Just as the national debate ramps up on a government take-over of the nation’s health care, it looks like employers and market forces have already worked out a business model that is taming previously out-of-control health costs.
A lead article in the Harvard Business Review is headlined this way: “How Employers Are Fixing Health Care – Walmart has embraced a new approach to improve the quality of care and lower costs. The results have been dramatic.”
In contrast, big-time politicians on both sides of the aisle are having migraines trying to figure out a business model that is both effective and affordable for the country.
President Trump announced that he was coming up with “a great plan,” but it wouldn’t be announced until after the 2020 elections. He said that with a straight face. Was that a joke? His team has been in office for more than two years, and that’s another 18 months out.
Sen. Bernie Sanders, the Democrats’ health care guru, has never put a vetted price tag on his “free” health care. Are these serious leaders?
Back in the 2000 to 2006 time frame, the cost of health care for a family on an employer plan was rising by 13% per year. In the next six-year period, the hyper-inflation dropped to 6%. In the last five years, health costs moderated to 4%. That is a surprising change for the good.
Mind you, this unrecognized but profound trend has been happening mainly in the private sector, not in D.C. or state capitols.
Private corporations realized about 20 years ago that out-of-control health benefits could wreck their companies’ performance. One CEO shared a graph with me back then that showed all his new profits were being chewed up by health care cost escalation.
It took a while, but corporate managers started to do what they do: manage. They looked for levers, tools and better methods to manage what had been an overlooked part of their business.
Here are some of the breakthroughs that have been made over the last two decades:
• Employees will act as responsible consumers if they are given incentives, disincentives and the right tools. The introduction of consumer-driven plans with higher deductibles, co-insurance and off-setting savings plans has produced savings of 20% to 30%. Most employees now have skin in the game and behave far more responsibly that do passive recipients of care. (But the high deductibles have gone about as high as families can stand.)
• The next learning was that sharp employers were not being well served by being part of an insured pool with other companies. If you are working to drive down health costs through good practices, you want the savings to accrue to your own company, not to the pool. So, you go to self-insurance. Now, more than four of five large companies are self-insured. They underwrite their own health care risks. Gone from underwriting are the big health self-insurers. It’s called disintermediation.
That explains in part why the big insurers (Blue Cross, Aetna, Cigna, United HealthCare) are fast changing their business models. They are moving from the buy side as brokers to the sell side, by buying providers.
• A third element of the employer-led reform agenda is the concept of “medical homes” at the primary care level. They created proactive primary care aimed at keeping people out of expensive and dangerous hospitals. Their own clinics manage the health of their employees with the same rigor as they manage other parts of their businesses. Savings of another 20-30% result.
• A fourth major piece is direct contracts with hospitals and doctors at bundled prices. Elective treatments and surgeries can be bought at the highest quality hospitals and clinics for about half of the price in the non-marketplace. The prices are all-in and blessedly transparent. Steerage to those value centers, such as the top-drawer Cleveland Clinic, and save 10% of a company’s medical spend.
There are many other lesser tools, but those give a market-based flavor to what real reform looks like.
Long and short, Bernie and the prez should base their raging debate on what works – namely the reforms in the private sector – versus the wonk stuff from academics, political staffs and consultants. Those dudes probably never paid a paid a health care bill beyond their own.