Weve all heard about consumer/market-driven healthcare, a concept developed by Professor Regina Herzlinger of Harvard University. Its about empowering consumers of healthcare and providing them with information, choice and control. Consumer control will reward innovative insurers and providers for creating the higher-quality, lower-cost services we want and deserve. In this consumer-driven system, government will protect us with financial assistance and oversight, not micromanagement, Herzlinger said in the book Consumer-Driven Health Care, which she edited.
The premise is based on the laws of supply and demand. Equilibrium can be achieved by placing consumers in control. The assumption is that value-seeking consumers shape markets. Value shoppers are frugal and shrewd information-gatherers. We are the same ones who force retailers and automakers and technology companies to focus on quality, productivity and efficiency. Healthcare providers are next, but the government must be willing to create the infrastructure to let this happen.
Consumers have few choices, and health costs are exorbitant. When several plans of health insurance are made available, there is very little that distinguishes them. The lack of choice and control ensures that many consumers and providers needs go unmet and that industry inefficiency goes unchecked, Herzlinger said in the Harvard Business Review.
A positive example and step in the right direction of consumer-driven healthcare is the health reimbursement account, or HRA, which some organizations are beginning to use. HRAs can be used pay for plan deductibles, coinsurance and copayments. In other words, they are used in place of expenses typically paid for using after-tax dollars. HRAs are also used to pay COBRA premiums, long-term care and other medical insurance plans.
Another idea to promote consumer-driven healthcare might be taken from the transition from defined-contribution plans to defined-benefit plans. The idea is for employers to give employees health benefit funding options the same way they do with retirement funding options. Fewer employers today offer the traditional defined benefit pension plans because of the actuarial problem, a costly, complex and burdensome process.
Instead, retirement planning is mostly through 401(k) or 403(b) plans. Employees now have numerous financial products, mutual funds, annuities, bond funds, stock plans and money markets to meet their individual needs. A health plan might possibly work the same way, offering a variety of health insurance options, numerous payment plans, copayment options and deductibles with a wide range that meets an extraordinarily diverse population.
This involves placing the consumer in charge of health expenditures by placing in the market a plethora of products catered to the individual and away from the one-size-fits-all approach with few choices, no control and little information, all while the healthcare system continues to avoid the needs of providers and industry inefficiency continues unrestrained. With more health products available to consumers and intensified competition between payers, primarily insurance companies, this would result in a more consumer-oriented market.
Mutual fund companies exploded in the market place, as individual 401(k) plans began to replace defined benefit plans. Pensions offered no choice, no control, little information and no empowerment. Once employees gained control over their retirement plans, a large number of products entered the market to meet the individual needs of the consumer. The market then determined price and investing is now easy and cost-effective.
Might this same process be applied to the health system for paying for healthcare? One day, perhaps, consumers may have access to a large number of healthcare insurance products and payment mechanisms in which to meet individual consumer needs. There could be a portfolio of products in which to choose and varied levels of service, along with layers of out-of-pocket choices and copayment choices ranging from the most diminutive to upwards of tens of thousands. Honest equilibrium in pricing of health and medical care might be achieved if these choices could empower consumers and drive supply and demand.
Until there is less third-party intervention in healthcare, and as long as the consumer is not empowered, health costs and services will continue to escalate. We are already at 17% of GDP and rising. We should pressure our congressional representatives to pass legislation that will provide consumer-controlled reform of healthcare.
Director of recruitment servicesDartmouth-Hitchcock Medical CenterLebanon, N.H.
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