Health Care
Boomers Will Revitalize an Aged, Ineffective System
January 30, 2003
-
-
Email Article
-
Baby boomers have driven the economy for the past 50 years. Predictably, their influence and dominance will extend to the next sector of their seemingly insatiable consumption--health care. As boomers are hitting 50, scores of them are hearing for the first time diagnoses from their doctors about cancer, heart disease and diabetes. The likely result of the SUV-driving "me generation" putting their full demands on the health care system is that they will want to drive.
In the coming years, 78 million baby boomers will place the greatest demands on the health care system; but despite the gloomy forecasts, there is great power in numbers. This consumer-centric generation will generate a positive outcome because they will, as usual, want change. Health reimbursement arrangements offer a new model that lets consumers, rather than government or HMOs, manage more of their health care decisions.
During their most productive and healthy years, boomers were happy with $10 babies, free office visits and low-cost prescription drugs. They flocked to convenient HMOs and managed-care arrangements that gave them lower out-of-pocket costs and the promise of preventive care. They accepted provider networks because they rarely used them. During the 1990s, managed care limited access by using primary care physicians as gatekeepers. To control drug spending, they designed formularies. However, controlling supply is no longer the solution. According to Harris Interactive, 59 percent of employers say health care costs are out of control; 21 percent said that in 1995. To meet boomers' demands, the supply-control model of health care must be replaced with a demand-control model.
Personal Responsibility
One key to a workable demand-control system is the removal of the third-party reimbursement system for discretionary expenses and an increase in personal responsibility. Normal economic decisions on supply and demand must be introduced into the health insurance system if appropriate moderation in demand for services is to be expected. As long as someone else is paying the bill, especially for discretionary services, the economics of health care will remain distorted.
Boomers have grown up anesthetized to the true cost of health care. In 1970, about one-third of all health care spending came out-of-pocket through co-pays, insurance premiums or deductibles. Now, just 15 percent does. As health care spending increases, boomers will have to begin controlling more of the dollars.
On June 26, 2002, the Internal Revenue Service issued guidelines that approved Health Reimbursement Arrangements that carry over unused amounts from year to year, financially benefiting those willing to control discretionary expenditures. HRAs may be the most important change to affect health care in 25 years. Under them, health insurance can be offered with a combination of protection and savings.
Under the basic consumer-centric plan, members receive an annual allocation of HRA funds from their employers. These range from $1,000 to $2,000 per year. HRA funds can be used for plan deductibles or co-payments, for IRS-qualified medical expenses and to purchase other health insurance coverages (long-term care, for example). Unused funds can be rolled over into future years and added to an annual HRA allocation. When the HRA fund is exhausted, members must meet a "deductible gap" before receiving insured coverage under the plan. First-dollar coverage is usually available for preventive services, such as physicals, mammograms and well-child care.
With members responsible for spending their own HRAs, physician gatekeepers and prescription drug formularies are no longer needed. An HRA and consumer-centric plan design allows patients to deal with underlying health conditions not covered by traditional insurance. For example, a patient with high cholesterol and a family history of heart disease might find it extremely valuable to have a CT-heart scan. The scan produces a calcification number that makes "real" the patient's condition. The use and value of such a scan to the patient goes beyond the clinical debate of medical necessity. With the patient in control, patient-valued decisions can be made with the same pretax financial reimbursement system allowed for other medical services.
Empowered Patients
Boomers want to be more than informed consumers; they want to be empowered patients. Two-thirds of health care costs are generated by only 15 percent of all patients. To combat this, consumer-centric disease management programs are expanding into sophisticated predictive modeling programs that identify problem conditions and produce early warning notices to patients.
This "push technology" is identifying potential problems and suggesting courses of action to avoid a probable health risk. Evolving consumer-centric plans are developing new "compliance" reimbursement approaches. Patients who are compliant may receive discounts, rebates or improved coverage.
