Do it Yourself Health Care Reform

Imagine a cost in your business or personal budget that grew 3400% faster than all other costs. Would you do something about it? That is what has happened to health care costs over the last 50 years. While other goods have gone up 8x in the last 50 years, health care has gone up 274x.

From friends who own small traditional businesses to my entrepreneur friends, most are aghast at how severely they've been hit by health care cost increases. It's simply unsustainable. This post will outline an alternative approach to getting your health care needs met that may be a better route for you and your organization.

My experience initially working as a management consultant to nearly 30 hospitals, followed by founding Microsoft's health care business, has led me to the conclusion that it virtually impossible to reform a fundamentally flawed model (i.e., the payment side of the equation). I outlined this in more detail in my earlier piece entitled "Health Insurance's Bunker Buster."

The current health payment system is a Gordian Knot designed by Rube Goldberg. While the new health law addressed access issues, it doesn't go far enough to affect the cost side of the equation created by a convoluted compensation system. In fact, pushing more people into a flawed payment model is likely to result in higher costs. Watching the sausage getting made in D.C. leads me to believe that looking to our national politicos to effectively address this is extremely unlikely. The latest election makes it extremely unlikely that a single-payer system will get adopted so this suggests other ways of addressing the cost issue.

I believe the prescription is a do-it-yourself approach from the grassroots. When the successes highlighted below scale, the "leaders" will follow. It does require businesses and individuals to dive deeper into something that they could shunt off to their insurance agent in the past as it wasn't a big enough impact on the bottom line to worry about. That has changed. Many businesses and individuals are at a financial breaking point and must take action.

Over time, the cost increases have been somewhat masked. One might be told that health premiums are "only" going up 10% in a given year. But the real effect is actually more like 20% (or even higher) as co-pays, deductibles, and the like have shifted more of the burden onto the patient. As a country, on average we spend well over $7000 per year for every man, woman and child each year on health care. Many people don't realize it as the actual expenditures are spread across many different line items. However, many of us are now experiencing the reality of the proverbial frog that has been in water where the temperature has been steadily increasing. Before we boil, we need to make a change.

[Sidebar: While writing this piece, we took one of our kids in to a dermatologist for something we were concerned about. That 10 minute appointment resulted in a $158 charge and the outcome was we should buy Head & Shoulders shampoo and a simple prescription. Afterward, I spoke with their billing department as I had just wanted to pay cash saving everyone time and money (or so I thought) since we're on a high deductible plan. The friendly billing department person said that we'd receive a $158 bill that we should ignore and that the claim would likely get rejected the first time. She said we'd likely then receive another bill. She indicated that if it wasn't nearly 40% less, we should call her. Rest assured, baked into that $158 charge is all the time their billing department will spend sending out bills, dealing with rejections, etc. all to handle something we are going to pay cash for.]

The Solution

While there are good things that can and should be done to address health care costs such as malpractice reform, electronic medical records, there is only one way to make a major impact on the cost side of equation. We have to take more personal responsibility for our health via a consumer (rather than provider or payer) driven model. That has two dimensions.

First and foremost, the best "medicine" is taking care of oneself and it's clear with the obesity epidemic, we aren't doing a great job on this front. Read The Huffington Post's new Health section for lots of ideas addressing personal health. There's truth to Ben Franklin's statement "an ounce of prevention is worth a pound of cure." The second dimension is becoming a savvier health care consumer. We have a model that has done anything but encourage that. Rather, it's as though we have an open bar at the health care "restaurant." After the co-pays, it seems that we can seemingly get everything for "free" as the costs are so masked.

Back to Insurance's Root

The single quickest thing we can do to reduce health care costs in the coming months and years without affecting the quality of care is to return health insurance to its roots and make it like all other forms of insurance. That is, with the exception of health care, we buy insurance for rare events that we hope never happen (major car accident, house burning down, premature death, disability, etc.). Instead we have burdened day to day health care needs unnecessarily with the bureaucracy and profits necessary if insurance companies are going to be involved in the day to day facets of health care. This need not be the case.

