care initiatives

< $1,000 claims = “healthy”– wellness tools & incentives

$1,000 - $4,000 = “transitional”– claim cost sharing incentive

> $4,000 = “unhealthy”– disease management– quality of care initiatives


Cost per Population GroupCost per Population Group

70% of members = 15% of claims







Group #1: Prevention Group #1: Prevention

Keep 70% of members healthy Cover healthcare 100%

–build a “benefit bank” (HRA)

–subsidize fitness activities Online & onsite wellness programs

–seminars on stress management

–exercise programs

Keep 70% of members healthy Cover healthcare 100%

–build a “benefit bank” (HRA)

–subsidize fitness activities Online & onsite wellness programs

–seminars on stress management

–exercise programs


Group #2: Cost SharingGroup #2: Cost Sharing

$500 “cold shower”

$2,500 cost sharing corridor

$1,000 member liability

$500 “cold shower”

$2,500 cost sharing corridor

$1,000 member liability


Group #2: InterventionGroup #2: Intervention

Side-by-side Rx drug comparison Median cost of procedure by area Health libraries & data bases Personal Health Risk Assessment

– follow-up with opt-in, targeted e-mail

Weight loss/Smoking cessation

Side-by-side Rx drug comparison Median cost of procedure by area Health libraries & data bases Personal Health Risk Assessment

– follow-up with opt-in, targeted e-mail

Weight loss/Smoking cessation


Group #3: ManagementGroup #3: Management

Personal Health Coach Disease Management Programs Absence Management

– focuses on return to work– cuts health costs 20%

Online Second Opinions (no cost)

Personal Health Coach Disease Management Programs Absence Management

– focuses on return to work– cuts health costs 20%

Online Second Opinions (no cost)


Disease Management: AsthmaDisease Management: Asthma

1.5 million work days lost $14 billion of lost productivity

33% improvement in drug use 50% reduction in hospital visits

1.5 million work days lost $14 billion of lost productivity

33% improvement in drug use 50% reduction in hospital visits


Online 2nd OpinionsOnline 2nd Opinions

Partners Telemedicine Specialists @ Harvard Medical

– Boston area teaching hospitals

No cost to patient Online registration Opinion delivered in 5 days

Partners Telemedicine Specialists @ Harvard Medical

– Boston area teaching hospitals

No cost to patient Online registration Opinion delivered in 5 days


2nd Opinion: Results2nd Opinion: Results

5%: Diagnosis Reversed–Patient doesn’t have the disease

s/he’s being treated for

85%: Change Recommended–Specialist suggests a more

effective or less invasive approach

5%: Diagnosis Reversed–Patient doesn’t have the disease

s/he’s being treated for

85%: Change Recommended–Specialist suggests a more

effective or less invasive approach


2nd Opinion: Cost Savings2nd Opinion: Cost Savings

10% of patients = 65% of claims

–5% of those don’t have disease

–Potential savings = 3% If 85% save 25%; savings = 14% Plus: claims cost only = 1/3rd of

the real cost of illness

– lost productivity

10% of patients = 65% of claims

–5% of those don’t have disease

–Potential savings = 3% If 85% save 25%; savings = 14% Plus: claims cost only = 1/3rd of

the real cost of illness

– lost productivity


Old Economic ModelOld Economic Model

Highest quality = Highest cost–works for cars

–works for electronics

–works for consumer goods

–does NOT work for healthcare

Highest quality = Highest cost–works for cars

–works for electronics

–works for consumer goods

–does NOT work for healthcare


New Economic ModelNew Economic Model

Highest Quality = Lowest Cost!– less unnecessary treatment

– fewer “do-overs”

– fewer unforced complications

–shorter disabilities/absences

–more complete recovery• return to greater productivity

Highest Quality = Lowest Cost!– less unnecessary treatment

– fewer “do-overs”

– fewer unforced complications

–shorter disabilities/absences

–more complete recovery• return to greater productivity


Example: ChemotherapyExample: Chemotherapy

40% less effective each try Cost per positive outcome:–1st time: 1x

–2nd time: 3x

–3rd time: 10x

40% less effective each try Cost per positive outcome:–1st time: 1x

–2nd time: 3x

–3rd time: 10x


CDHC Success To DateCDHC Success To Date

Still largely anecdotal 50% of employers plan to move

some or all of their employees to a CDHC plan by the end of 2005

High level of employee satisfaction

Employer reported savings:

4% to 11%

Still largely anecdotal 50% of employers plan to move

some or all of their employees to a CDHC plan by the end of 2005

High level of employee satisfaction

Employer reported savings:

4% to 11%


Application #1: USApplication #1: US

Multi-national employers with operations in US

Need CDHC plan to compete

– recruiting employees

–employee productivity & morale

–cost control

Multi-national employers with operations in US

Need CDHC plan to compete

– recruiting employees

–employee productivity & morale

–cost control


Application #2: UK (PMI)Application #2: UK (PMI)

Purchase contract with high excess

–can reduce premium up to 30% Allocate funds to HRAs Beware the tax!

–HRA payouts would be taxable

–cheaper to pay tax on premium?

–More incentive to build bank?

Purchase contract with high excess

–can reduce premium up to 30% Allocate funds to HRAs Beware the tax!

–HRA payouts would be taxable

–cheaper to pay tax on premium?

–More incentive to build bank?


Application #3: WorldApplication #3: World

Model for health benefit reform New Economic Model

–control cost by raising quality

Politically acceptable cost shift

Model for health benefit reform New Economic Model

–control cost by raising quality

Politically acceptable cost shift


THANK YOUTHANK YOU

David Cowles

Co-founder & Principal

Benemax

www.benemax.com

David Cowles

Co-founder & Principal

Benemax

www.benemax.com

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