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The New Healthcare Consumerism Across the country, employers and benefit plan sponsors are struggling to deal with the rising cost of healthcare. The issue rose to the forefront in 2002 when cost increases for health benefits reached an all-time high at nearly 15% annually. Today, U.S. companies are facing 2006 average increases of 8%. Cumulatively since 1996, the healthcare cost burden has risen by a whopping 140%.1 Over this same period, employers and plan sponsors have been able to maintain roughly the same cost-sharing formula with employees – an 80/20 split. This has been made possible by shifting proportionately greater financial responsibility to plan members through higher co-pays, more restrictive benefit plans, coinsurance, high deductible plans, and the like.2

Healthcare consumerism is about consumers.

Insurers and health plans have responded by offering a dizzying array of alternatives to traditional HMO and PPO plans. From Consumer-Directed Health Plans (CDHP) and tiered benefit plan designs to health reimbursement accounts and health savings accounts, the new plans aim to inject greater consumerism into the healthcare system. The underlying belief is that if individuals bear more financial responsibility for paying for their healthcare expenses, they will become better consumers, be more motivated to take better care of their health and make more informed healthcare decisions. In theory, this sounds like a solid premise. However, it only takes into account one aspect of ‘consumerism.’ As a term, ‘consumerism’ has two definitions that are nearly opposite in meaning: (1) the emphasis of advertising and marketing efforts toward creating consumers; and (2) advocating the rights of consumers to protect and support them in the decisions they make.³

In the context of healthcare, these two definitions cannot be considered mutually exclusive. Rather, they must be simultaneously acknowledged and embraced.

A Historical Context
The move to consumerism in healthcare represents a fundamental shift in how the industry and the marketplace think about healthcare access and the delivery of services. It is not dissimilar to what took place with the broad market acceptance and resultant growth of HMOs and managed care in the 1980s.

The difference, however, is that the earlier shift was provider-focused. It was based on the premise that the key cost driver was physician and hospital behavior. Accordingly, HMOs and managed care organizations developed sophisticated reimbursement methodologies that shifted risk to providers and/or used ‘strong form’ utilization management techniques that proved highly unpopular with providers and consumers alike.

For example, HMOs introduced hospital per-day rates by department and fixed payments by diagnosis (DRGs or ‘diagnostic related groups’) in lieu of traditional discounted fee for service reimbursements. On the physician side, there was growth in the use of capitation (fixed monthly payments per person who signed up with a given physician regardless of whether or not the person was seen), bonus pools, and ‘withholds’ that incented primary care physicians to decrease the use of high cost specialists and diagnostic services.

Unfortunately, all of these techniques were suboptimal in that they either encouraged or discouraged the quantity of service provided with little to no economic incentive relative to the quality of service provided. More importantly, these methods failed to address whether or not there was clinical need for the service in the first place.

What’s more, subsequent market factors that emerged in the late 1990s resulted in increased utilization by 43% since 2002.⁴

Healthcare consumerism is a new mindset. It is premised on the concept that the healthcare system must increasingly and fundamentally focus on the healthcare consumer’s behavior. The shift is driven by two primary and equally important goals: the economic objective to controlling rising healthcare costs; and the service objective to improve access to and quality of care. To be successful in achieving these dual goals, the move to healthcare consumerism will require a two-pronged approach that simultaneously creates market demand and encourages informed consumers.

We are just now at the beginning of this transformational shift. Early adopters are leading the way, but the ‘jury is still out’ as to the long-term viability of consumer-directed healthcare to deliver on its promise. This makes it all the more important that industry leaders and benefit plan designers carefully consider the implications of consumerism across the healthcare continuum and the various barriers to its success.

A Carrot & Stick Approach
The new healthcare consumerism is perhaps best viewed in terms of the proverbial ‘carrot & stick.’

