Consumer Driven Healthcare

“Perfect Storm” to “Disruptive Innovation”: The CDHC Summit

Jackie Dornfeld

These are tumultuous times in healthcare today. A ‘perfect storm’ is what speakers told us at the October National Consumer Driven Healthcare Summit in Washington DC. They described the situation as a grim culmination of various disturbing trends:

• Uncoordinated care -- 20% of tests are duplicative

• Poor quality -- 100,000 die each year due to medical errors and hospital infections 

• Aging population -- 40-80 million seniors are living beyond 65, and most with chronic diseases

• Unhealthy behaviors -- $500 billion spent annually (25% of total medical expenditures) due to ‘behavioral habits’ including obesity, smoking, alcohol and non-adherence 

• Skyrocketing health care costs – over 9% premium increases for 5 consecutive years. $370 billion in unfunded medical liabilities among state governments alone. 

• Poor access – 40% of employers unable to afford offering health coverage. 47 million uninsured.

Indeed, an alarming situation. And worse yet, many ‘perfect storms’ often result in even further harmful disruption. This would be quite typical.

But, the consumer driven health space is not typical. Here, disruption is taking-on a different and much more positive form. What we’re seeing is “disruptive innovation” – the kind of new solutions that cause true change in how providers, insurers, consumers and the entire system behave.

Summit speakers talked about many examples of “disruptive innovation” happening in the marketplace today. For instance, we are seeing:

• Personal Health Records (PHRs) – web sites such as HealthVault and Google Health intended to help consumers store, manage and share their personal health information. 

• Medical Tourism – cost conscious consumers drawn to global destinations for health care services at an average cost of 20% less than in the U.S. 

• Value-Based Benefit Design (VBBD) – steerage of consumers to high performing providers applying evidence-based medicine techniques. 

• Online Individual Insurance – web sites such as eInsurance.com providing an end-to-end consumer experience from comparing insurance options, to underwriting approval, to immediate coverage.

• Wellness Programs – encouraging healthy behaviors such as weight loss, smoking cessation and preventive care through various incentive programs. 

• Voluntary Benefit Employee Associations (VEBA) – establishing tax-advantaged trust arrangements to cover future health care expenses for active and retired employees. 

• Consumer Activation – engaging consumers in their health decision-making with targeted messaging and innovative media/tactics such as text reminders, blogs, videos, and default enrollment.

So, how can each of us help move health care from the “perfect storm” to “disruptive innovation”? It all starts with identifying and investing in promising ideas that upset the status quo. And by aggressively transforming ideas into new and improved solutions. Only then will we have the kind of disruption impactful enough to change health care for the better.

Jackie Dornfeld (jdornfeld@lighthouse1.com) Director of Product Management at Lighthouse1

The 8% Tax Increase You Didn't Even Know You Got

If you pay taxes, you're going to love [this]. 

Let's put this all into perspective.  We all know that every company in the U.S. has been dealing with rising healthcare costs.  Every employer has had to make tough choices to be profitable, attract talented workers, and compete. 

Federal employees - there are 8 million of them - and their employers (arguably you and I) were recently dinged for an 8% increase in their health insurance costs.  60% of federal employees are enrolled in Blue plans which rose a whopping 13%.  Any of you get a 13% pay raise this year?  Was there a vote to increase the principle cost of government (government employees) by 8%?  Maybe I missed it.  The article reads, "...those [employee-paid] amounts represent about 30 percent of the plan's total cost. The government picks up the remaining 70 percent."  By "government" they of course mean you and I.

Interestingly, the reasons cited by the Office of Personnel Management (basically HR for federal workers) were exactly why CDH plans work better. 

"Jena Estes [VP of FEP for BCBSA] blamed a relatively slow shift to generic drugs by enrollees as one reason its increases are higher than average."  I am quite certain that if federal employees had an HDHP with an HSA that shift would have happened in the first month of the plan.  There is just not enough incentive for these 8 million federal workers to get healthy and spend wisely, and here's your proof.  [Washington Post]

4th Annual White House HSA Briefing: Lessons

I had the fortune of meeting with a number of CDH industry leaders and government officials on April 15th to discuss HSAs and the policy-making that goes along with them. 

