Insurance Coverage & Costs
Medicaid and SCHIP
Access to Care
Quality & Care Delivery
Health Care Markets
Design and Methods
Question & Answer Session
DR.CHRISTIANSON:Paul, do you want to field questions from the audience now?
Sure. Actually, if you could start walking up to the microphones. While youre
getting ready for questions, I have an observation, and I want to run it by
It seems as though all three of the
ideas put forward from the marketplace entrepreneurs could work with the fixed
contribution model, and that in some cases they could also work with voucher
models, and yours is very much around the fixed contribution. And I just want
to ask the panel is that correct?
Okay. Id like you to state your name and affiliation before your question.
Why dont you begin, sir, and then well go there and then there.
[ph]: My name is Todd Zwillick. Im with Reuters.
The impact on the individual insurance
market has been mentioned by almost everyone now. In Congress, there are initial
moves to decrease the number of uninsured by offering refundable tax credits.
Part of the criticism of this is that if you give someone, an individual, a
$1,000 tax credit, which is the proposal thats being thrown around in a lot
of committees, that theyll be able to purchase their plan. That plan will have
$3,000 in premiums and about $6,000 in deductibles.
Im curious, from each of the three
panelists, to hear about what your business, what your plan could do for an
individual purchasing individual insurance with a $1,000 refundable tax credit
that theyre going to use to try to purchase insurance which they do not have
right now. What could you do for these people?
Well, I think that if the amount is $1,000, youll get at least some
coverage versus zero. So I think its at least a more efficient use of the thousand
dollars than the way it works right now. I think beyond that you have to step
back and say either the government is going to mandate some minimum benefit
design--were not going to do that, okay. That is outside of our role. I think
thats much too intrusive for our business.
I think the other is is that if there
is a product that lets somebody get more value for their thousand dollars, then
that product will come about, and itll be available in the marketplace. So
I would say that at least its a move in the right direction. How the thousand
dollar number is coming about, thats what I would challenge more. What does
the government think theyre going to get for a thousand dollars? Because thats
exactly what youll get.
So I think its the right move. Its
how its deployed and how does that voucher get realized? Is it through payroll
deduction? On a practical, applied basis, how does that work?
For $1,000, you cant get insurance coverage. What you get, you could
got to a product like Steves and try and find a better price for your $1,000.
The people who get income tax credits, by the way, have a whole lot of things
to buy that theyre barely making it in the first place like shelter and food,
in addition to health care. So Im not a big proponent that a $1,000 tax credit
is really going to move dealing with the uninsured.
Actually, before you go on, I was sitting in a meeting last week of
some group thats coming up with new tax credit ideas. And I think the thinking
is not that anyone thinks $1,000 will buy insurance, but that with the poor
covered by Medicaid and for children, as CHIP, theres a notion that theres
a population that perhaps is just $1,000 subsidy away from buying insurance,
that they have some of their own money that theyre willing to pay. So, in a
sense, we shouldnt dismiss it because obviously you cant get anything for
So I think if it could be married up with some employer contribution,
youd have more money as well. So its not only what somebody is willing to
take out of their paycheck. But if the employer is saying, hey, this is a better
benefit, at least I am able to provide some access to coverage.
I think youre talking about the individual market. Theres no employer
involved. I think--
Seventy-five percent of uninsured work.
Right. What hes talking about here though is the proposals right now
are that youd get $1,000 tax credit if youre an individual purchaser of health
insurance because your employer did not provide it.
First of all, thats a wonderful policy
initiative. I dont care what party you back, you should back that. Its fair,
its the right thing to do for the individuals that lack insurance, and it will
just stimulate more coverage, less uncovered care. It does not, however, have
any impact on affordability of health insurance. So there would still be a marketplace
out there that competes on price.
What some of us are trying to do is
create insurance products that are very powerful products that cost a lot less.
We have a $100 health plan thats a very comprehensive family health plan. But
you probably dont have enough in your allowances, if youre in that 17 percent
of the people that has allowance limits, you probably cant get your health
care service in midtown Manhattan. You can get it if you commute to less costly
areas. Theres wide variance in cost levels for health care across the U.S.
and nobody knows that. Nobody knows that you can go to the Mayo Clinic for one-third
the price that you can go to Columbian Presbyterian in New York unless you paid
for it. And it makes you want to make sure everybody knows that, hey, you know
what, the Mayo Clinic is a great deal for health care, and its probably the
best health care in the country.