A promising approach for consumer-centric plans reimburses physicians who provide recognized "value." Research indicates high-volume surgeons tend to have better outcomes. Developing data may prove value purchasing a good return on investment and pay those surgeons more rather than less. Tiering by quality and value reporting rather than cost is another promising dimension for consumer-centric plans.
Improved access to mental health and substance abuse benefits will now be possible since patients can access care using their own requirements and their HRAs. With traditional insurance, a patient can get coverage for gastrointestinal problems and musculoskeletal pains. The underlying cause may be due to depression that expresses itself in physical ways. With an HRA, the patient can directly access support services without stigma or coverage denial. Focusing on the underlying condition rather than paying for symptomatic stomach problems and heart conditions is good health care.
In most studies, patients rate themselves more ready to manage their health care relationships than insurers, employers or physicians give them credit for. The consumer-centric plans are clearly a market-based movement driven by employers searching for a way to control costs and accepted by employees wanting choices and options.
Congressional Support
If we are to have a viable, private, market-based health care system in the United States, this movement needs support from Congress and the administration. During the next three to five years, new decision support tools will be developed, new medical services will be marketed, creative Internet solutions will be offered and the problems of transition from old to new will create discontinuities. Expanding HRAs, portability, security of accumulating HRAs and a revision of unnecessary restrictions on flexible spending accounts and medical savings accounts should be of top political priority.
The uninsured will benefit from the consumer-centric movement. Many of the current uninsureds are working for small employers who cannot afford to provide traditional health insurance. With the availability of HRAs, the question is not, "Can you afford health care for your employees?" but rather, "How much can you afford to put into an HRA or consumer-centric plan?"
Welfare-to-work programs could include a government subsidy to an HRA. Creative solutions to allow accumulation of HRAs from multiple employers and provide other flexible options need enabling legislation.
Consumer-centric health care offers a new direction of economic rationalization of health and health care costs. There is no silver bullet. The problems of health care are huge and intimidating. Boomers and others are demanding a new model of health and health care that reflects their lifetime experience of market-driven services. They will expect support by a more rational governmental and tax structure.
Boomers are ready to drive the change and are demanding the keys to the ignition today.
Newt Gingrich is a senior fellow at AEI and a former speaker of the U.S. House of Representatives. Ronald E. Bachman is a principal at PricewaterhouseCoopers, L.L.P.
In the coming years, 78 million baby boomers will place the greatest demands on the health care system; but despite the gloomy forecasts, there is great power in numbers. This consumer-centric generation will generate a positive outcome because they will, as usual, want change. Health reimbursement arrangements offer a new model that lets consumers, rather than government or HMOs, manage more of their health care decisions.
During their most productive and healthy years, boomers were happy with $10 babies, free office visits and low-cost prescription drugs. They flocked to convenient HMOs and managed-care arrangements that gave them lower out-of-pocket costs and the promise of preventive care. They accepted provider networks because they rarely used them. During the 1990s, managed care limited access by using primary care physicians as gatekeepers. To control drug spending, they designed formularies. However, controlling supply is no longer the solution. According to Harris Interactive, 59 percent of employers say health care costs are out of control; 21 percent said that in 1995. To meet boomers' demands, the supply-control model of health care must be replaced with a demand-control model.
Personal Responsibility
One key to a workable demand-control system is the removal of the third-party reimbursement system for discretionary expenses and an increase in personal responsibility. Normal economic decisions on supply and demand must be introduced into the health insurance system if appropriate moderation in demand for services is to be expected. As long as someone else is paying the bill, especially for discretionary services, the economics of health care will remain distorted.
Boomers have grown up anesthetized to the true cost of health care. In 1970, about one-third of all health care spending came out-of-pocket through co-pays, insurance premiums or deductibles. Now, just 15 percent does. As health care spending increases, boomers will have to begin controlling more of the dollars.
On June 26, 2002, the Internal Revenue Service issued guidelines that approved Health Reimbursement Arrangements that carry over unused amounts from year to year, financially benefiting those willing to control discretionary expenditures. HRAs may be the most important change to affect health care in 25 years. Under them, health insurance can be offered with a combination of protection and savings.