I will leave the stastistics and detailed notes for another post but make some general and subjective observations here.

Lessons Learned

I hate to dwell too much on H.R. 5719, but there are some lessons to be learned here.

1. There will be little done to further CDH or HSAs for the next several years.  H.R. 5719 is only the start of a political wave, one that moves from right to left.  As we approach the general election in November it is clear that health care conservatives will be trying to demonstrate success with the current vehicles (i.e., CDH, HSAs) while health care liberals will be focusing on what isn't working as well as pushing new agendas.  Assuming a left-ward movement after the election, it is doubtful that CDH will get additional visibility, although there is hope that the structure may stay intact. 
2. Data = Power.  Even though the grenade went off in his hand when Evolution Benefits' CEO Bob Patracelli provided data on non-qualified merchant transactions for HSAs (~5% were clearly not a medical provider, ~12% were from big-box retailers and couldn't be verified without IIAS in place at the time) to a bunch of legislators who used it improperly, made bad and politically-motivated policy out of it, and ultimately gave EB a nice black eye, you have to acknowledge that without this information we aren't going to get anywhere.
3. It's all political.  When almost $60 Billion is claimed as itemized medical expense deductions each year you have to agree that requiring substantiations for HSAs (a tiny fraction of that amount for the foreseeable future) seems ridiculous.
4. The innovators in the industry need to lead it.  Despite everything, it is impressive to me just how much influence there really is on where CDH is headed.  The estimate was that 88% of Health Savings Accounts were represented in the small room we were in.   There were quite a few large organizations (Bank of America, Fiserv, Wells Fargo, Metavante, UHG, etc.) but a number of small ones as well (MinuteClinic, Destination Rx, Lighthouse1, etc.)  However misguided, H.R. 5719 got its energy from data provided by Evolution Benefits, a fairly small debit card company.

Update: H.R. 5719 Passes House, President will Veto

Although the White House has vowed to veto it, the House of Representatives passed H.R. 5719 on Tuesday April 15 requiring HSA custodians to substantiate HSA expenditures and provide reporting on those substantiations to accountholders.  There are a fairly long list of reasons why this proposed change can only be characterized as "political" in nature:

• While some argue that there could be lost tax revenue from unreported non-qualified HSA distributions (which are currently legal but incur a penalty), there were $57.9 Billion in self-reported healthcare expenses exceeding the 7% AGI limit deducted in Schedule A of the 1040 last year.  Any lost tax revenue related to HSA substantiation or reporting would be certainly trivial in comparison.
• Charitable contributions and IRA distributions are currently self-reported.  By this standard all charitable contributions would need to be substantiated by a third party.
• There is plenty of evidence that HSAs are succeeding, and therefore will be difficult to shut down in any change of control in the upcoming elections.

There are plenty more where that came from.  The vote was 238-179, so with or without a veto, expect to see this legislation appear again soon.

Dems Pass Bill Requiring Substantiation of HSA Distributions

This has been predicted for sometime by plenty of folks, including your friendly blogger here, and it still has a long, long journey to the capital city, but the Ways and Means Committee just passed a number of changes to the Internal Revenue Code that included this little gem:

    

SEC. 17. SUBSTANTIATION OF AMOUNTS PAID OR DISTRIBUTED OUT OF HEALTH SAVINGS ACCOUNT.

(a) IN GENERAL.—Paragraph (1) of section 223(f) (relating to amounts used for qualified medical expenses) is amended by inserting ‘‘(and substantiated in a manner similar to the substantiation required for flexible spending arrangements)’’ after ‘‘account beneficiary’’.

(b) REPORTS.—Subsection (h) of section 223 (relating to reports) is amended— (1) by redesignating paragraphs (1) and (2) as subparagraphs (A) and (B), respectively, (2) by moving the text of subparagraphs (A) and (B) (as so redesignated) and the last sentence 2 ems to the right, (3) by striking ‘‘(h) REPORTS.—The Secretary may require—’’ and inserting the following: ‘‘(h) REPORTS.— ‘‘(1) IN GENERAL.—The Secretary may require—’’, and (4) by adding at the end the following new paragraph: ‘‘(2) RELATING TO SUBSTANTIATION.—Not later than January 15 of each calendar year, the trustee of a health savings account shall make a report regarding such account to the Secretary and the account beneficiary setting forth— ‘‘(A) the name, address, and identifying number of the account beneficiary, and ‘‘(B) the amount paid or distributed out of such account for the preceding calendar year not substantiated in accordance with subsection (f)(1).’’.