The ‘stick’ in this analogy is the baton of financial responsibility that is being passed from plan sponsors to plan members. It is from this perspective that new features such as high deductible plans and tiered benefits are being offered to provide incentives for consumers to make the switch. So far, the supply side of the market is moving faster than the demand. Insurers and health plans are aggressively marketing new CDHP products yet market penetration has been relatively slow to date – less than a quarter of employers offered CDHP options in 2004. However, it is expected that a majority will include them as options in their health benefit packages in 2006.⁵

At the other end of the analogy is the proverbial ‘carrot’, which takes the shape of health promotion, decision support, and incentive programs. The goal here is to provide positive reinforcement, encourage plan members to live healthy and enable them to make good health decisions. It is a prevention-based approach focused on motivating individuals to adopt healthy behaviors, thereby reducing their clinical need for service. The most popular health promotion and support carrots are things such as health risk assessments; wellness, lifestyle and disease management programs; and web-based decision support tools.

Viewing healthcare consumerism through this lens allows employers and plan sponsors to focus on both sides of the economic and quality equation simultaneously.

Understanding the Consumer Mindset
Consumerism in healthcare is an approach consistent with nearly every other consumer-purchasing model that leverages the marketplace dynamics of choice. On the surface this appears like a clear and simple model, but with the dizzying array of choices and overwhelming information, can the new healthcare consumer be expected to know how to make sense of their choices and, in turn, know how to make the best decisions?

• Healthcare – both the clinical and the administrative aspects – is infinitely complex. The
  sheer number of providers, plan sponsors, program vendors, intermediaries and others that
  a consumer must navigate is daunting.
• Healthcare is intensely personal and emotional. There is nothing more personal and emotional
  than being told you (or a loved one) have a life-threatening or activity-limiting health condition.

Even the well-educated individuals are likely to find the shift from their traditional roles as receivers of healthcare services to their new roles as savvy healthcare consumers extremely difficult to make. People are not accustomed to thinking about healthcare as something to shop for. The last thing that someone diagnosed with congestive heart failure wants to do is a price comparison for doctors or search for a hospital based on a quality-rating index.

Nonetheless, consumers in the new model will be expected to understand their options, choose the right health plans, and make informed choices about where and when to go for services.

As employers and benefit plan sponsors seek to adopt consumer-directed initiatives that require employees/consumers to take ownership of their health, they – and the healthcare services industries – will run straight into a fundamental barrier to success. Namely, low health literacy.

Simply put, health literacy is the ability to comprehend and act on health information, both written and verbal. It’s about how well an individual is able to understand their options, navigate the complex healthcare system, and make good decisions about their health.

Myriad choices and options must be navigated leading up to, and oftentimes during, healthcare service delivery. From the initial task of selecting which benefit plan is best for them and their families; to choosing a provider for any number of medical needs; to participating in wellness and incentive programs; to properly managing diagnosed conditions and responding appropriately to catastrophic events – individuals as consumers in the new healthcare model need to be supported to make the right choices.

There are efforts underway to encourage providers to adopt consumer-based models and offer cost and quality information. This offers one way to address the issue of health literacy. However, widespread acceptance on the part of providers is still a long way off and as many as 60% of people in employer sponsored plans are unsure of their ability to make informed decisions.⁶

Disease Managment in the New Healthcare Consumerism
When the concept of disease management was first introduced, it was presented as a solution to address economic challenges and deliver ROI. In the carrot and stick analogy, it was a ‘stick.’

However, in the new consumer model, disease management is a carrot – an approach to positively impact behavior change and improve decision-making among the highest-cost segment of an employer’s population. As the shift to the new healthcare consumerism continues to evolve, it is critically important for employers and plan sponsors to consider how changes will affect individuals across the healthcare continuum, from those who are in good health and use few services, to those with diagnosed chronic conditions who require ongoing care.

Condition-specific health coaches, with clinical and motivational expertise coupled with in-depth knowledge of the healthcare delivery system, can serve to fill the health literacy gap that is a likely barrier to the adoption of true consumerism in the healthcare marketplace. Similar to how consumers engage financial advisors to assist with retirement and financial planning, the new healthcare consumer will need to engage a clinical advisor to assist with navigating the array of healthcare choices both ongoing and in times of crisis.

Disease management is a proven high-touch approach that focuses on educating individual healthcare consumers to become informed self-advocates and motivating individuals to work through emotional and personal barriers to achieve true empowerment for living healthy lives.

related links
Mercer Human Resource Consulting 2005 US National Employer-Sponsored Health Plans Survey