Under the basic consumer-centric plan, members receive an annual allocation of HRA funds from their employers. These range from $1,000 to $2,000 per year. HRA funds can be used for plan deductibles or co-payments, for IRS-qualified medical expenses and to purchase other health insurance coverages (long-term care, for example). Unused funds can be rolled over into future years and added to an annual HRA allocation. When the HRA fund is exhausted, members must meet a "deductible gap" before receiving insured coverage under the plan. First-dollar coverage is usually available for preventive services, such as physicals, mammograms and well-child care.
With members responsible for spending their own HRAs, physician gatekeepers and prescription drug formularies are no longer needed. An HRA and consumer-centric plan design allows patients to deal with underlying health conditions not covered by traditional insurance. For example, a patient with high cholesterol and a family history of heart disease might find it extremely valuable to have a CT-heart scan. The scan produces a calcification number that makes "real" the patient's condition. The use and value of such a scan to the patient goes beyond the clinical debate of medical necessity. With the patient in control, patient-valued decisions can be made with the same pretax financial reimbursement system allowed for other medical services.
Empowered Patients
Boomers want to be more than informed consumers; they want to be empowered patients. Two-thirds of health care costs are generated by only 15 percent of all patients. To combat this, consumer-centric disease management programs are expanding into sophisticated predictive modeling programs that identify problem conditions and produce early warning notices to patients.
This "push technology" is identifying potential problems and suggesting courses of action to avoid a probable health risk. Evolving consumer-centric plans are developing new "compliance" reimbursement approaches. Patients who are compliant may receive discounts, rebates or improved coverage.
A promising approach for consumer-centric plans reimburses physicians who provide recognized "value." Research indicates high-volume surgeons tend to have better outcomes. Developing data may prove value purchasing a good return on investment and pay those surgeons more rather than less. Tiering by quality and value reporting rather than cost is another promising dimension for consumer-centric plans.
Improved access to mental health and substance abuse benefits will now be possible since patients can access care using their own requirements and their HRAs. With traditional insurance, a patient can get coverage for gastrointestinal problems and musculoskeletal pains. The underlying cause may be due to depression that expresses itself in physical ways. With an HRA, the patient can directly access support services without stigma or coverage denial. Focusing on the underlying condition rather than paying for symptomatic stomach problems and heart conditions is good health care.
In most studies, patients rate themselves more ready to manage their health care relationships than insurers, employers or physicians give them credit for. The consumer-centric plans are clearly a market-based movement driven by employers searching for a way to control costs and accepted by employees wanting choices and options.
Congressional Support
If we are to have a viable, private, market-based health care system in the United States, this movement needs support from Congress and the administration. During the next three to five years, new decision support tools will be developed, new medical services will be marketed, creative Internet solutions will be offered and the problems of transition from old to new will create discontinuities. Expanding HRAs, portability, security of accumulating HRAs and a revision of unnecessary restrictions on flexible spending accounts and medical savings accounts should be of top political priority.
The uninsured will benefit from the consumer-centric movement. Many of the current uninsureds are working for small employers who cannot afford to provide traditional health insurance. With the availability of HRAs, the question is not, "Can you afford health care for your employees?" but rather, "How much can you afford to put into an HRA or consumer-centric plan?"
Welfare-to-work programs could include a government subsidy to an HRA. Creative solutions to allow accumulation of HRAs from multiple employers and provide other flexible options need enabling legislation.
Consumer-centric health care offers a new direction of economic rationalization of health and health care costs. There is no silver bullet. The problems of health care are huge and intimidating. Boomers and others are demanding a new model of health and health care that reflects their lifetime experience of market-driven services. They will expect support by a more rational governmental and tax structure.
Boomers are ready to drive the change and are demanding the keys to the ignition today.
Newt Gingrich is a senior fellow at AEI and a former speaker of the U.S. House of Representatives. Ronald E. Bachman is a principal at PricewaterhouseCoopers, L.L.P.
