To Cure Risk Aversion, Employers Eye Risk Adjustment


Steve Wetzell

Buyers of health care are looking at risk adjustment to discourage parsimonious care. They’re also hoping to transfer power and responsibility to workers.

Historically, businesses that provide health coverage have acted independently, doing their best to balance the pressure points: network size, quality of benefits, and price. This go-it-alone approach may allow a single employer to put out brush fires, but it doesn’t help that company address larger issues that influence the dynamics of its health care market. The employers we work with recognized several years ago that no matter how hard they tried, they couldn’t develop incentives that created value in the marketplace by working alone. Even some of the Fortune 50 companies we work with realized they didn’t have enough clout to fundamentally change the market on their own. They understood they needed to collaborate on a very tough long-term business problem.

The more employers can get consumers involved in the game, the more providers will become directly accountable to consumers. Under traditional managed care, employers — without realizing it — have put themselves in the middle of the relationship between physicians and their patients: Which doctors are available? Which drugs? Even the price people pay to see their physicians has been dictated by their employers. Our member employers believe they should not make value judgments — such as which doctors they should see and at what cost — for their employees.

One thing employers can do to ease out of this dilemma is to give consumers the tools and opportunity to become smart shoppers. If a group of doctors wants more money, historically what employers have done is asked the carrier to kick that group out of the network or paid a higher premium so the consumer never feels the effect of that increase. That neither serves the needs of consumers nor empowers them. Our employers realized that if there’s a group of doctors that thinks it can get away with charging more money, consumers should have the information they need to be the ones to make that value judgment.

How so? If a group really thinks it provides superior quality or access, and thinks it can charge more money for that, it should try to demonstrate that to its patients. This way, providers would compete on efficiency, outcomes, and competitive service.

We also need to address perverse incentives for insurers to compete on risk avoidance. A carrier that says, “We want the very sickest people in the community to sign with us,” will go out of business. How do you get value-based competition if everyone says, “Boy, I hope I don’t get sick people in my program”? The solution: risk-adjusted reimbursement in provider contracts and insured arrangements. That way, money goes with the sickest people.

Suits may scare away

The way the debate over a patients’ bill of rights is resolved will have an incredible impact on whether employers stay in health care at all. If employers can face lawsuits just for doing their best to try to manage a benefit, then that’s probably not going to encourage businesses to try to solve the problems of employer-sponsored coverage.

We’re in a race against time. If employers and public purchasers don’t begin listening to consumers about why they don’t trust managed care, if they don’t get creative to align the incentives of players in the health care industry, if they don’t get consumers and physicians to be accountable to each other, then we’re going to see more “solutions” from Washington that address short-term concerns, not underlying issues.

Take, for example, concern about access to specialists. Under risk adjustment, insurers would want sick people to get to specialists; they wouldn’t worry about whether easy access attracts bad risk. The issue of access to specialty care would just go away. Instead of mandating access to specialists, risk adjustment would create an incentive for providers and plans to compete on whether people get to specialists when they need them. One reason the gatekeeper system exists is because it’s a good way to avoid risk. Let’s not reach for Band-Aids; let’s talk about the issues that lead to patient-protection legislation in the first place.

Demand-side management will increasingly affect employers. We have two coverage problems in this country: people who are uninsured or underinsured, and those who are overinsured. Employers can be their own worst enemy by overinsuring; in an effort to recruit workers in a tight labor market, they can fail to deal with the very delicate issues of demand-side management.

We contract directly with a lot of good physician groups that struggle with prescription-drug costs. This year, we had a remarkable breakthrough. These groups came to our employers and encouraged them to change consumer contributions on prescription drugs to counter increased demand. Here’s a case where employers, if they listen to providers and think about demand management, could still be fair and offer competitive benefits.

In the end, consumers need a higher stake, armed with knowledge to make the best choices.

Steve Wetzell is executive director of the Buyers Health Care Action Group, a health care purchasing coalition owned and governed by 47 Minnesota employers.

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