Steve Case, late of AOL-TimeWarner, has made a huge bet on consumer-driven health care with his investments in Revolution Health Group. Case and fellow investors including Colin Powell, Jim Barksdale (Netscape), Steve Wiggins (Oxford Health Plan), Franklin Raines (Fannie Mae) are planning to purchase at least seven (unnamed) companies to form the core of an entity that will (at least according to the USA Today article):
–provide consumers with access to data on physician and hospital cost and quality
—lower health insurance costs by streamlining the purchasing process
–enable consumers to rapidly access their personal health care data at convenient locations
These guys are not fooling around – Case intends to invest $500 million of his own money in the venture, and the other partners’ pedigrees and personal fortunes will certainly make Revolution one of the larger new ventures in the health care business.
The question is, does the premise of the idea, consumer-directed health care, make sense?
Sort of, but not really.
To illustrate, here is a quote from Colin Powell from the article about shoppers looking for a TV;
“they can go on the Internet and “within a second and a half, get hundreds of choices of where to buy,” along with information about the TV, the seller and any additional charges. “Why should that not apply to health care?” he asks.”
Well, Mr. Secretary, buying a TV is not exactly the same as trying to find out what to do about a lump in your neck, a gradual loss of nighttime vision, or general sense of fatigue. When buying a TV, you already know what the solution is. The issue with health care is a big chunk of the effort and expense is associated with trying to answer the “what’s the problem” question.
The other significant problem w the whole “consumer-directed” idea is the nature of health care as an economic good. As Matthew Holt of “the Health Care Blog” has noted repeatedly, health care is not a typical economic good, it is not like guns or butter. People use different criteria when deciding what is worth spending when they or their loved ones are at risk. Case in point.
My daughter was admitted to a local emergency clinic with an adverse reaction to a medication. She was stabilized, appeared to be doing fine, was not in paid, fully alert and conversational. As the clinic neared closing time, the doc suggested that she be sent on to Yale for further observation before discharge, as there was some information that the reaction could lead to a problem with her breathing. She was breathing fine, talking, and appeared normal.
We are insured under a high-deductible MSA plan, so any charges would come out of our pocket. I thought about it for a few seconds, than agreed. I also agreed to have her brought over in an ambulance for the fifteen minute trip. I knew full well that the risk was minimal, the costs would be over $2000 for this “preventive” measure, and I would pay all that out of my own pocket. Was the very small risk worth the outrageously inflated cost?
You bet your life it was.
The net here is I do not believe health care’s cost problem can be addressed in any significant way by this drive to consumer-directed health care. In addition to the emotional buying decision process noted above, it is also instructive to remember that a significant portion of total health care dollars are spent on treatment in the last six months of life; and that a majority of the health care dollars go to treat individuals with serious chronic conditions who get almost all their care paid for.
While better educating individuals will undoubtedly help them solve their individual health issues, and perhaps cut a few cents off their bills, it will do nothing to reduce the national health care tab.
Jul
11
The key to this “consumer directed” health care insurance will be what the incentives are for the consumer. If they see lower premiums or a “rollover” of benefit dollars, they may begin to think about going to the doctor for every bump and scrape. However, if this “incentive” causes them to be reluctant to go for preventive care, it may ultimately cost the carrier even more money paying for the injuries that develop after a lack of up front care.
Perhaps a better model would be a health care cooperative where the consumer agrees to severely limit medical malpractice liability in terms of level of negligence and levels of compensation in return for less expensive premiums.
That incents physicians to take good care of patients and allows patients to get the care they feel they deserve.
I think you’ve got a good point about the inaccuracies of Mr. Powell’s comments. I’m surprised that he would say this, actually – it doesn’t show a lot of thought going into the problem. Health care is more than product selection, you’re dealing with a much more complex and unique situation. Thanks for the post – keep up the good work.
Joe, I hope your daughter is doing well.
using the example of your daughter having an adverse reaction, then taken to the hospital, then transfered by ambulance, then kept for observation and you having to pick up the expense.
