Unleash the Power of the Consumer to Fix Healthcare

On both sides of the political isle, there is agreement that our healthcare system needs meaningful reform to lower costs and expand coverage to the uninsured, and it needs to be done now. The key question is how to lower costs.

For the past four decades, a host of "managed" strategies have been deployed that include price controls (Medicare), controlling the doctor's pen (managed care), denying care (benefit design), and other restrictions, as well as wellness initiatives—all failing to reduce healthcare cost increases, which have risen at three times the consumer price index.

Democratic leadership released legislation that builds on these failed practices. Why have they failed? It's because they have not addressed the underlying reason for our escalating utilization of healthcare services—consumer behavior.

A significant disconnect exists in our current framework that disenfranchises the individual from the financial ramifications of their day-to-day lifestyle and health-related decisions. One hundred fifty million people get their health insurance from their employer, their rates set on a group basis. Eighty million get their coverage from the federal government through Medicare and Medicaid, again community rated. Where is the financial incentive for individuals to embrace personal responsibility for their health status and reward the right behavior when third-party payers are paying the tab, and pricing is set on an aggregate basis?

Add to this the rich benefits offered by employers fueled by its tax advantages—i.e., employer-provided health insurance is not taxed, so every $1 offered in benefits is worth $1.50 to the employer—and you have a formula that has caused the employee to be removed and disengaged from the actual cost of providing their care.

These perverse mechanics have driven the alarming acceleration of risk factors well documented to be behind our cost problems: Obesity, chronic conditions (diabetes, congestive heart failure, cancer, COPD, and asthma), poor diet, and sedentary lifestyles.

This setup is analogous to charging all drivers the same auto insurance premium regardless of whether they had a perfect driving record, or had a history of accidents and speeding. What effect would it have on driver's habits if they knew their driving record had no impact on their premium? Yes, a collective shudder at the thought.

The same holds true in financial services, where one's credit score, their track record of paying debts, is relied on to make decisions on one's creditworthiness. What happens? Many monitor their scores to ensure the most favorable financing rates.

In other businesses, consumers consistently demonstrate that financial rewards are the most effective at influencing their behavior. As examples, we now pump our own gas to save 3 or 4 cents a gallon, shop at big box home improvement stores to do it ourselves, and push a cart around warehouses to buy mutant sizes of goods with the goal of savings. In healthcare now, the consumer's pocketbook is not part of the equation, and that must change. Fundamental reform must start with six corrections in order to lower costs by creating a truly retail healthcare marketplace that brings transparency, choice, and portability:

1. Taxing of Employer Health Insurance. Right now, employers are burdened with selecting a health plan or plans that fit all of their employees—an impossible task the larger the number of employees covered. More importantly, the employer health insurance tax deduction is the largest tax entitlement, worth $1.5 trillion over 10 years, and would not only pay for the expansion of coverage to the 46 million uninsured, but also produces a $500 billion surplus to pay for needed subsidies outlined below. Consumer coverage would then not be affected by job change or loss, bringing much needed portability peace of mind.

2. Mandate All Have Health Insurance. Everyone must have car insurance to protect against catastrophic injury and cost on our roads, and carry homeowners insurance to protect their home in order to obtain a mortgage—the same protective safeguards apply to themselves. Onerous existing regulations on benefit design need to be replaced with flexible approaches that allow consumers to choose the right coverage for their needs. Insurers must accept all applicants—no pre-existing condition exclusions.

3. Price and Quality Transparency. In what other industry do customers (and their surrogates, providers) order service without knowing the price or quality record other than healthcare? Legislation should ensure prices, and outcomes/quality results for all healthcare services and products are clearly communicated to consumers before or at the time of service enabling a cost benefit decision aligned with other efficient markets. Comparable transparency principles now being applied to protect consumers in financial services have relevance in healthcare.

4. Subsidies for Low-income Consumers. Direct the $500 billion surplus generated by taxing employer health benefits toward extending coverage to all qualifying individuals and families, with the goal of having all 300 million U.S. citizens covered.

5. Choice. Drive efficiency by giving consumers the ability to choose their preference—in health plans, providers (both physicians and hospitals), ancillary providers, retail clinics, and other healthcare menu items. The existing 1,300 health plans provide ample competition and options, there is no need for a federal sponsored public plan to "keep them honest." Empower consumers with information, and they have a demonstrated track record of "finding the cheese."

6. Standardize Health Information. Aren't we all tired of filling out those exhaustive health questionnaires when we see a doctor or apply for insurance? The technology has existed for years to make immediately available electronic medical records and the transference of data that would significantly enhance decision making by all healthcare constituencies (providers, consumers, health plans, etc.) and lead to better outcomes. This is an area that the federal government can and should facilitate—now.

Eighty-five is an important healthcare number. It is both the percent of Americans now covered by insurance (255 million), and the percent of each dollar, or more than $2 trillion annually, spent on care for patients. It's imperative we get reform right, to protect and ensure both these percentages move in the right direction.

Now is the time to enact legislation that creates a robust retail marketplace that properly aligns economics to facilitate the behavioral change critical to reducing healthcare costs.