HCI3 Update from the Field: Reimagining Health Plan Benefit Designs

Submitted by francois.debrantes@hci3.org on Friday, January 24, 2014 - 01:32

Newtown, CT – January 24, 2014

It's time to reimagine health plan benefit designs – The by-product of health benefit plans that have high deductibles and co-insurance is the current transparency revolution that is sweeping the country. The outcome of that revolution has yet to fully play out, but we can see the outline of a true market for health care services emerge. Take the legislation enacted in NC in mid 2013. It creates complete public transparency on the price of a large basket of episodes of care – "products" that consumers understand and can now price-compare. Providers, as a result, are scrambling to put together new quality measurement programs so that they aren't simply selected based on their price. Some medical specialty societies are assembling teams to develop and promote quality measures, in some instances making the mistake of picking measures that will make all their members look good (it's a mistake because if quality is undifferentiated, then price will remain the sole differentiator). But in many other instances, they're taking the hard road to measure quality rigorously. The upshot is that we're moving very fast from an opaque and paternalistic system to a transparent one driven by consumer action. To a large extent, this is reminiscent of the financial industry's revolution wherein we moved from local banks and savings accounts to on-line day trading and mutual funds. The defined contribution of retirement accounts created the right design for that revolution. Something similar now has to be done for health benefits.

What this means to you – Deductibles and co-insurance are blunt tools that have virtually no clinical nuance in their design and have outlived their usefulness. Once the deductible and/or the out-of-pocket max is met, the consumer-patient is back to being insensitive to price. So what if, instead, the plan member had a number of funds – let's call them Medical Episode Spending Accounts (MESA) – one for each medical episode. There could be one for routine preventive care, and one for routine sick care. If the consumer-patient has a couple of chronic conditions, then she would have a chronic care account. And if the need for a procedure arises, then she would have an account for that as well. The accounts are virtual and funded to an amount based on the historical averages for such medical episodes, adjusted for the severity of the condition and the demographics of the plan member. The preventive care account would be "use it or lose it" to encourage preventive care, and a portion of the chronic care account would also be "use it or lose it". The other accounts, on the other hand, would have a rollover feature into a Health Savings Account, thus encouraging continuous prudent use of services. Skimping on needed care that would lead to avoidable complications would not trigger a new MESA, but rather would deplete current accounts and the HSA. Exceeding the funded amount would trigger the deductible, taking money out of the consumer-patient's pocket. Information on the price and quality of providers offering services for specific medical episodes would be provided and the consumer would be free to choose which to go to. Providers accepting bundled payments would shield the consumer from any potential financial risk, an appealing trait. And from all this a true market for health care services would emerge. Think about it…health benefits reimagined.