Lowering Health Care Costs by Empowering Employees

We have all heard the Greek philosopher Plato’s saying: “Necessity is the mother of invention.” Plato rightly observed that problems encourage creative efforts to meet the need or solve the problem. Necessity can also be the mother of innovation as was the case when the new county executive in Manitowoc County in Wisconsin realized that insurance premiums for the county’s 600 employees were doubling every five or six years and were approaching $20,000 a year per employee.

Bob Ziegelbauer, Manitowoc County executive and a Democratic state representative from the 25th Assembly District, wrote about efforts to deal with this issue in an op-ed piece published in the Oct. 28, 2007 editions of the Milwaukee Journal Sentinel. Ziegelbauer wrote that if something hadn’t changed, and soon, Manitowoc County government would have been forced to make wholesale cuts among the very employees it depended on to provide important services. So they looked at the predictable approaches: increasing the employee share of premiums and top-down managed care. What they found is that the constraints of collective bargaining in the public sector made those options nearly impossible to accomplish in a way that made any sense.

What next? Thinking outside the box, the county asked their insurers for quotes on a Health Savings Account-qualified program. Using HSAs, employees control their own health care decisions and get to keep (tax-free) any money left in their HSA not used for health care expenses.

Ziegelbauer wrote that the quotes they received “blew his mind.” They were presented with cost savings of more than $7,000 per year on a family plan and better coverage than the current plan. They were also able to offer our employees $3,000 in a fully funded health savings account. This account became their personal property, and with the money the county saved, we also eliminated more than $4,000 in employee costs for co-pays or premiums.

All that, Ziegelbauer writes, and the county was still able to save taxpayers nearly $2,600 per family plan while paying for free preventative care and providing financial incentives for participating in a variety of wellness programs, ranging from health assessments to weight loss and smoking cessation.

The power of the plan, according to Ziegelbauer, is in empowering the insured. He said it is the power of individuals making decisions affecting their own lives with their own money. “Because we all have so much at stake, we are aggressively educating employees to make them healthier people and better consumers.”

The moral of this story, according to Ziegelbauer, is that the county’s employees are healthier, wealthier, more knowledgeable and happier because of the new health plan. At the same time, costs are contained for our taxpayers now and into the future.

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New Study Shows Lower Costs in Account-Based Health Plans: HSAs & HRAs

It is great to see another study that confirms that market forces combined with transparency in pricing and quality measures can produce lower prices and better quality — just as they have in every other industry where they have been applied.

On Tuesday, HealthPartners, the largest consumer-governed, nonprofit health care organization in the nation confirmed the findings of reported last week by CIGNA that Consumer-Driven Health Care is effective in lowering medical costs and better engaging consumers to seek out more cost effective care.

A press release issued by the health plan stated that the analysis showed that even when adjusted for illness burden, health care costs were 4.4 percent lower for HealthPartners members in these consumer directed health plans compared to members in traditional plans. Researchers found the lower costs were driven by CDHP members receiving care from lower cost providers and that providers used fewer resources such as diagnostic imaging and other procedures.

Proponents of consumer-driven health care have long argued that given incentives and proper tools, persons will take an active role in making health care purchasing decisions just as they do with purchases of other goods and services. The HeathPartners study bears out this theory in that researchers also found that members with CDHPs were more likely to use Web-based tools that provide information on health care costs and quality. The study found members with consumer-directed plans were twice as likely to access HealthPartners Medical Cost Calculator which has cost information for 93 high frequency procedures or conditions from ear infection to coronary artery bypass surgery.

Finally, the study, that examined the experience of members in both HRAs and HSAs*, provided evidence that members, including those with chronic illness, are getting care they need.

HealthPartners, based in Bloomington, MN, was founded in 1957 and has more than 640,000 members in Minnesota, western Wisconsin, North and South Dakota and Iowa.

