By Dr. Matt McCord, MD
This blog post is part of our Notes from the Doctor series, in which our very own Dr. Matt McCord regales us with interesting articles, entertaining yet educational video, and stunning health care insights. Some of these posts will be authored by the one-and-only himself, and some will simply be pieces he discovers in his research and thinks you’ll enjoy.
Crossing the Chasm to Value
It was Geoffrey Moore who coined the term “Crossing the Chasm” in his groundbreaking book describing the Technology Adoption Life Cycle and how disruptive technology transitions from “early adopters” to mainstream customers. The Institute of Medicine used the title “Crossing the Quality Chasm” in its 2001 seminal work calling for fundamental change to close the quality gap in American health care. With the costs of health care consuming more of our paychecks and little or no improvement in our overall health, isn’t it time for fundamental change in how we purchase and procure health care? In the ten years since the Affordable Care Act, we have seen no real movement to value and health care’s Quadruple Aim. Can employer self-funding, benefit design, and direct contracting with providers be the disruptive force that helps us storm the beachhead to value in health care?
Health Care Eats Wages
The costs of health care continue to outpace inflation. The estimated growth in premium costs in private insurance is expected to be 3.5 to 5% from 2019 to 2027.
The average worker is now spending more than $20,000 per year for family coverage. That’s like buying a new midsized sedan every year.
Barry Ritholtz, in his 2016 Bloomberg Opinion piece titled Health-Care Costs Ate Your Pay Raises, showed that “take home wages have stagnated for more than 40 years because employers shell out so much more for worker health insurance.”
Because of these ever-rising health costs, one strategy that many employers have utilized is to increase employee cost sharing and deductibles, a trend that has, once again, outpaced wages.
While the numbers vary from state to state, the average annual deductible for an individual is roughly $1,300 to $2,000 while the average family deductible is $2,800 to $4,000.
A recent Bankrate survey of Americans’ savings habits and reserves indicate that 21% have no emergency savings and another 27% have less than 3 months’ emergency reserves.
Thus, for many Americans, the above annual deductible exceeds their total savings. Therefore, they avoid care, even preventative or needed care, to avoid more out-of-pocket costs. Missing preventative or needed care can lead to a downward spiral that may lead to exponentially greater health care costs (like emergency room visits, hospitalizations or surgery).
This deductible vs. savings reality makes many workers “functionally uninsured.” They are not getting the care that they need to stay healthy and ready for work.
Less Bang for the Buck. Our current health care financing and delivery model is failing Americans and failing American business. We are physically and fiscally less competitive than our international peers, as seen below. It’s a painful reality.
Our Volume to Value Transformation: “Curb Your Enthusiasm”
The Affordable Care Act was supposed to bring about the transformation of health care from volume to value. Ten years since the ACA, we have seen little evidence of this transformation.
Progress to value in health care is weak or nonexistent according to a thorough critique of the industry by Lawton Burns and Mark Pauly in a 2018 paper published in the respected health policy journal, the Milbank Quarterly. The following observations from Burns and Pauly are particularly striking.
- “The transformation from ‘volume to value’ in health care at this point appears to be driven more by ideology and aspiration than by evidence.”
- “The driving forces behind desired changes face restraining forces that oppose them.”
- “Based on the continuing flow of insignificant results, some have called for a VBP reboot.”
One of their suggested solutions to breech the impasse is to “let consumer choice in the insurance market work it out.” Amen.
Employer-built Health Plans and Direct Contracting with Local Providers
Employers are looking for solutions that can provide more value with their costliest benefit spend. “Self-funded” ERISA benefit plans give employers greater flexibility and control of their benefit plans to create a better plan for their company and their workers. These “employer built” health benefit plans include the following elements:
- Claims transparency. Pull the curtain off your health care expenses. Forty to 80% of medical bills have errors. Ten percent are outright fraudulent. Transparency with these transactions presents opportunities for greater savings and a greater understanding of where your most significant costs are. This data can be easily deidentified to protect a worker’s identity and privacy.
- Population Health Management. Your workers with chronic health conditions consume the bulk of your health care dollars. In fact, recent data indicates that 10% of your workforce accounts for 73% of your health care spend. Identifying and managing those workers with one or multiple of the most common 27 chronic conditions improves their health, work readiness, and decreases your costs. Call centers and technology are part of this solution and can help manage those workers confidentially. These solutions help you manage this population with Six Sigma discipline.