I first want to correct you when you say that all of the expenses come out your pocket. They do but only up to the annual deductible after that the plan matched against your HSA/MSA takes over usually with coinsurance levels at 100%. I doubt that the situation with your daughter drained the savings account portion of your plan completly. Unless this happend in the first year you had it. You most likely enjoyed rollover from the years that nothing happend to your daughter.
Consumerism is a good idea and what Case and powell are doing is good. they are forcing the consumer to have a stake in the game. only in healthcare are costs controlled by a 3rd party. the carriers.(by the way wall st. is very happy because many are posting record profits)
lastly, consumerism is a great idea because the 3 factors that add the most costs to all of our premiums are drugs, diabetes and obiesety.
Drug costs make up about 20% of the cost of a traditional plan. The drug company lobby is huge and successful at stopping reimportation from canada and other countries and by the way they too are also posting record profits.
diabetes and obiesety have huge impacts on the cost of care. …they are also the most preventible diseases out there.
I think that case and powell believe that if people are more involved in the cost of care, they will find that having diabetes and being fat are expensive. maybe they will inturn eat less and be more healthy.
heres my point… if there were an open market for drugs and if people ate healthier. the cost of care would plummet. an ambulance ride to another hospital is not what is raising costs.
Jeff – thanks, our daughter is doing great. Re who paid – give me a little credit here. I paid ALL of the costs, as we have a very high deductible plan. Even if I had not, it would have emptied out my MSA account and therefore I would have been greatly impacted financially.
I agree that lifestyle issues are a major driver, and that those who choose to have poor lifestyles should not be subsidized by the rest fo us. However, consumerism per se will have nothing to do with reducing the impact these diagnostic categories have on total medical expense – the chronically ill will all blow through their deductibles in the first quarter of each year, after which they pay nothing and therefore do not care.
The point you are missing is to understand that chronic people are not going to change their behavior unless there is an ongoing financial penalty, a penalty that is more of a copay than a deductible.
me again..
Ok, you would have blown through your account anyway. point taken . But what your failing to grasp is that lifesyles aren’t a major driver, they are THE driver and what consumerism does is allow everyone to be accountible for themselves. medical costs raise every year because the healthy pay for the sick and year after year not enough new, healthy, young people enter the system. without going into medical underwriting, there simply is a decreasing supply of new young healthly people to spread the risk over. why, because its too expensive for a young person to enroll and the thoughts for them are, “i’m not going to get sick, why buy insurance” …its a vicious circle.
with consumerism everyone is responsible for themselves, I like that, I do not want to help pay for a chronically ill person.
By the way, the chronically ill are almost always on maintenace drugs,which make up 20-25% of the cost of a plan, of which there is no free market for.(drugs)
if your chronic, your chronic. there is no changing behavior. thats not what is driving costs anyway. think of all the people who are insured in the US. the % of chronic people and the claims they create is so so small. there is reletively no impact.
another point worth mentioning is that because of poor lifestyles more research dollars, technology, innovations, etc. are going to these preventible diseases.
my advice to all of us is, have a healthy lifestyle, be accountible for yourself only, and take the tax advantages of an HSA/MSA.
Dear Joe: You are ALMOST on the mark with one major caveat! What would you do if NO-ONE knew that Yale could handle your daughters problem? Or what the problem might be?
Between the Rand Corporation, University of Michigan and the AMA we already KNOW that about 50 % of the U.S. Population does NOT get the care they need, deserve or pay for. LACK OF KNOWLEDGE IS THE ISSUE. Failure to categorize,sort, compartmentalize and having the ability to retrieve the history of the very many possible symptoms, and assemble them into an understanding of the underlying cause is the primary problem with health care.
Throwing money at the issue is NOT the answer. Learning what the patient suffers from, or with, is the overwhelming failure, task and hope for society (the Medical and the Patient communities.) Then learning HOW to treat this condition, right, the first time, is the answer.
Saving money on Medicine or an office visit to your doctor is a nice “little” bonus. KNOWING that your Doctor knows and understands the issues involved—THAT is the crux of the matter.