Actually, there was another part of your question. One was $1,000, and
thats what everyone has focused on. But the other one was the individual markets.
And I was wondering if any of you, and you dont all have to speak, have any
views about the status of the individual market now and how well it would work
for someone of modest means for whom the $1,000 tax credit made the difference,
that they would consider getting health insurance.
The individual market right now is shrinking. Its a problem. Its a
little bit like the reinsurance markets right now are going away. Theres a
crisis right now in the financing of health care in America thats gone unnoticed.
And thats the shrinking capacity of insurance underwriting capacity out there.
Its hitting the health plans first. Its hitting the self-funded employers
with premium hikes that are going through the roof. And its hitting the individual
So theres already a shrinking universe
of payers, insurers, that will write in that market. So we first need to address
that. We need to make it a more attractive environment. I think you do that
at the state level with state laws that govern underwriting of individual policies.
And right now theres a patchwork quilt in the United States where its the
Wild West if you write products.
In some states you have pre-ex, you
have all kinds of special conditions you can exclude forever. And even now HIPAA
has created even further dysfunction in that you can buy short-term policies
in the 6- to 36-month variety that allow permanent pre-ex.
And so the marketplaces need I think
what HealthSync is doing, they need rules that are standard.
Steve, isnt that the problem, though, is that in the individual market
its very, very hard to underwrite risk? Because as you get the risk factors
in, you either have unaffordable insurance or you only are able to insure those
people that are healthy and running marathons. Until we solve that problem,
the individual market needs a lot more than just a $1,000 tax credit.
And I think that that can be addressed the same way issues with small
employers would be addressed. If theres some aggregation or affiliation or
the equivalent of a credit union, but for health care, where you could aggregate,
there has to be risk adjusting within that pool, but there is a way you could
think about creating pooling so you could address that issue. But I dont think
thats going to happen without the government.
Sure. Thank you.
Im Greg Scandlen with the National Center for Policy Analysis.
Actually, that discussion ties into
my question. I would argue that because employer-based coverage has a 40-percent
subsidy on average, anyone who can possibly get employer-based coverage will
do so, leaving only those people in the individual market that are too sick
to work, who cant keep a job, who are in very high-risk occupations where their
employers dont provide coverage, that sort of thing.
And I would argue that thats contributing
to the problems in the individual market more than the lack of regulation because
theres no lack of regulation.
But Ray raised a question of portability, and this is a connection, I think
thats really critical in defined contribution. And, in fact, to the extent
were using a pension--defined contribution pension programs as a model for
this, that is characterized by individual ownership. And Im afraid that HIPAA--actually,
Ray used it--you didnt think there were many regulatory obstacles towards that.
Im afraid HIPAA, which is ironically called the Health Insurance Portability
and Accountability Act, prohibits portability.
Yes. Well, Im, unfortunately, too familiar with HIPAA. The intent was good,
the execution was brutal for employers and carriers. So I think until the financing
mechanism changes, you will not see portability.
Well, I think without portability, without individual ownership, all you have
is managed competition.
My name is Katherine Capps with Health2 Resources. Ive got ten questions, but
I think I can summarize it with one question, I hope.
With all of the products and services
that your companies offer, who do you see as the primary customer? And Im not
referring to the end user, Im referring to the primary customer. This is a
two-part question. If each panelist would answer that.
And the second part of the question
is, how will your products and services, as you are proposing the rollout of
them, increase accountability for consumers and not diminish accountability
Who would like to start?
I keep starting, so I thought wed flip it to the other side.
Youre flipping it to me, okay.
Well, first of all, on the second
question I think that obviously when you give people the right to control the
insurance dollar, you are moving quite a bit of opportunity for them to have
responsibility over to the patient. And our customer is clearly the patient.
We believe that all of these moves by employers, whether its to define contribution
or if youve been selling health plans for 18 years, employers are already using
some type of limit on what they pay. Theres already a defined contribution
model out there that shifts quite a bit of cost to the individual employee.
