Consumer-Driven Health Plans Pose New Set Of Challenges

In health care insurance today, everyone wants change.

Brokers and health insurance customers are clamoring for more choice, increased access to providers, and less intervention in personal health care decisions.

Employers are seeing the highest health care premium increases since the early 1990s, plus dwindling value in managed care solutions. Theyre pressuring insurers to contain premiums.

Now, the resolve to have change is about to be tested, for insurers are responding with a barrage of choice-based product features. For instance, carriers are dismantling preauthorization programs, gatekeepers, and closed panel networks, even as they roll out next-generation systems built upon choice.

This next-gen trend goes by the name of “consumer-driven health care.” The distinguishing element in such plans is that they shift control and responsibility to the customer.

Certain pro-change advocates might be happy to hear about all this. However, the new systems present challenges of their own. Therefore, the old adageto be careful what you wish for, you just might get itseems very apropos.

Here are some examples of the new systems, and some of the challenges they pose:

Tiered Co-Payments. The trendsetter of tiered co-payments is prescription drug benefits. Today, most health plans use tiered or variable co-pays as a means of managing drug costs.

In tiered plans, the customer makes a small co-payment for generic drugs and a higher co-pay for brand name preferred (i.e., formulary) prescriptions. For non-preferred drugs, these plans only make partial payments or no reimbursement at all.

Tiering is also being applied to hospital preference. Patients who want to receive treatment at a specialized but expensive hospital, such as an academic medical center, will pay a higher co-pay. For those who go to a lower-cost community hospital for the same procedure, the co-pay would be much less, or nothing at all.

Similar co-pay programs are being implemented for specialty physician services and outpatient surgical procedures.

Furthermore, these plans are segmenting providers, based on cost or quality measures. In addition, consumers are being asked to choose between generic and brand name, and between University Hospital and Community General.

The challenge: Its the patients responsibility to be a prudent buyer of health care services.

Health Care Savings Accounts. In an attempt to take advantage of the Medical Savings Account concept, which gained exposure in the late 1990s, many plans are now incorporating a “savings account” feature.

Structured like MSAs, but without an external banking component or tax savings, these so-called “health care savings accounts” set up a personal health care spending account or purchasing fund for the consumer.

The customer draws first dollar benefits from the account for routine or preventative care, up to a pre-set limit. Its the consumers choice of how to spend the account budget for day-to-day health care services (office visits, non-chronic prescription drugs, diagnostic and laboratory fees, dental and vision expenses, etc.).

If the account is exhausted, deductibles and coinsurance kick in. If the account is intact at year-end, it can be carried over to the next year.

The challenge: Under such systems, patients become account managers, forcing cost-conscious decisions about personal care priorities. In most cases, the account works in conjunction with a wrap-around insurance component that covers less frequent care needs such as hospitalization, surgery and emergency care.

Self-Directed Health Plans. Often referred to simply as SDHPs, these new designs represent the most far-reaching structural change in the consumer choice movement.

The objective of SDHPs is to give consumers more control, or ownership, over their health benefits and medical care providers. SDHPs are founded in the belief that a free market health care system works best. The idea is to empower patients to make value-based purchasing decisions.

Unlike traditional managed care, SDHPs do not restrict participants to a specific provider network. Neither are their health care decisions guided by benefit penalties imposed by an employer or payment incentives held out to the physician.

SDHPs rely on education and technology to facilitate informed care choices. Through high-touch customer service or secure Internet access, the “subscribers” get to see qualitative metrics about their physicians medical practice (Board certification, volume of procedures, readmission rates, litigation track record, etc.), along with comparative cost information. The plans also provide a parallel set of data on local hospitals.

Some SDHPs let each consumer design a “provider care team,” customized for each family member with pre-negotiated fees tied to benefit levels. Others offer globally priced “episodes of care,” enabling plan members to prospectively understand all costs associated with a complete sequence of treatment (from diagnostics to surgery to rehab) for maternity, heart bypass, hip replacement, and other events.

The challenge: Using quality and financial decision tools, these plans require the customer to choose how to allocate their health care dollars and where to get treatment. Think of it as free-market comparison-shopping.

To date, most Americans have passively let employers drive the health insurance processa process that involves complicated issues of premium rate setting, benefit design and provider selection.

Is Joe-consumer ready to “take over,” as it were, and make tough choices about the cost and quality of his health care? That is the question these choice-driven plans are bringing to the table.

Lindsay R. Resnick is president and CEO of Radix Health Connection, a Chicago management advisory firm serving the health insurance industry. You can e-mail him at LResnick@RadixHealth.com.


Reproduced from National Underwriter Life & Health/Financial Services Edition, January 7, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved. Copyright in this article as an independent work may be held by the author.


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