(c) EFFECTIVE DATE.—The amendments made by this section shall apply with respect to amounts paid or distributed out of health savings accounts UPDATED: after December 31, 2010.

Hit the jump and go to page 21 line 20 for the actual document and language [House Resolution 5719 via Ways and Means Committee].

The New Killer: Hospitals!

This will blow your mind.  All along we thought it was the lack of health insurance that was killing Americans. 

It turns out you are five times more likely to die from an infectious disease contracted in the hospital (even for a routine procedure) than you are from being uninsured.  More than AIDS, breast cancer and auto accidents combined. 

If that's not motivation to stay healthy, I don't know what is.

From [Forbes] via [National Center for Policy Analysis].

Dems v. McCain (Verdict: McCain)

Is it me, or are there some amazing variations in the interpretation of each candidate's health care plan by the press?  There are some complex ideas out there for sure, but getting the straight scoop is difficult.  There is bias everywhere.

This article is no exception, but I think it does a better job of detailing the positions in common terms, and the impact these programs will have on the affordability of healthcare over the long run. 

Net-net:  We need to tap into the most powerful force in the universe, American consumerism (a.k.a., The Invisible Hand), but until American's understand the basic principle that people who need healthcare will want someone else to pay for it, and people that don't need healthcare, well, don't care, we're going to need a leader who can make tough decisions and get things moving in the right direction.

Enjoy.  [Fortune / CNNMoney.com]

The CDH Conference (Verdict: Been there, done that, got the T-shirt)

Despite a continued rise in CDH plan enrollments, plan offerings, solutions and vendors, this year's CDH conference in Las Vegas was with a few exceptions very much of the same information, coming from the same vendors, and presented by the same people. 

As the "partner guy" for Lighthouse1 I saved a lot of travel by spending my three days face-to-face with partners and partner prospects.  Not bad.

As a consumer looking over at the Canopy Financial booth with a half dozen professional hand-shakers watching the tumbleweeds roll through thier $50,000 display, I couldn't help but wonder whether the industry was changing or the conference itself was a bust.

Are administrators in this economy getting a mandate for profitability?  Are the solutions commoditizing?  Is the space getting crowded?

Perhaps, but after sitting through a number of sessions which would have been considered old news 2 years ago, I think the conference is simply not putting together the line-up it needs to attract the strategists within these organizations.

Game on.

It seems fitting that the first entry in this blog addresses the first question that comes to (my) mind:  Why?

Candidly I am not the sort of person who decides to swim against the current unless there is something spectacular upstream.  Here is what the cold water feels like ... 

• There are so many blogs now that the people who blog about blogs (metabloggers?) believe that counting them actually reduces the legitimacy of the practice.  You could be learning sign language or finding a spectacular deal on electronics right now.  Why read this?
• I have a job, a wife, four kids, and several interests which (thankfully) have absolutely nothing to do with Consumer Directed Health.  Why write this?
• With respect to CDH, the jury is so out (and will be long after the election) that unless you are "in the business" you may be placing a losing bet.  Carl Doty, a research analyst at Forrester once said, "If there are 10 versions of CDH, we are on version 0.7".  Why read this?
• There are so many people with more CDH expertise and writing charisma, that I consider my best contribution to this blog will likely be an over-reliance on sources and the annoying habit of making mountains from mole hills. Why write this?
• And the list goes on...

However, even with the water flowing hard in a direction opposite the notion that this will be a useful way for us both to spend our time, let's eat this funky yogurt for a few weeks and see if it makes a few of us regular.  I have some important and interesting things to share with you and plan to make a real investment into this.  All I ask is for you to read and if the spirit moves you respond.

What's waiting upstream?  A chance to be a part of some better healthcare solutions.  Let's get to work.