'A Final Underwriting Death Spiral'
'A Final Underwriting Death Spiral'
MANAGED CARE January 2004. ©MediMedia USA
HEALTH PLAN 2009
J.D. Kleinke is a medical economist and consultant based in Portland, Ore. His books include Bleeding Edge: The Business of Health Care in the New Century and Oxymorons: The Myth of a U.S. Health Care System.
Health care delivery in the U.S. in 2009, prompted by the Medicare prescription bill's introduction of tax-free Health Savings Accounts (HSAs) in 2004, will be structured around the mid-'00s restoration of health insurance as actual insurance.
Starting in 2005, a rapidly growing proportion of healthy Americans will begin opting for health plans with ever higher deductibles and ever lower premiums, setting aside in their HSAs enough pre-tax funding to cover the high deductibles and to pay for medical products and services that fall outside neo-traditional insurance coverage for chronic or catastrophic illness.
By 2007, consumers will recognize that the more fastidiously they manage spending from their HSAs, the less they will have to pay into those accounts, via pre-tax payroll deductions, to keep them fully funded in subsequent years.
As a result, they will begin to negotiate fees with doctors, hospitals, and outpatient surgical centers; question their caregivers closely about their need for a medical product or service; use the Internet to find the cheapest diagnostic imaging services and clinical labs; and seek out generic or therapeutically equivalent drugs.
They will also buy an increasing number of their drugs from overseas suppliers until the summer of 2007, when a contaminated batch of cholesterol-lowering medicine — purchased from a Canadian pharmacy Web site but originating in a makeshift Malaysian factory — kills 65 elderly Americans in three days. At the same time, consumers will join with health plans and drug companies in agitating for the FDA to switch large numbers of prescription medicines to over-the-counter status, something they and the drug companies had resisted for years when these drugs were covered under the sprawl of low-deductible health "insurance" at the beginning of the decade.
By 2007, community hospitals and physician groups serving middle and lower income groups will be advertising their services based on price. Teaching hospitals and physician groups serving upper income groups will, like drug companies marketing their prescribed and OTC-switched products, advertise their higher-priced services based on superior quality and brand equity. The highest-priced providers will rely on Internet-distributed quality data to attract patients with well-funded HSAs.
As late as 2007, many Americans will still not understand, trust, or accept this new bifurcated world of health care financing. Insured employees with chronic illnesses, those with benefits guaranteed under long-term union contracts, and those who anticipate large health expenditures in the coming years will remain in low-deductible health plans as long as possible.
Unfortunately, these relics of 1990s-style "managed care" and early '00s "consumer driven health plans" — with their cherry-picking, Byzantine benefit plan designs and coverage rules, and 20 percent administrative costs — will enter a final underwriting death spiral.
These plans' ferocious, last-ditch efforts to remain solvent will involve brutal utilization management techniques, arbitrary coverage denials, and horrendous payment delays throughout 2008, thus driving away the last of their contracted providers and the last of their increasingly undesirable enrollee base.
As catastrophic insurance coupled with HSA fund management becomes the norm for all of health insurance, the survivors in the health plan industry will consolidate into a dozen mega-insurers.
By the end of 2008, these mega-insurers will have acquired almost all of the smaller plans at salvage prices. They will convert what they can among the acquired enrollment bases to the new model, and abandon the rest to Medicaid and the rolls of the uninsured. The largest of these mega-insurers will then merge with several large mutual fund companies still desperate for revenue sources after the mid-'00s mutual fund scandals.
By 2009, these insurance/finance conglomerates will have purchased a sufficient number of congressman to effect the passage of a federal law allowing for ERISA-type exemption from state benefit mandate laws for their embedded health plans. These merged entities will market a combined catastrophic health insurance/HSA finance/401(k) product aggressively to large and small employers, and directly to the ever-growing number of self-employed Americans via the Internet. Based on the "synergies" associated with this cross-selling, these companies will be the darlings of Wall Street, at least for a year or so.
In 2010, these companies will begin losing market share to health insurance carriers independent of companies focused on HSA funds management. Consumers across the U.S. will continue to manage their HSA and 401(k) funds through them; at the same time, they will be able to direct the catastrophic health insurance component of their payroll deduction to any one of a dozen carriers across the U.S., based on a combination of price and customer satisfaction data.
These data will be readily available from several independent Consumer Reports-type Web services sponsored by employers. The carriers that will thrive in this new, nationwide, true health insurance marketplace will not be burdened with other financial products to sell, and will be able to concentrate on an emerging set of competencies that the U.S. health insurance industry has needed for decades: large, diversified risk pooling; intensive transaction cost reduction; aggressive administrative cost streamlining around a unified benefit plan design; and meaningful catastrophic case management.
By 2010, total health care costs — comprising both HSA-based expenditures and premiums for the insurance component — will be two-thirds of what they would have been had trends from the earlier part of the decade continued. Along with this growing relative affordability will come a reduction in the number of uninsured Americans. Community hospitals and primary care physicians — broadly defined to include pediatricians, OB/GYNs, urologists, and psychiatrists — will re-orient themselves to cope in a consumer-based system, and will position themselves along a continuum of price and perceived quality, retooling their clinical practices accordingly.
Teaching hospitals and specialty physicians will experience few changes, except for the reduction of what was always pointless administrative paperwork.
Drug companies will, despite the financial threats of the '00s, continue to discover and market more and better medicines, bifurcating internally into a combination of consumer products and traditional medical marketing companies.
There will be a medical malpractice crisis, unanswered calls for tort reform, a nursing shortage, and incomprehension over the continuing failure of providers to adopt electronic medical records.
Everyone will complain about the system's myriad inefficiencies, and blame everybody else for its imminent collapse, and life will go on.