- Pharmacy Purchasing Options. Medications are 23% of your health care spend. These plans allow flexibility in how you purchase medications for your employees. For example, this would allow you to set up tiered buying arrangements that promote generics and many other options that lower your overall medication spend.
- Value Based Insurance Design and Direct Contracting with Local Providers. All health care is local. With control of their health plan dollars, employers can leverage their purchasing power to pre-pay for innovative care services like direct primary care, on-site or near-site clinics, bundled pricing and Centers of Excellence contracts. With these arrangements, there is little to no out-of-pocket cost for your employees and it is often more convenient than what is currently available to them in a network. Thus, your employees participate in their care and receive the services that they require to keep them healthy and job ready. Win-win.
- Technology/Tools. Telemedicine, geolocation services, and steerage applications can help inform your workers on where to go for no-cost or low-cost services and where to get the best pricing on medications, labs, studies, etc. These tools can also help with health literacy, medication adherence and compliance with recommended Guideline Based Care. These additional services can impact your health care spend.
- Wrap Networks. Your employees will still want choice in their care and not all of your employees may reside in the same location. These plans include wrap network arrangements to give employees additional options for care. In many cases the change from fully insured to self-funded may be unnoticed by employees that would rather pay their out-of-pocket copays and deductibles to see their same doctor.
- Stop Loss Protection. When self-funding your health benefits spend, you will want to minimize downside risk. Stop-loss protection is re-insurance that protects the company if there are large or excessive claims any given year.
How Can Employers Cross the Chasm to Value in Healthcare?
How can you reach CMS’s Triple/Quadruple Aim of lower costs, better care and care experience while improving the health of your workers?
Take back control.
Isn’t it time to move from an employer-paid economy in health care to an employer-driven economy in healthcare?
Step One in driving savings is to move from your fully insured indemnity plan to a level funded or self-funded plan. We can show you the steps necessary to create an employer-driven plan that offsets downside risk (stop-loss coverage) and allows the company (and your workers) to pocket the savings as you implement the above strategies and the health of your company improves.
The team at Health Value Solutions can show you how.
Matt McCord, MD
Crossing the Chasm: Marketing and Selling High-Tech Products to Mainstream Customers, Geoffrey A. Moore
Crossing the Quality Chasm: A New Health System for the 21st Century, Institute of Medicine
In 2020, Employer Health Costs To Double Inflation Yet Again, Forbes
CMS Estimates Annual U.S. Health Care Spending to Hit $5.96 Trillion by 2027, Morning Consult
2018 Employer Health Benefits Survey, KFF
Health-Care Costs Ate Your Pay Raises, Bloomberg
Why Better Wages Are Tied to Healthcare Costs, Ritholtz.com
Premiums for Employer-Sponsored Family Health Coverage Rise 5% to Average $19,616; Single Premiums Rise 3% to $6,896, KFF
Survey: Nearly 3 times as many Americans say they have less emergency savings versus more since pandemic, Bankrate
Does Your High Deductible Health Plan Make You ‘Functionally Uninsured’?, Pivot Health
Transformation of the Health Care Industry: Curb Your Enthusiasm?, The Milbank Quarterly
How to Fight a Bogus Bill, The Wall Street Journal
The Triple Aim or the Quadruple Aim? Four Points to Help Set Your Strategy, Institute for Healthcare Improvement
And, if you want to be a real brainiac, here are some top reads from Health Value Solutions:
An American Sickness by Elisabeth Rosenthal
The CEO’s Guide to Restoring the American Dream by Dave Chase
Crooked: Outwitting the Back Pain Industry and Getting on the Road to Recovery by Cathryn Jakobson Ramin
Dreamland: The True Tale of America’s Opiate Epidemic by Sam Quinones
The Grassroots Health Care Revolution by John Torinus Jr.
The Patient Will See You Now: The Future of Medicine is in Your Hands by Eric Topol
The Price We Pay by Marty Makary
Unaccountable: What Hospitals Won’t Tell You and How Transparency Can Revolutionize Health Care by Marty Makary