[Sidebar: Imagine this scenario. Your car needed to get tuned-up. However, in order to get a tune-up you had to get a referral from General Motors dealer in order to get an appointment and hope to have the tune-up paid for by State Farm (your car insurance company). When you asked for an estimate of what that tune-up might cost, you would have one of two responses. "We have no idea how much we are going to bill you" or "It depends". If you worked for the government or a large employer, it would be one price and if you were with a small business you'd likely pay 30+% more. When the car was done with the tune-up, you'd likely have to deal with a co-pay, deductible, co-insurance (if your spouse had car insurance through their employer).

Afterwards, it's likely that there would be a series of bills determining whether your tune-up was covered. You might have to re-submit as they may not have realized GM gave a referral. You would also get a bill from the guy who put your car on the lift vs. the guy who worked on your belts vs. the guy who worked on your transmission. It's not hard to imagine your car insurance policy costing 40% more than it does today if it had to support all of that hassle.That lunacy is exactly what we have in health care today.]

Insurance companies do a terrific job of managing risk for the rare items I mentioned above, and most of us feel reasonably good about our auto/homeowner's insurance carriers. We probably wouldn't feel that way if they were involved in every little thing we did with our cars and homes. Once health insurers return to their roots, I believe we'll feel similarly rather than the angst many have towards health insurers. If you only take one thing away from this piece, it is that we must get insurance out of day to day health care if we want to get our health care spending under control. Instead, we should "self insure" for the day to day and have a high deductible insurance plan for the events we hope don't happen such as getting cancer, being in a major accident, etc.

This kind of shift doesn't happen overnight but there are steps an individual or organization can take today that can save a massive amount of money. I will explain three items that may be new to you but are important to understand and take advantage of depending on the scope of coverage you want for yourself or your employees.
  • Health Savings Accounts (HSA): These allow pre-tax dollars to be put into an account that rolls over if they aren't used. Funds in the account can be used to pay for qualified health care expenses. The funds contributed to the account are not subject to federal income tax at the time of deposit. Unlike a flexible spending account (FSA), funds roll over and accumulate year to year if not spent. HSA funds may currently be used to pay for qualified medical expenses at any time without federal tax liability or penalty. More on them can be found at the federal government's Web site and on Wikipedia.
  • Health Discount Card: Think of this as a Costco Card for health & wellness services. It's not insurance. Your Costco Card doesn't allow you to take Cheerios off their shelf and not pay for them. Rather, they have aggregated the buying power of individuals and small business to save their members money when they purchase something. With the card, you can access everything from Dental to Medical to Vision to Alternative Care to Prescriptions at a significant pre-negotiated discount. [Full disclosure: My company is going to be selling these when we go into a limited release in the near future.]
  • Direct Primary Care (DPC): A relatively new concept that is a derivation of Concierge Medicine but targeted at the mass market. I have looked into these models and have found them very compelling. They typically cover everything from day to day items (physicals, flu, etc.) to urgent care. The only added charges are for items such as an X-ray (17 per body part) or lab tests where they pass along direct costs. Because it's completely outside of the insurance model (you pay a monthly retainer not unlike a health club that you can use as much or as little as you'd like), doctors are happy to be available by email and phone. In a typical insurance model, they wouldn't get compensated so it's understandable why they are reluctant to be available for their patients in this manner.

It's no surprise that over 50% of Primary Care Physicians say they'd leave practice if they could. In order to make a good living, they need to get patients in and out of their office in 7 minutes. This leads to a model that typically results in a hurried appointment focused on figuring out the symptoms and prescribing a pharmaceutical. In contrast, a DPC primary care provide is able to practice the way they were trained. In appointments that average 45 minutes they are able to get at underlying causes of the presenting symptom. The "prescription" may well be far less costly than a pharmaceutical. Unfortunately, the severely flawed "fee for service" model permeating our system results a supply induced overuse of specialists. Due to our compensation system, less than 30% of doctors are Primary Care Providers (compared to 50% or higher in the rest of the world). Worse, less than 10% of graduating doctors are going into Primary Care. The former president of the American Medical Association called the Primary Care Physician "the quarterback of modern medicine" yet we pay them like a little used "special teams player" and while the Specialists get the "Quarterback" pay. It's no wonder, graduating doctors don't choose Primary Care.

