Consumerizing health care Featured

9:37am EDT December 21, 2004
The health care cost explosion has reached crisis proportions. Small businesses have struggled in recent years with providing any health insurance coverage - let alone a plan that offers multiple options - due to rapidly rising costs.

The Kaiser Family Foundation's 2004 Annual Employer Health Benefits Survey revealed that the number of small employers (companies with three to 199 workers) offering health coverage declined from 68 percent to 63 percent over the last three years, leaving an additional 5 million workers without health insurance.

The causes are well-documented: rapidly rising prices -- and usage -- of prescription drugs, skyrocketing hospital costs, the growing popularity of "elective" health care and thousands of health insurance mandates at the state and federal levels that inhibit the health system's ability to keep quality coverage affordable.

But in this battle, consumers -- not the government or employers or insurers or health care providers -- are emerging as the most promising players to contain costs.

Until recently, consumers had little reason to learn about and understand the true costs of their care. Employers have tended to absorb the vast majority -- in some cases 100 percent -- of their employees' health insurance premiums and a large share of claims expenses.

For most consumers today, economic realities remain hidden and useful information is hard to come by. But when people are spending their own money - and are given good information to help them do it wisely -- they will be much better at controlling spending for themselves and, by extension, for the nation as a whole.

Humana's response to rising health costs

At Humana, where we've confronted the problem as a large employer ourselves, we're developing solutions with encouraging early results.

In July 2001, Humana offered its Louisville employees a new package of health plan options. Here is a look at the experience.

* Over the next year -- through June 2002 -- Humana saved $2.1 million from its anticipated health benefits costs.

* Two-thirds of that savings, or $1.4 million, came directly because of changes in consumer behavior. Employees chose levels of coverage consistent with their individual needs, and they used health care judiciously - for example, by selecting generic prescription drugs over brand-name products.

* Instead of a projected 19 percent rise in medical claims costs, the increase was less than 5 percent.

* Even more striking, the percentage of Humana's total health benefits costs shouldered by employees went down, from 21 percent to 19 percent, with the company paying 81 percent of the total instead of 79 percent as in the year before.

We're now offering the package of options to 250,000 employees and their families nationwide. Its customers enjoy average health cost trends in the single digits, nearly half what is being experienced nationally.

The program combines traditional health benefit products with consumer-choice products in an actuarially balanced environment that preserves the sharing of insurance risk, while still offering employees the chance to personalize their benefit choices to their own life stage and risk tolerance.

Through September of this year, clients experienced an average annual net increase of only 5.6 percent in their year-over-year health care claims costs.

Health care costs today and tomorrow

While consumers hold the most power to effectively control health-cost increases, the health care system's other stakeholders have important roles, too.

* Insurers must engage consumers so they understand the true costs of their health care and make an effort to keep costs in check. They must also provide catastrophic coverage as a financial safety net for major illnesses and injuries.

* Political leaders must create a legislative environment that removes unnecessary state-mandated benefits and produces consumer-friendly information about cost and quality.

* Doctors and other health care providers must help patients become knowledgeable consumers by explaining treatment options and associated costs, and by encouraging the exchange of information through technology.

* Most important, consumers must become truly informed, investigate treatment alternatives and ask questions about the true cost of medical services.

Alan Guzzino is the president of Humana's Atlanta, North Carolina and South Carolina market health plan operations and is responsible for the management, strategic planning and growth of those markets. Guzzino, an eight-year veteran of Humana, serves on the board of the Georgia Association of Health Plans. Reach him at aguzzino@humana.com.