*As defined by the report:

Health savings account (HSA). An account into which either or both the employer and the individual can make tax-free contributions up to an IRS defined annual maximum. Participants must be enrolled in a high deductible health plan (HDHP) to contribute to an HSA. Any money left over at the end of the calendar year is rolled over to the next year. Funds belong to the individual and are portable through employment changes.
Health Reimbursement Arrangements are set up by the employer for the employee’s benefit and are typically paired with a deductible health plan. Only employers can make contributions into an HRA. The account belongs to the employer and is not portable through employment changes. Employers may allow access to HRA funds for medical expenses post employment, but in typical plan designs funds revert back to the employer upon termination.

Read the study summary.

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Health Plans Lower Costs & Improve Care

Several of this past week’s news items caught the eye of the Health Plan Innovation Blog but none more so than the press release issued by CIGNA stating that medical cost trend for CIGNA HealthCare consumer-driven health plan (CDHP) members is less than half that of CIGNA’s HMO and PPO plan members. What is really exciting, is that CIGNA has found that member out of pocket costs were similar between CDHPs and traditional plans. The press release reported:

“First year Health Reimbursement Arrangement (HRA) cost share percentage (% of member paid costs) was similar to traditional plans while second year CDHP member cost share percentages were 4% less for both HRA and Health Savings Account (HSA) members. These out-of-pocket costs do not account for the fact that payroll contributions for HRA and HSA are generally lower, providing members with additional savings. Notably, these results were similar regardless of gender or health status.

Also significant is that the study showed that the use of preventive care increased. “First-year member preventive visits increased and second-year member visits were significantly higher than those among traditional plan members.”

Furthermore, CIGNA found that recommended care compliance remained constant and medication compliance improved, while costs decreased.

The press release quoted Helen Darling, president of the National Business Group on Health, a non-profit organization devoted to finding innovative and forward-thinking solutions to large employers most important health care and related benefits issues as saying, CIGNA’s research based on two years of claims data adds to the mounting evidence that consumer-driven health plans offer an affordable, cost effective way to provide benefits that can save money, increase consumer engagement, and not compromise the quality of care. As we debate in earnest, at national and state levels, how to provide insurance for millions of people without protection, consumer-driven plans have to be at the top of the list of reasonable solutions.

The Health Plan Innovation Blog heartily concurs with Darling’s conclusion. The CIGNA finding should go a long way to disprove the theory that these plans are only good for the healthy and the wealthy.

Read the full release.

tag: healthcare reform, consumer-driven health care, health savings accounts

CED: Employer-Based Health Care System is Failing

As we noted in yesterday’s post on the Health Plan Innovation Blog, the powerful business-led group, Committee for Economic Development (CED) released its report on the U.S. employer-based health care system.

As expected, the group announced that the U.S. employer-based health care system is failing and suggest that the root causes of the problem lie deep within the structure of our health-care system. No one, the report says, has an incentive to seek, or provide, quality, cost-efficient health care; there is no meaningful competition in our employer-based health insurance system.

The report goes on to suggest that the nation needs a new system to replace employer-provided health insurance, but makes it clear that a government-run command-and-control system will not succeed saying that devolving complex medical decisions from doctors to patients will not lead to more affordable care.

The CED report states that health care can improve when incentives for employers, employees, and providers all encourage quality, affordable care and goes on to establish on one the main tenants of their plan: Individuals, not employers, should choose the health care plan that best meets their needs, from a range of options; no one should be forced into a particular type of plan.

The report then lays out two keys steps for establishing such a market for quality, affordable health care..

  1. In the first step, the report suggests that the federal government should establish independent regional “exchanges” that would provide a single point of entry for each individual to choose among competing private health plans.
  2. In step two, subject to progress by the exchanges and the willingness
    of the public to provide the financing, every household would receive a fixed-dollar credit sufficient to purchase the low-priced quality health plan offered in its region. Every individual, therefore, would be able to buy quality health insurance at no out-of-pocket cost.

With health plans competing to attract cost-conscious consumers, the CED says we can expect our health-care system to change for the better. Health providers, they predict, would be accountable for quality and cost. And, with health plans competing to attract cost-conscious consumers, our health-care system can be expected to change for the better. Health providers would be accountable for quality and cost.

The CED recommends a transition path toward this restructured system in gradual, incremental steps that would be manageable for our political system and our economy. It would begin with the new exchanges providing access to health insurance for small businesses, which by itself would be a major improvement in the health-care marketplace – where small-business employees today often are on their own seeking coverage for themselves and their families.

