Consumer Directed Healthcare

1. Consumer Directed Healthcare The Next American Revolution

2. Why are We Here? • New Health Benefit Model in US • impacts employers with US ops • may impact PMI: UK & elsewhere • may be model for future benefit developments in other nations

3. Healthcare, US Style • Medicare (over 65 & disabled) • Medicaid (low income) • Employer Sponsored (workers) • Employers pay c. 70% of cost • Employer sets benefits • Employer chooses carrier

4. The History of US Healthcare • No Insurance (<1945) • Indemnified Care (‘45 - ‘90) • Doctors rule • Managed Care (‘70 - ‘00) • Insurers rule • Consumer Directed Care • Patients rule

5. Why the old models failed? • After 1945, the person purchasing the care was no longer the person paying for the care!

6. Enter CDHC • Unleashing the power of free market economics on the health care delivery system

7. Why CDHC Works • Members share in the economic consequences of their health and healthcare buying decisions.

8. What is a CDHC Plan? • ANY health plan, so far as it... • empowers patients • shares economic consequences • rewards good health • promotes consumerism • provides health/healthcare tools • improves healthcare quality

9. CDHC: The Premises • A free market can’t work unless the consumer is also the payer • Healthcare costs won’t moderate until patients shop for care like they would for a car or TV • The best way to cut healthcare costs is for people to get healthier

10. Sample CDHC Plan • Plan pays first $1,000 @ 100% • Health Reimbursement Account: HRA • Patient pays next $500 @ 100% • plus 20% of $2,500 thereafter • maximum patient cost = $1,000 • Plan pays the balance in full • 100% of claims > $4,000

11. How HRA Works • Any HRA funds ($1,000) not spent by the patient in the first year automatically roll over to the next year and are added to that year’s HRA contirbution.

12. The Results • 70% of patients get 100% coverage • after office visit & Rx co-pays • + they roll over funds to year 2 • average rollover = c. $500 • 20% of patients spend < $1,000 • 10% of patients spend $1,000

13. 3 “Plans” for 3 Populations • < $1,000 claims = “healthy” • wellness tools & incentives • $1,000 - $4,000 = “transitional” • claim cost sharing incentive • > $4,000 = “unhealthy” • disease management • quality of care initiatives

14. Cost per Population Group • 70% of members = 15% of claims • 20% of members = 20% of claims • 10% of members = 65% of claims

15. Group #1: Prevention • Keep 70% of members healthy • Cover healthcare 100% • build a “benefit bank” (HRA) • subsidize fitness activities • Online & onsite wellness programs • seminars on stress management • exercise programs

16. Group #2: Cost Sharing • $500 “cold shower” • $2,500 cost sharing corridor • $1,000 member liability

17. Group #2: Intervention • Side-by-side Rx drug comparison • Median cost of procedure by area • Health libraries & data bases • Personal Health Risk Assessment • follow-up with opt-in, targeted e-mail • Weight loss/Smoking cessation

18. Group #3: Management • Personal Health Coach • Disease Management Programs • Absence Management • focuses on return to work • cuts health costs 20% • Online Second Opinions (no cost)

19. Disease Management: Asthma • 1.5 million work days lost • $14 billion of lost productivity • 33% improvement in drug use • 50% reduction in hospital visits

20. Online 2nd Opinions • Partners Telemedicine • Specialists @ Harvard Medical • Boston area teaching hospitals • No cost to patient • Online registration • Opinion delivered in 5 days

21. 2nd Opinion: Results • 5%: Diagnosis Reversed • Patient doesn’t have the disease s/he’s being treated for • 85%: Change Recommended • Specialist suggests a more effective or less invasive approach

22. 2nd Opinion: Cost Savings • 10% of patients = 65% of claims • 5% of those don’t have disease • Potential savings = 3% • If 85% save 25%; savings = 14% • Plus: claims cost only = 1/3rd of the real cost of illness • lost productivity

23. Old Economic Model • Highest quality = Highest cost • works for cars • works for electronics • works for consumer goods • does NOT work for healthcare

24. New Economic Model • Highest Quality = Lowest Cost! • less unnecessary treatment • fewer “do-overs” • fewer unforced complications • shorter disabilities/absences • more complete recovery • return to greater productivity

25. Example: Chemotherapy • 40% less effective each try • Cost per positive outcome: • 1st time: 1x • 2nd time: 3x • 3rd time: 10x

26. CDHC Success To Date • Still largely anecdotal • 50% of employers plan to move some or all of their employees to a CDHC plan by the end of 2005 • High level of employee satisfaction • Employer reported savings: 4% to 11%

27. Application #1: US • Multi-national employers with operations in US • Need CDHC plan to compete • recruiting employees • employee productivity & morale • cost control

28. Application #2: UK (PMI) • Purchase contract with high excess • can reduce premium up to 30% • Allocate funds to HRAs • Beware the tax! • HRA payouts would be taxable • cheaper to pay tax on premium? • More incentive to build bank?

29. Application #3: World • Model for health benefit reform • New Economic Model • control cost by raising quality • Politically acceptable cost shift

30. THANK YOU David Cowles Co-founder & Principal Benemax www.benemax.com