Bermuda Captive Conference keynote discusses seven tools to help reduce healthcare costs
The cost of healthcare in the United States is twice that of any other developed country. Despite this fact, the U.S. still doesn’t provide the best care. This results in a situation where we are not receiving the best healthcare for the least amount of money. In fact, we have one of the most costly healthcare systems of any healthcare system in the world.
The sad part, according to Joe Flower, chief executive officer of The Change Project, is that it will be the same next year, and the year after that. This is one of the reasons why Flower, the keynoter at the 2016 Bermuda Captive Conference, concludes that “healthcare is broken.” But, he says it can be changed.
He notes that the high cost of healthcare is causing more than just hardship; it is also one of the largest factors in income inequality in the United States. Flower points out that the financial, physical and emotional burdens of disease are all major drivers of poverty. Even after the advent of the Affordable Care Act (ACA), many people still do not have access to the U.S. healthcare system when they need it.
Flower believes it’s possible to “get much more healthcare for far less than we do now.” He identifies seven tools—or as he refers to them, “seven levers of change”—that can be used to reduce healthcare costs and allow people to receive better coverage at more competitive prices. These levers of change are:
1. Transparency—One of the first things any consumer must know in order to make an informed purchase is price. But this is difficult in healthcare, since the costs vary greatly from one location to another. Even more problematic is determining how well a given procedure turns out, or even if you need the procedure or test in the first place. However, the system is changing.
Today, there are multiple new sources of information, not only about the prices involved but also the quality of services and possible available alternatives. New ways to gain needed data include crowd-sourcing via the Internet, as well as information from employers and health plans that are based on actual payments.
2. Results—While the costs are important, it’s the result that is critical. Typically, in a commercial transaction, consumers pay for many of their goods and services individually, and rarely do they pay for substandard services. This is more complex in the healthcare setting.
More and more, consumers are finding ways to pay more for higher quality healthcare services and steer clear of those institutions that make more mistakes. Final payments for quality services are frequently reserved for those organizations that provide state-of-the-art services and cause less reliance on questionable procedures and tests.
3. Targeting—Statistically, some people in a group will use more services than others; let’s face it, this is the theory behind insurance in the first place. Historically, around 5% of the population accounts for about half of the costs. Unfortunately, the vast majority of these additional costs can be traced to poorly-treated chronic disease. Most individuals remain in the higher-cost group year after year. Research has shown that if you can find this 5% and provide extra attention and care, then that total cost can be reduced by 20% to 25%.
4. Tech—Flower indicates that, as a major facilitator of change, technology has the abilityto drive transformation. He points out that this will shift relationships with the consumer via use of various Internet-related systems such as apps, wearables, etc. The Internet will allow constant and on-demand connection that will form a new method for communicating with trusted providers.
5. Shopping—As healthcare consumers pay more of their overall healthcare costs, they tend to be much more cost-conscious and, for the most part, are more fully engaged in the process. Flower notes that this is especially true when consumers learn how costs vary wildly from institution to institution, and how paying more does not necessarily lead to better results.
Employers have started to deploy a number of new strategies aimed at cutting healthcare costs. More popular methods for cost reduction include self-funding, frequently via the use of a captive insurance company. These approaches allow the employer to pay the actual cost directly, thus also providing more control over the system.
In addition to the use of complex risk-financing systems like captives, employers are offering their employees opportunities to participate in high-deductible health plans in conjunction with health savings accounts, thereby turning the employee into a savvier shopper. By using approaches like a captive insurance company, and other self-funding approaches, employers can provide direct incentives for employees to become smarter shoppers.
Employers have also found a number of other finance-related approaches. Flower says that these types of approaches are beginning to get the attention of various service providers. Some employers have started to develop their own accountable care organizations (ACOs) and are contracting directly with hospitals, without involvement from insurance companies. Small to mid-sized employers are now starting to band together and make purchases in buying groups. Among other newer strategies are establishing on-site clinics, creating formal bill audit programs, and medical tourism. To gain the maximum out of these programs, employers need to have access to recent and relevant information that provides timely answers that are important to the employee.
6. Trust—There are a number of goods and services that healthcare providers can offer to consumers to lower the costs of healthcare. However, Flower believes that one of the most important levers is trust. He points out that having a healthcare provider that is a trusted partner is critical. He says, “Without trust, none of these strategies will work.” While it may appear that establishing a relationship built on trust may be a costly proposition long term, it is the single most productive efficiency engine in healthcare. Unfortunately, for too long, healthcare has been provided in an adversarial “gotcha” approach to risk mitigation. This approach precludes a trusted partner-style relationship.
7. Prevention—Without question, the best way to lower the cost of healthcare is to stop paying for things that don’t help. This will end the 33% waste that experts have indicated is still in the U.S. healthcare system. It will do this by shifting away from a code-based, fee-for-service system that has in the past rewarded inappropriate and wasteful overtreatment. According to Flower, the second best method is to prevent chronic disease. The idea here is to manage chronic diseases so that they do not become acute. Prevention is the quickest method to having an immediate payback and reaping the rewards of controlling your own costs.
Things in healthcare are changing rapidly, Flower says. It has taken employers a while to understand the power they possess with regards to developing a valid risk-financing method like captive insurance companies and self-funded programs. While the implementation of the ACA has been helpful, there have also been a variety of smaller state and national regulations that allow employers to design more comprehensive, proactive programs. “It requires an employer to act like a general contractor,” in helping to reduce overall healthc are cost.
Flower states that we could have healthcare, higher quality healthcare, for everyone for half or less of what we are paying today. It is clear from the numbers that U.S. employers must take a stand. The stage is set, according to Flower, and it is time to “fix our broken healthcare system.”
Michael J. Moody, MBA, ARM, is the retired managing director of Strategic Risk Financing, Inc. (SuRF), a firm that was established to provide consulting services to captive and other alternative risk transfer mechanisms. As a regular columnist, he continues to actively promote the benefits of the ART market by providing current, objective information about the market, the structures being used, and the players involved.