These may be some warmed-over ideas from the Jackson Hole Group days of the early 90’s, but they are deserve to be a part of the debate about the future of U.S. health care.

Read the whole report at http://www.ced.org/

David S. Broder – A Market Makeover For Health Insurance

In an op-ed piece in Sunday’s Washington Post, columnist David S. Broder writes that a high powered business group this week will give a strong push for a shift from the traditional employer-based financing to publicly subsidized individual health insurance.

According to the article, the Committee for Economic Development (CED) will issue a report that says that business can no longer afford to pay the rising costs and lacks the clout to curb the forces that are driving health-care inflation.

Instead of the current employer-based system, according to Broder, the CED will recommend a two-step solution, aimed at producing a competitive marketplace with broad individual choices.

Broder concludes that there is a growing sense in business that only a mass marketplace of individuals can apply the competitive pressure needed to discipline the forces of medical inflation.

read more | digg story

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Lotto as Healthcare Fix? Don’t Gamble On It.

This week cannot slip by without the Health Plan Innovation Blog commenting on the plan that came out of California to privatize the lottery and use the proceeds to help fund universal health care for all Californians.

There is no doubt some political maneuvering going on behind the scenes here, but just on the surface this appears to be a new twist on the worked over idea of mandating health care coverage and increasing taxes on employers who do not play along.

According to a report published in the LA Times, Schwarzenegger’s $14-billion plan would require all Californians to obtain private insurance, either individually or through their employers. The state would subsidize coverage for individuals earning less than $25,525 for individuals or $51,625 for families of four.

Still quoting from the Times story:

The new plan would create a tax credit for low earners who make more than those amounts, to address complaints that many Californians could not afford the insurance Schwarzenegger wants to require.

It also would excuse physicians from being taxed on their office revenue, a move intended to appease the California Medical Assn.

And the governor changed a 4% tax on employers who don’t provide healthcare so that businesses with payrolls under $200,000 would not have to pay that much.

Apparently the plan is not getting much traction. Republican leaders are objecting to a requirement that employers spend a certain amount on healthcare, Democratic leaders signaled that they continue to prefer their own alternative, which would require employers to spend the equivalent of 8% of their payrolls on healthcare, and Union leaders and consumer advocates said Schwarzenegger’s plan would still place too much burden on workers.

The Health Plan Innovation Blog doesn’t care much for the plan either mainly because there is no innovation here. Where is the plan to increase competition or to create new paradigms in delivering health care? The only good that could possibly come out of such a plan is that by forcing everyone to buy coverage most will choose a higher deductible plan and, as a result, they may become better healthcare consumers who will encourage systemic innovations to occur.

Then there is that whole craziness about privatizing the lottery. Apparently, back in January, Schwarzenegger pitched privatization of the lottery as a source of money to help the state’s overall budget. That idea didn’t fly.

The LA Times article noted that the Schwarzenegger administration estimated that leasing the lottery to a private company for 40 years could provide the state $2 billion a year for healthcare if California could boost lottery sales to the national average. Those payments could grow to $4.5 billion a year to keep pace with medical inflation, but all the money would run out after as little as 15 years without any plans to replace the revenue source.

And there you have it. Throwing money at this problem will not solve it. Solving the health care problem in the U.S. will come from allowing innovation to take place in a free market environment that will naturally attract talent, ideas, and, yes — money.

By the way, if you are looking for a more in depth perspective, check out The Alan Katz Health Care Reform Blog.

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Control, Choices, and Greater Industry Competition

Presidential hopeful, John McCain, today revealed his thoughts on how to reform the U.S. health care system. Though not fully fleshed out, the concepts are market-driven health plan innovations that deserve some discussion.

His ideas revolve around giving people more control and more choices while fostering greater industry competition in hopes of lowering costs and improving services.

McCain introduced his plan during a speech to the Rotary Club Des Moines and according to published reports his plan calls for:

_Allowing people to buy health insurance nationwide instead of limiting them to in-state companies, and permitting people to buy insurance through any organization or association they choose as well as through their employers or directly from an insurance company.