And were trying to--and so when you
run a health plan, you have a two-tier sale. First, you have to sell to the
employer, but your main sale, particularly in the large-case market, is to the
individual. What Ray is doing, and others, is maybe bringing that direct-to-consumer
decision making down into smaller employers, which is my hope that Ray is successful
in that model.
What Hillary couldnt do, Ray is doing
by creating purchasing cooperatives that any employer or any individual can
opt into. Generally, right now its sold through employers, but there should
be no reason his model doesnt lend itself to the individual market or anyone.
So our customer is the individual. And with the whole idea of an episode allowance,
you have as much or as little responsibility and control as you want. You can
punt out of it if you just say I dont want to pay attention. I like the managed
care model where somebody tells me what to do. Fine, well tell you what to
Lee, do you want to go next?
I think our customer, we maintain, is still the provider community. Thats where
our financing comes from. Yet the problem with that answer, of course, is if
there are no employees with pools to draw off of, what business is there? So
you still have to think of the actual consumer employee also as a customer of
For accountability, I think the physician
and hospital accountability is quite clear in our model. But the consumer also
is quite accountable. I call it skin in the game without road rash. They have
first dollar coverage for care, basically, a deductible, and they can access
care. But every year they have to deal with a budget just like you do at your
house. We know our income is going to be "X." What are we going to spend it
on? And every year when the defined contribution is established, that employee
has to think responsibly about how they will spend their money or how much money
of their own personal dollars they want to bring into that fund so that they
can purchase the kinds of physicians and hospitals they wanted.
So the accountability for them is
to be pretty smart purchasers of their relationships.
I think, from a pragmatic standpoint, our customers right now are employers
and carriers. Those are the decision makers right now. We want providers, we
want consumers. That doesnt happen unless the two primary constituents, employers/carriers,
say this is a better model. So thats the first.
I think on the second point of the
consumer, I think that consumerism, the mind-set of consumerism is going to
be over time. I dont think people are going to just jump in and say, and this
is not in any way a criticism because I would buy this plan, but picking 22
different specialists and with the 1,900 other things youve got going on all
day I dont think is--thats a quantum jump. I think similar to 401(k), initially,
people put their money in low risk. Information became available, people got
more comfortable, and its driving a lot of how people make their decisions
about their pensions.
If you would have asked me when I
was an altruistic 24-year-old, would it be more likely that employers would
allow their employees to manage their pensions or their health care, I would
have thought for sure health care, and it hasnt happened that way.
So I think that people will be able
to make those decisions. A lot of them they make already. Its just that the
data-intensive decision making I think is going to be over time.
Ray, Ive got to respond to 22. It was my worry, took, when I first joined the
company, until the focus groups, when the employees came in and said, you know,
the first thing the employers are going to say is that we arent smart enough
to make these 22 choices. And they all got it. The guy from Midas Muffler got
it in about 22 minutes.
I agree with that for some consumers, not all of them are going to--some want
Kaiser still. Theyre comfortable with it.
Oh, sure. That Ill agree, yeah.
So I think you need both. You cant have just one.
Jerry Grossman from the Kennedy School, Harvard.
And Squam Lake, yes.
I just want to comment on the question about the $1,000. Massachusetts, which
is, of course, renowned for the highest costs in the country, does also now,
or until yesterday, had a diminished uninsured. They now cant agree whether
or not we had a 3.5-percent decline from 10 to 6 and something. Nevertheless,
you had CHIP, you add a million people in Medicaid. And if you were to have
we just started something called the Health Insurance Partnership, in which
if you show up as a small business with a 1040 that says you dont have the
money to pay for insurance, theyve set some limits, theyll give you a 50-percent
voucher to give to your employees. And if your employee then shows up with his
or her 1040 and shows they cant afford it, they get a graded personal payment
as low as $50 a month for their family. It just started now, but it sort of
picks up the gray space of the employed people who work in companies who cant
Using size is a terrible thing. We
have a four-person office. We give health insurance. We shouldnt be eligible
for a government subsidy. So you need to have means-tested companies and means-tested
employees. Some people dont like that. And then we have buying cooperatives,
the chamber of commerce, and all of those things.