An example of the DPC model worth watching is backed by the founders of Amazon, aQuantive (Microsoft's largest ever acquisition), and Dell. Reportedly, their Net Promoter scores are in Google and Apple territory and they are reducing the costs of the surrounding medical services they don't cover. For example ER visits are down 62%, specialist referrals are down 55%, advanced radiology down by 48% and surgeries down by 73% all saving individuals/businesses dramatically. I believe it's worth figuring out how we accelerate the adoption of this model. Ask your Primary Care Provider if they are open to this. Besides saving people/businesses significantly, it allows your Primary Care Provider to practice medicine the way they were trained rather than endure the hamster wheel they are on now (and they actually make more money so it's a win-win for patient and provider since 40% of the fat is cut out of the process by removing insurance from the mix).

As I mention in my earlier piece, a little noticed addition to the new health law is the fact that DPC models will be part of the coming insurance exchanges in 2014 even though they are a non-insurance alternative. While you can expect these models to explode in 2014, there are already primary care providers offering this model to their patients today. KGW featured one such practice in Portland in a news segment (NOTE: Opens video file). Washington's governor is lobbying Secretary Sebelius to ensure that the DPC model gets implemented appropriately since Washington state already allows for this non-insurance offering to be sold to consumers. In a nutshell, she wants to ensure that a DPC membership coupled with a wrap-around insurance policy will meet the new health law's mandates.

In a September 13 letter to Secretary Sebelius, Gregoire highlights that Washington has been an "incubator" for development of the DPC model and has passed laws that enable the model to flourish. "Our state law ensures that the services provided by these medical homes run the gamut from routine primary care and preventive care to urgent care and from chronic disease management to wellness education and specialist/hospital care coordination," she writes. "There are no pre-existing condition exclusions, no disagreements over covered treatments or insurance forms to be filled out, and no deductibles or co-pays. Instead a single low monthly fee covers all costs."

Steps businesses should take today

Ironically, these models will eliminate most of the frustrating quagmire of complicated paperwork and hassle, but in the short term, there will be a learning curve and adjustment. The following are steps you can take to reduce your health care costs without negatively affecting quality.

Educate yourself and your employees on being wise and proactive health care consumers. This is a change from the status quo and it will take patients and providers into new territory. While it should be better for both of them, it's change nonetheless about a topic that can be emotionally charged.

Strongly encourage your health care providers to go to cash-based
practices that allow them to save dramatically on billing and administration and pass along the savings to you. Since the DPC model is new, it may take some additional education and encouragement to get primary care providers to move that direction.

Consider where on the continuum of coverage you want to get for yourself and your employees. I have laid out some options below dependent on the resources you have.

The following are examples of the range of coverage a business can provide to their employees (or a those without employer provided insurance can get on their own). I would always recommend at least having a very high deductible insurance plan.

  • Bare bones: At least offer a Health Discount Card even if you can't cover the employee's High Deductible Insurance Plan. Just be sure to communicate that it is NOT insurance as many will think it is. The Costco analogy helps people understand (i.e., you can't walk out without paying for what's in your cart, it just costs less).
  • Good: Couple a High Deductible Plan with a Health Discount Card
  • Better: Combine the "Good" with a Health Savings Account that you fund with pre-tax dollars. Employers such as Whole Foods have taken this approach and found their employees getting much savvier on spending "their" dollars.
  • Best: Combine the "Better" with a Direct Primary Care membership. Prices vary widely but the DPC model referenced above charges69/month for a 40-49 year old, for example.