_Providing tax credits of $2,500 to individuals and $5,000 to families as an incentive to help them buy insurance. All people would get the tax credit even if they get insurance through work or buy it on their own.

_Supporting different methods of delivering care, including walk-in clinics in retail outlets across the country, and developing routes for cheaper generic versions of drugs to enter the U.S. market, including allowing for safe importation of drugs.

Allowing people to buy health insurance nationwide is an idea that the Health Plan Innovation Blog can applaud. Current regulations at the state level protect the relatively few carriers who register products in any given state. Allowing carriers to file plans nationally will give consumers more choices, increase competition, and lower prices.

Next, providing tax credits for individuals who buy insurance on their own, or through work, is a true innovation. Why should only employers get a tax break for health insurance? Why not self employed individuals? For that matter, why not anyone who might want to buy insurance for themselves or their family regardless of what might or might not be offered by their employer?

Lastly, the idea of supporting different methods of delivering care, including walk-in clinics in retail outlets across the country, is an innovation that will encourage competition, pricing transparency, and consumerism — all components needed to get health care delivery into a rational framework governed by market forces.

McCain, in releasing his health plan, has demonstrated an understanding of the industry and evolving trends that has not been present in the health care plans offered by most of the other presidential candidates, regardless of party.


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Be More Like America

In looking for innovative health care solutions, I was drawn to an op-ed piece that Republican presidential candidate Rudolph W. Giuliani published in the Boston Globe back on August 3, 2007. In a piece titled A free-market cure for US healthcare system he writes, “Instead of being more like Europe, we need to be more like America.”

Giuliani goes on to write, “America is best when we solve our problems from our strengths, not our weaknesses. Healthcare reform must be based on increased choice, affordability, portability, and individual empowerment.”

Then he strikes at the heart of the matter — tax fairness. “We need to begin by bringing fairness to the tax treatment of healthcare. The current tax system penalizes millions — including the rising ranks of the self-employed and 40 percent of employees at small firms — who pay for insurance on their own and receive no tax benefit.”

The candidate begs the question, why is it that Americans without employer-based insurance, or those who would rather have individual coverage, cannot enjoy the same tax benefits as the 175 million Americans with employer-based coverage?

Giuliani proposes a new tax-free income exclusion up to $15,000 for Americans without employer-based coverage. Any amount a family pays less than $15,000 — for individuals, less than $7,500 — could be put tax-free into a Health Savings Account. This, he says, would create a powerful incentive for more Americans to own their private health insurance — making it portable instead of dependent on an employer.

The conclusion of Giuliani’s article states, “The future of America’s healthcare system lies in free-market solutions, not socialist models. We can increase individual choice and decrease costs by increasing competition, encouraging innovation while always compassionately caring for people in need. That’s the American way to reform healthcare.”

To read the article, click here.

P.S. Thanks to the guys at the HSA Truth blog for the tip about this article.

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Mandates or Innovation?

As the presidential political campaigns heat up and more of the discussion centers on health care, we are going to be hearing a debate about mandating health insurance. Many politicians are promoting a health care system whereby the government would require individuals to purchase health insurance just as states currently require auto insurance coverage.

Greg Scandlen the president of Consumers for Health Care Choices, a national membership organization based in Hagerstown, Maryland, and an expert in Health savings Accounts (HSAs) has published an interesting article on the subject of mandates. The piece can be found on the Heartland Institute website and is entitled: Don’t Mandate: Innovate

Here is an excerpt:

Failed Mandates

We have already seen that innovations such as Health Savings Accounts (HSAs) will appeal to market segments that did not find value before. Approximately 40 percent of the people who have purchased HSAs in the non-group market were previously uninsured.

But HSAs are only one of many possible innovations in health care financing. Mandatory coverage short-circuits the vital process of innovation in a competitive market.

Further, mandatory coverage simply doesn’t work. Virtually every state currently mandates auto insurance coverage, and the number of uninsured motorists is very similar to the number of people without health insurance.

In 17 states, the rate of non-insurance for auto (which is mandatory) is higher than for health insurance, which is not mandated.

To read the whole article click here: Failed Mandates


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