So you can put together a package
that would allow everybody in the bottom third, I think, to play in any of your
arenas. So I think there has to be a clarity that there is a strategy to get
as close as we could to universal access for people at prices they can afford.
But the more you guys present options, the closer were going to get. Massachusetts
cant ever get there. Were going to have the highest cost system in the world
until you die and he dies because Im dying faster.
Is it easier, by the way, to have four employees than 10,000 like you used to
Oh, much, because I took them from the 10,000. I took the best four.
You had your pick, didnt you.
He took the four healthiest people.
By the way, everybody missed you this year in the Cosumpi [ph] Open.
Bruce Wolf, Hogan and Hartson.
I applaud enormously the object of
moving toward a marketplace and giving the consumer an enormous amount of choice.
Its clear, though, that in some of these models an essential element of choice,
particularly in yours, Lee, I think has choice made in advance of the onset
of the episode or, Steve, in yours at the onset of the episode, but not during
And I wonder, in two respects, what
are you doing about feeding into the loop not just price and not just kind of
objective quality measures, but peoples experience with the providers, the
choices theyre making; and, two, when people are in the middle of an episode,
having chosen a package provider, Steven, yours, or, Lee, having chosen a provider,
how do you move out? I mean, what do you do about the denial of care, the skimping
of care, the feeling that youre not being well served in those models?
In our case, you can opt out whenever you want. The payments go out pretty much
on a fee-for-service basis to the providers in a care team. If that care team
has given a fixed price, the payments still go out on a fee-for-service basis
to them until they hit a max. So you could be a third of the way through a $50,000
allowance, and you would still have $35,000 left that you would take if you
didnt like--youre going to know right away. And generally speaking, the large-dollar
consumption in an episode, youve made the decision and its over. Its the
hospitalization and its the surgery, if its a procedure intervention.
So you do pick. Its very different.
In an episode, youre quite a ways along before you have to make any decisions.
Youve already had the diagnostic work done, and youre deciding to have a treatment.
You may be a man with prostate cancer, and youve decided to have high-dose
seed implantation. And youre going to go shop and pick and decide who you go
to. And once the implants are there, they are there. You are not likely to make
I hope you arent, anyway. Its tough to take them out.
Remember that not only do we allow the consumer to look at some data, but the
way they got to most of their choices was through somebody they trusted already.
What were doing is really just automating a process that happens every day.
I call Sam Carlson to find out who to go see for my seeds if I needed them,
and I still use that same mechanism in ours. So we think were going to emulate
pretty carefully a system that already works relatively well.
Now, when there is a conflict, and
I dont like the guy that I was sent to, you have two choices in our system;
one, you can change your providers. There is a waiting period determined by
the other provider you are going to. Thats to prevent them from getting adverse
selection; or you can use your wraparound insurance policy. So you can use that
just like you did with point of service in a health plan to select another provider.
Youll have to pay a little more money out of your pocket, but you can do it
immediately without any other approvals.
Before I go to the next question, I want to say I think weve got two people
here, and Ive got a question. I think that will exhaust our question time for
So, yes, sir?
Greg Walker, American Cancer Society.
In these models, what would be in
place, what would drive prevention and early detection to prevent or to mitigate
catastrophic illnesses down the road and not increase that 17 percent of people
who are receiving care for catastrophic illnesses?
Several things. One is that if the carrier is going to want to keep their customer.
So its always less expensive to keep your customer than to get a new customer.
They will be directly involved in that process. I think the provider, because
in an individual purchasing their coverage, most often, if you ask individuals,
will first select on provider. There is a relationship there.
I think the third is, and this is
where were going, is that we are migrating from kind of global aggregate actuarial
variables for risk adjusting to population-based diagnosis risk adjusting, which
is to say if a carrier and their provider network, they have a partnership,
not an adversarial relationship, the way it is now, and they can prove better
outcome for cancer, and they go and market that, they will get a corresponding
higher premium based on getting more cancer people. And that will be what drives
the real innovation in health care. So I think that there is movement.
If you are able to prove you have
a better result, then you will attract those that are already sick. If you are
able to proactively mitigate risk, therefore, keeping your population healthy
over a longer period of time, people will stay with that carrier.
