Part of life's excitement lies in its unpredictability. Yet the future's uncertainty can also leave us with a trepid, "in the dark" sensation—and that's how some stakeholders are looking at consumer-driven healthcare (CDHC). They ask, "How can CDHC work, if at all, in 21st century health systems, given the structure of our current healthcare system and the chaotic shifts of the past decade?"
There's a clearer road map to understanding than you might imagine. In response to disconcerting spikes in medical costs, ill-considered spending, uninsured consumers, and the general kaleidoscopic changes roiling our healthcare system, the health insurance industry is realigning toward a consumerist-based model. Among its potential attributes, CDHC’s long-term vision seeks to calm the storm. In the next decade, insureds, employers, and insurers will engage with the healthcare system in novel, unprecedented ways, and a new culture of health-cost consciousness may well arise.
The new healthcare consumerism puts more of the burden of decision-making on the insured with the hope that this responsibility will get consumers more in touch with the healthcare system and help them become more fully aware of costs. More employers are beginning to make health savings accounts (HSAs) available, both because of their cost-control potential and their built-in tax benefits. HSA funds are portable, giving insurance consumers a sense of ownership, and they can be used to pay higher deductibles, coinsurance, and the cost of non-covered services. Insureds will have a natural wish to keep their individual HSAs as robust as possible, resulting in thriftier and better-informed spending that is tied to the realities of medical costs. This will save money for employers, but will also result in employees parsing their medical choices and making more educated, cost-conscious decisions, turning out savvy new generations of insurance recipients.
For all these reasons, HSAs are a powerful piece of the new healthcare consumerism, a tool to stabilize some of the price-unconscious spending we’ve seen in the traditional model. Yes, HSAs have limitations (e.g., requiring cost sharing that some consider to be too front-loaded), but they have come a long way and can be modified along with current benefit structures to keep consumers in “shopping mode” as long as possible.
While patients can use their HSAs for emergency room bills and other traditional costs, the accounts can also be used for less conventional health screenings, such as those not covered by standard wellness programs (e.g., genetic marker testing for reproductive cancers or detailed heart imaging scans to rule out cardiac disease).
In addition, increased intervention on an individual insured basis in the form of personal health coaches will help us manage our health. In this manner, people can phone nurses or wellness experts to discuss a chronic or acute condition. These coaches can help us get the information we need in a timely and economical fashion, regardless of our place on the healthcare continuum, by providing an alternative to a more expensive consultation with a physician.
Even more evidence of the CDHC sea change is apparent in the employee health and wellness incentive programs that are continuing to grow in popularity. Research demonstrates that lifestyle factors contribute to illness even more than genetic predisposition. For example, 90% of risk for heart disease in the U.S. is now thought to be based on lifestyle factors1. Whether you are a vegetarian triathlete or a saturated fat-loving couch potato, by now you likely have heard that poor lifestyle choices can lead to higher lifetime healthcare costs.
What does this mean for you? Insurers and employers are increasingly engaging subscribers in ways that tie lifestyle to compensation. Some employers are offering HSA contributions and/or reduced healthcare premiums to employees who take their medications appropriately, maintain online wellness records, or sign no-smoking statements. Others are launching wellness incentive programs to limit future catastrophic healthcare events. Still others are offering credits, to be cashed in later, for significant lifestyle changes. You may have heard tales of employers handing out pink slips to cigarette smokers; however, the more common strategy is to offer rewards for healthful choices, which may result in that Holy Grail known as "return on investment." We must also continue to encourage, reinforce, and reward the savings and added quality-adjusted life-years that result from weight management; smoking-cessation programs; participation in disease-management programs; and early diagnostic testing for diabetes, cancer, and similar illnesses. Most employers strive to offer fair, palatable combinations of both the "carrot" and the "stick" to encourage healthy behavior. Such programs are the beginning of the paradigm shift that will make consumers more active and well informed, helping control costs at every level.
One lesser-known component of CDHC that continues to gain momentum is lifestyle-based analytics (LBA). Groups of high-risk and low-risk individuals can be identified by analyzing purchases (e.g., gym memberships, organic grocery shopping, alcohol/tobacco, etc.). Information about individuals and groups captured by LBA may be helpful in different ways. First, it gives insureds more information about themselves and how to make necessary lifestyle changes. Second, it allows underwriters to refine risk prediction for a given group of insureds based on their digital fingerprints. Third, it can be used as a disease management and wellness tool for identifying those most at risk before they develop a lifestyle-based condition.
CDHC can be, if nothing else, an empowering, long-term response to chaotic runaway costs and other factors that make the traditional healthcare model difficult to manage and wasteful. The new model encourages and rewards both prevention and wise, cost-effective healthcare purchasing decisions, which should lead to reduced spending. However, we must measure our returns not only in dollars, but also in terms of the real health and quality of life that can result from the new consumer-driven system. Who can place a dollar value on lives extended and illnesses avoided? These less quantifiable benefits are among our most sought-after goals.
Healthy living brings concrete returns. Employees who are less stressed are more productive, have better morale, and create a positive ripple effect through community and society. If we can expand our healthy majority, we will be better able to designate resources to achieve our goal to help the sickest and poorest among us, and eventually will lessen disparities in coverage. CDHC changes are truly exciting, offering the promise of a fairer and less wasteful system from which everyone can benefit.
Michael Sturm is a principal and consulting actuary based in Milliman’s Milwaukee office. Specializing in healthcare, Mike has assisted clients with consumer-driven issues, underwriting, premium rate analyses, liability estimates, actuarial projections, product design, healthcare reform, capitation development, and risk-sharing arrangements. He serves on the Society of Actuaries’ Consumer-Driven Work Group.