To control health costs, show consumers the price tag
Call it A Tale of Two Black Eyes.
One of the many flaws in our health care system was illustrated when two family members – my 22-year-old daughter and my 84-year-old mother – both suffered shiners recently.My daughter, a college basketball player, received an elbow in her eye during a game. Unfazed, she iced it and moved on. My mother, having never suffered a black eye, wanted her doctor to look at it and ensure that her fall had resulted in no serious damage.
But rather than simply make that judgment, her doctor ordered x-rays – nine of them! My mother was then sent for a CAT scan. At each step, we questioned why these tests were necessary.
Finally, she was sent to an otolaryngologist who, after looking at her records, said, “We need to stop this madness. If someone had called, I would have explained that this office visit was unnecessary.” No bones were broken; my mother simply had a little blood in the sinus. His recommendation: Go home and wait for it to heal itself.
So much is written about the soaring costs of delivering heath care that we are becoming numb. And when blame is placed on forces beyond our control – for example, advances in health-care technologies that raise patient expectations to impossible heights – it’s easy to feel resigned.
But the black eye experience illustrates another reason why health care costs are soaring. The proliferation of HMOs and third-party providers has insulated consumers from the true cost of care. Our payments are fixed based on deductibles or maximum out-of-pocket expenses. The typical patient doesn’t know whether an MRI costs $200 or $2,000. Ask employees how much an annual physical costs, and their answer is probably $10 or $15, which represents the token co-pay.
And even if we knew the price tags, what would we do differently? Few incentives are in place today to encourage an employee to control health care expenditures. Why question the need for the MRI when “someone else” is paying for it? The reality is that, for most, a haircut costs more than a visit to the doctor.
The Insurance Myth
Another factor contributing to escalating costs is the misconception that health coverage is insurance. Employees pay their co-pays and believe that the balance comes from “somewhere else,” presumably an insurance pool.
In fact, most health plans involve little real insurance -- as in paying a small amount to “insure against a big expense,” says Dennis Ackley, a nationally recognized leader in benefits communication. Instead, the money to pay health expenses comes from an account funded by only two sources – the employer and the employee.
Many employers -- some of whom are spending more on health insurance than they generate in profits – are deciding they can no longer foot the bill.
Subsidizing wasteful habits
Interestingly, the evidence shows that a very small percentage of employees account for the majority of claims.
According to Mercer Human Resource Consulting, 50 percent of employees incur less than 3 percent of health care costs, while 15 percent drive 78 percent of the costs.
Of that 15 percent, some are patients dealing with life-threatening, chronic and/or catastrophic events such as cancer, heart disease, diabetes, complicated pregnancies and premature births – those for whom catastrophic health insurance was intended.
But also among that 15 percent are employees who, while far from gravely ill, prefer to maximize their consumption of health care. They demand brand-name prescriptions, want every test vaguely related to their complaint, and are outraged when a nurse practitioner rather than an MD shows up to diagnose their child’s ear infection.
Taking control
While reforming the system may be a Herculean task, every employer, even smaller ones, have an opportunity to get a better handle on costs.
Consumer (read: employee) education is essential if costs are to be lowered. In fact, the consumer may well be the solution. Conventional wisdom suggests that consumers who are not educated on the true cost of health care and have no incentive to control discretionary health spending will continue to spend. Engaging in proactive education is particularly important for employers who are investigating and adopting some of the emerging consumer-driven models for managing health expenses.
These consumer-driven models -- called Health Reimbursement Accounts (HRAs) or Medical Savings Accounts (MSAs), not to be confused with Flexible Spending Accounts (FSAs) -- are becoming increasingly attractive.
An HRA generally involves a “personal medical account” along with a high-deductible, low-premium insurance policy. Here’s how it works: An employer contributes a fixed annual amount of pretax dollars – say, $2,000 per employee -- into an account, which the employee then draws on as needed to cover day-to-day medical expenses that fall below the deductible.
Experience shows that many employees will live within their allowances. Employees who do exhaust their personal medical accounts will pay out of pocket – from a pretax FSA, if available -- until the insurance coverage kicks in to cover significant or catastrophic illness or injury.
Unlike the FSA with which most of us are familiar, unused balances in an HRA at the end of the year can be rolled over to apply to a future year’s expenses, creating an incentive for employees to manage their spending. Employees who participate in HRAs also are provided with substantial information with which to make decisions, including the costs of visits, procedures and prescriptions, and the track records of doctors and hospitals.
Often, no co-payments are involved in HRAs, patients are not required to use specific medical providers, and restrictions on the prescription drugs covered are reduced.
Most employers now offering HRAs do so as an alternative to, not a replacement for, existing health plans. Experience has shown that employees who are offered less comprehensive insurance coverage along with greater financial responsibility become smarter consumers of health care services, limiting their demands for “discretionary” care and saving money for future medical needs.
But what about employees who are sicker than average? Since the HRA model is built on the presumption that those who generate the most cost in the health care system should pay more than their healthier peers, critics worry about shifting too much burden to employees. Others insist, however, that restoring accountability to the system is essential to reining in costs.
In any case, employees need good information about what typical procedures cost, how to shop for better providers, and how to avoid waste.
The system is badly flawed, no doubt about it. Employers have borne more than their share of rising costs over which they have no control. But employers are not helpless. By investigating and adopting new approaches, employers can lead a move in the right direction.