And therefore you will incent the
carriers and the providers to actually work, for the first time, as a team.
Because theres data thats aggregated at the carrier level that the providers
dont have, theres competencies that the providers have that the carriers dont
have. And right now its kind of adversarial by design. The point is that right
now the way it is, if Dr. Jones cancels a carrier, they lose their patient.
In the future world, they could keep their patient because that patient will
be able to change what carrier they have based on who does the best job.
So I think that its kind of a broad
answer. You have a very specific question.
So the assumption is that the provider will inform the patient what they need
and not look down the road and say, theres more money to be made--
Ill use myself. For example, Im on Lipitor. Thirty-seven years old, and I
have incredibly high cholesterol, genetic. Theres nothing in my diet or whatever.
Right now, the carrier is looking at me as a loss leader. Theyre for sure losing
money on me being on Lipitor. Because the reason why Im on Lipitor now is so
that when Im 55, I dont have a heart attack. The carrier is looking at that
as a negative right now. If they know that they could keep me, earn my value,
and I stay there, theyll get their return on investment. So it changes the
In our model, its consumer marketplace again. You would pick physicians who
took prevention seriously, if that as an important value to you. If a physician
that you chose as a primary care, you walked in and said, "Well, Ive got risk
factors for heart disease, and my cholesterol is a little high," and the guy
says, "Fine. You dont need to do anything," if youre a consumer-savvy person,
youd say, "Hey, this guy isnt interested in prevention. Ill go to someone
who is and change."
Now, having said that, the other incentive
that occurs in our plan is to look carefully at whether prevention really works.
Lets take the Lipitor example again. His chances of having a heart attack are
reduced by one out of 1,000. Now, in the study, that is a 50-percent reduction.
So I can say to this patient two things. I can say I can really lower your chance
of having a heart attack by half, boy that sounds pretty good, or you have a
two in a 1,000 chance of having a heart attack. Im going to take it down to
a one in a 1,000.
And you know what, when you present
it that way, the vast majority of patients say, "Forget it. Im not taking Lipitor
for the rest of my life for that kind of reduction."
So what happens in our model is the
incentive becomes to be realistic about prevention, to talk to patients in a
way that doesnt say the easy thing, oh, Ill reduce your chance by 50 percent.
Here, take this pill. But say lets talk about this. We have a pill that we
can take. Heres the consequences of that pill for you. Theyre pretty mild,
except for expense, and heres what youre really going to gain from that. And
prevention is overblown. I think Im the only physician. Are you a physician?
I didnt look.
Im the only physician on this panel with a whole bunch, two years of masters
work in preventive services. And quite frankly, prevention is seriously oversold
in this country right now.
So the things that would really make
a difference, seat belt and cigarettes, we choose to ignore, and we spend more
time thinking about things like Lipitor. Thats where the incentives are.
Well, I was an informed consumer. I also had a large number of my family die
of heart disease. So I was an informed consumer. Im just saying that the incentive
to focus on where you can minimize and give that option is--theres no economic
reason to do that right now.
Ray, Im not a physician, but I think I can lower your risk even more than the
drug. I think you should get out of starting a company.
Two quick questions. Steve Ferenti (ph) from the University of Minnesota. First
of all, are any of the pending or proposed medical privacy laws going to affect
any of your business models as well as the HIPAA implementation rules? And the
second question is: Are the connectivity companies that are showing up
in the health care space going to help assist, have no effect on your business
Well, first of all, on the privacy issue, yes, there are a number. We might
want to convene another panel for the privacy dialogue. We spent two years on
the Clinton patient protection bill, a lot of it on the issue of privacy, and
unfortunately, the practical reality of whats getting implemented is making
it more difficult to move information around, movements that might benefit patients.
And so theres a lot of protections and theres a lot more expense now associated
We dont have a privacy consideration because we dont get any medical data.
There are no claims. The only thing that we have is the name of the physician
youve chosen. So we think theres very little in the way of privacy issues.
Ive forgotten your second question.
Connectivity companies help you on--
Again, irrelevant for us because claims data and transactions dont occur.
Data is less important from our perspective. I think actually the privacy issues
actually act as a catalyst a little bit. I think employers are starting to say,
well, why do I have this information on my employees at such an intimate detail
level. Thats an exposure area. In fact, I want to get the heck out of that
area. Its not my core competency.
