Consumer-Directed Health Care Won't Fly
MANAGED CARE January 2004. ©MediMedia USA
HEALTH PLAN 2009
Kenneth S. Abramowitz is a senior adviser at the Carlyle Group, an investment company based in New York, and has served as managing director on Carlyle's Healthcare Team.
Much of today's discussion about employers getting out of the health care business focuses on contributions to workers for direct purchase of health care services, so-called consumer-driven health care plans. But there is a more effective type of defined contribution that few people are discussing. That better alternative also includes employer contributions, and also empowers employees to make choices, but from a menu of health insurance plans, not just health care services. I believe that model, for several reasons, more closely represents what employee health benefit plans will look like in five or six years.
The problem is that giving employees a pool of money to directly choose services won't save money or improve the quality of care. In spite of all the buzz about e-health — whether it's consumer research or companies promising to effectively guide health decisions — the vast majority of consumers will always lack the knowledge about diseases and appropriate care that is necessary to make cost-effective and quality choices.
What's more, the marketplace is deceptive: Choosing based on price is impossible for consumers to do intelligently because pricing offered by physicians and medical groups is misleading. The actual cost after all appropriate service, including lab tests, is usually much higher than is ever advertised.
And government intervention can't make consumers smarter. The tax-exempt health savings accounts created in the new Medicare law — which allow employees enrolled in company-sponsored health plans with high deductibles to open accounts they can use for doctor's visits, drugs, or whatever service they want — won't encourage intelligent decision-making or save money. The bottom line is that consumers lack the information necessary to use the money wisely. So consumer-driven care, as it being discussed today, will be a market failure.
In fact, it is in large measure because employers care about the quality of care — after all, they want the money they spend on health care to translate into healthy workers — that they will want to maintain influence over employee choice. The best way to do that is to negotiate with health plans about the quality and cost of services. In turn, these health plans negotiate with the providers.
Employers do know that. They know they have clout over price and quality, and notwithstanding current experiments with consumer choice, employers will not give up that influence for long. For example, in the next several years there will be an increased market emphasis on disease management program offerings by managed care plans, because employers will demand it.
That's the kind of intelligent, well-informed role employers will continue to play. They will negotiate with health plans to provide the best kind of care at the best price, because they have the human resource experience and personnel to do so effectively.
The defined-contribution concept will no doubt continue to grow, and some form of tax-exempt medical savings account that contains contributions from employers and employees may very well gain in popularity. But by 2009 — and probably much sooner — the money offered to employees for health care will be for choosing from a menu of health plans, whether they be tightly managed HMOs or less tightly managed PPOs or POS plans. Capitation has probably seen its day — providers have no more interest in assuming risk — but the role of managed health care will evolve into better disease management, improved treatment options, and an increased emphasis on preventive care.
Cost containment and quality will always be market drivers. It is employers who are best suited to negotiating with health plans to provide and/or negotiate for both. That isn't a matter of fashion, it's a fact today and tomorrow.