We all have heard frightening stories about rapid travel on U.S. Healthcare Highway 101. Statistics suggest that travel velocity (as measured by healthcare spending as a percent of gross domestic product) crawled along at 5.3% in 1960. A mere 20 years later, the posted speed limit was violated, as velocity surged to 8.8%. Not surprisingly, transit authorities searched for reasons.
Transit authorities believe car owners drove at high speeds on Healthcare Highway 101 during the 1970s and early 1980s because of subsidized vehicle expenses and access to wide-open lanes. Government provided the subsidy by granting tax-exempt status on the membership dues in employer-sponsored vehicle clubs. And because of the high marginal tax rates in the 1970s and early 1980s, most owner-drivers valued $1 of membership more than they valued a dollar of after-tax wage income.
Generous levels of coverage were purchased, resulting in owners paying very little out-of-pocket for vehicle repairs. Volume and speeds on Healthcare Highway 101 were further peaked by the creation of a federal vehicle club for the elderly and various state vehicle clubs for certain segments of the poor in 1965.
In turn, the generous coverage and increased volume created an incentive for fee-for-service vehicle repair shops to proliferate and compete on the basis of quality by offering the newest and best preventive, diagnostic and repair services.
Dynamic pressures set in as new technologies were created to meet the desires of owners driven by quality concerns and high speeds, leading to increasingly wider benefits offered by vehicle clubs and services supplied by repair shops.
Many worried that "patient-driven" traffic on U.S. Healthcare Highway 101 might crash and burn in the mid-1980s because of high benefits and the resulting rise in club premiums. Consequently, payers who reimbursed repair shops on behalf of owners decided to establish themselves as backseat drivers. Not coincidentally, federal marginal tax rates were seriously reduced in the 1980s causing many owners to question the generous coverage offered by their private vehicle clubs. Owners began to think that perhaps a back seat driver might be good for their welfare, especially a back seat driver who could put the brakes on rising private club premiums.
Under the "payer-driven" system that began in the mid-1980s, private vehicle clubs evolved into managed club organizations and adopted various supply-side controls. MCOs required owners to drive in only certain lanes on the highway. Owners had to get prior approval for subsequent tests and repairs from MCO-assigned gatekeepers who controlled access to points further down the highway.
The controls sometimes meant that owners could no longer receive some expensive diagnostic tests on their vehicles. MCOs also realized they could control some of the costly and potentially unnecessary vehicle repairs if they reimbursed basic repair shops on a per-vehicle basis rather than on a fee-for-service basis or with bonus pay or financial penalties depending upon how often they referred vehicles to more expensive specialty shops for further diagnosis and repair.
As taxes became difficult to steer, public payers also became alarmed at rising vehicle expenses and adopted payment systems that placed repair shops at risk for any cost overruns. For instance, the federal vehicle club replaced fee-for-service payment with a reimbursement method that compensates repair shops based on the damaged vehicle's primary diagnosis. Years later, the federal vehicle club also began reimbursing mechanics on an administered fee-for-service basis depending on the time and effort involved in each procedure. Not to have rising vehicle costs shifted on to them, state clubs turned to selective contracting with certain low-cost preferred repair shops or routed public members through MCOs for their vehicle care.
Despite supply-side controls that began in the mid-1980s, speeds continued to accelerate on US Healthcare Highway 101. Transit officials cited speeds in excess of 12% by 1990. Part of the reason for the continued acceleration was the rather lengthy gestation period for new diagnostic and repair technologies. Some technologies take up to 15 years to invent, commercially introduce, adopt and disperse along the highway. The new payer-driven system was too late to alter new technologies in the pipeline.
Supply-side controls finally began to slow traffic in the mid-1990s. Indeed, from 1993 to 2000, a traffic jam developed and persisted along U.S. Healthcare Highway 101 with velocity virtually standing still at around 13.3%. Moreover, after 15 years of continual increases in the number of repair shop bays relative to damaged vehicles, recent data indicates that the number of bays may have begun to subside.
Given the traffic jam, concern in the late 1990s shifted away from excessive velocity to the restricted nature of travel along the highway. Owners lamented the days when they could travel in any lane and to any point further down the road. Repair shops missed the days when reimbursement was on a fee-for-service basis and they had full autonomy about how and which vehicles to repair. Concerns about the payer-driven system motivated many owners and repair shops to lash out at the overly restrictive supply-side practices adopted by MCOs.
Many transit authorities now believe that the healthcare highway may be evolving into a more "consumer-driven" system in response to the backlash against supply-side controls. Some MCOs have turned to demand-side controls, which allow consumers to choose in which lanes to travel, but the tolls in some lanes are more expensive than others. Some MCOs also allow consumers to choose among a wider number of repair shops; but some repair shops entail higher out-of-pocket costs than others. The general idea is that consumer/owners can choose to speed if they wish but will have to pay for any excesses.
With a consumer-driven system in mind, some private vehicle clubs are designing innovative and imaginative ways of providing more consumer choices with an eye toward controlling speeds on the highway. In fact, some observers argue that private rather than public clubs are better at anticipating bumps in the road. One innovative plan, called the Vehicle Savings Account, provides high deductible, catastrophic coverage for major vehicle repairs and deposits some tax-free money in a savings account that consumers can withdraw for routine repairs. Unused money can be rolled over from one period to the next. In later years, for example, the accumulated money might provide the wherewithal for parking their vehicles in various institutionalized or home-based garages on a long-term basis.
For paternalistic reasons, however, many employers have been reluctant to turn over the keys to consumers and so far have failed to embrace consumer-driven plans on a large scale. With the loosening of supply-side controls, new signs appear to indicate that speeds are beginning to accelerate once again along the highway.
Regardless of who eventually sits in the driver's seat -- owners, payers, or consumers -- transit authorities must also address other issues besides excessive speeds. Data suggest that about 15.2% of those in the U.S. do not receive coverage by either private or public vehicle clubs. As a result, those without coverage face the full psychological and financial sting associated with their vehicles unexpectedly breaking down.
Another issue concerns quality of care. Not all coverage entitles vehicle owners to Cadillac care; some like those in the state vehicle clubs are alleged to receive Ford Pinto care.
Future developments along U.S. Healthcare Highway 101 will be fascinating to watch especially if consumers do most of the driving. Let's hope consumers refrain from putting the peddle to the metal, as a "government-driven" mass transit system may be the only alternative remaining to conquer road rage. Happy motoring to all!
Rexford Santerre is a professor of finance and healthcare management at the Center for Healthcare and Insurance Studies at the University of Connecticut.