So there are some positive and negative
thats coming out of the regulatory side.
The risk adjustment stuff you talked about earlier that you would hope to use,
what data is going to fuel that model?
That would be diagnosis based--population based, diagnosis based. That will
leverage some standardization from HIPAA on data. That goes into effect in another
19, 20 months. I think that how you design systems and where that scoring of
relative risk, where that happens, is a key aspect. And if you compile the HIPAA
security standards on your system, then I think you address part of those issues.
I have a question I want to address to the panelists in different ways. Ive
been sitting here thinking a lot about risk selection, and I think each of you
have different exposure to risk selection.
I guess in your case, Ray, youre
exposed to attracting employers that know that they have fairly high-risk workforces.
And in the other cases, basically theres the notion that the sickest people
want to go to the best providers for their care and whether the best providers
wind up saying, well, we cant handle this, we have to--were on a death spiral.
We have to keep raising our rates because we attract the sickest patients.
Any comments on those risks?
Sure. The reality is that this is as or more attractive to employers in the
technology industry who have empowered workers. Theyre younger. They want choice.
Theyre narcissistic by default, and employers, for everything else in their
business, have shifted more responsibility, more process, more decision making
onto their employee. And so theres something that needs to be trued up. You
can run the business, you can improve the business, you can have ownership of
the process of the business, but you cant pick your health care. So I think
its more of a philosophy than are my health care costs high.
I just meant what about Joes Welding Shop that has a bunch of people that havent
taken Lipitor and--
Okay. There is a part of the process--and this is why were dealing with large-
and medium-size groups until somebody deals with the small group from the regulatory
side--where the carriers still apply their own experience factor for that group.
Okay? Theres all the normal variables of rating, plus an experience factor.
So the higher the risk, the higher price their employees will see out in the
marketplace, based on the group.
Okay. Any comments from Steve or Lee?
I would just mention that we have actually--the price thats posted by the provider
is factored up by the underwriting carriers for the group. So if we sign up
a small group of 15 employees and their risk is 1.3 average, when they go into
our system, they will see every providers bid up by 1.3 in order to help provide
the providers with some protection against that increased risk that they would
be seeing in that pool.
In our case, were not sure yet. Weve had the top three actuarial firms in
the country, two on behalf of carriers, one, M&R, thats our permanent--thats
on retainer with us permanently, they even disagree. Some believe that episode
allowances will attract people that have had a lot of bad experiences in managed
care and that we will attract sicker people that are higher risk.
My experience in new products in the
health insurance arena is that its a lot like any early adopter model. Early
adopters tend to be younger, healthier people, and so I think well probably
get a little bit of both, is my guess. But it doesnt matter in the end because--it
matters in the first few years, but in the HMO movement years ago--Im sure,
Lee, you remember--everybody thought, well, you HMOs are going to get all the
good risks. And then once you got past about 15 percent of an employee population,
you began to distributions that were more normal.
I know Mathematica, you know, sponsored
this, but the Mathematic study of the Medicare program, which I think is maybe
one of the most flawed studies and led to some of the worst policy decisions
in the history of health care, but it essentially said that the HMOs were getting
better risks in the Medicare risk program when we had hard data, many health
plans had hard data that would show that, in fact, if you used DRG case mix
as a surrogate index, or if you used symmetry-based groupers as another index
of risk mix, that, in fact, we were certainly getting far sicker than average
Medicare patients enrolling in our health plan.
And so I dont think you can make
any gross generalizations. Its probably going to vary by employer. Its going
to vary maybe even by region. But in the early days, we expect to figure that
out. But its a guess to get started.
Okay. Well, this is a difficult area, but Ill conclude that neither of you
feel that thats your Achilles heel, that if you dont succeed its not going
to be because youve attracted higher risks but because of other reasons.
Good. Its time for us to take a break.
The panels will be switching for the second half of the meeting, and I just
want to mention the panelists will be available after the meeting to answer
your questions informally. And I see those orange pieces of paper around, and
I want to ask you to start thinking about filling out your evaluation because
we make heavy use of those.
Back to Index