The health care consumer gospel according to Harvard Business School: a talk with Regina Herzlinger, DBA - Consumer-Driven Health Care - Interview

Physician Executive, May-June, 2000 by Richard L. Reece

Q: LAST NOVEMBER I WAS invited to attend a conference you organized at Harvard Business School on consumer-driven health care. At that time this concept had just surfaced on America's radar screen. A lot has happened since then, hasn't it?

Herzlinger: There has certainly been a lot more attention paid to consumer-driven care.

Q: The consulting firm KPMG published a survey late last year on defined contributions, a cornerstone of a consumer-driven system. The survey found that among 14,626 employees, 73 percent liked the idea of a defined contribution that allowed them to shop for their own plans, and 46 percent of 301 chief executives were receptive to the idea. Choice is certainly the driving engine of a consumer-led system, isn't it?

Herzlinger: Of course. And there have been other articles by Booz-Allen and Deloite & Touche extolling the virtues of consumer-driven health care. Ron Winslow, a senior Wall Street Journal reporter who attended our conference on the condition that he would not report directly about it, wrote a front page article in the Journal in February entitled "Give Employees the Money and Let Them Buy the Policies."

Consumer-driven care is an idea people are talking about. Maybe its time has come. I was recently the keynote speaker at the Washington Business Group on Health, which represents the health care coordinators of large corporations. If I had spoken on this topic a year ago, people would not have been interested or would have viewed it as a wildly improbable pie in the sky proposal.

Q: Consumer-driven health care has been receiving legitimacy on the political front, too. Another attendee at your conference, Robert Levine, MD, of New York City, is an editor of Blueprint, a Democratic publication of the Progressive Policy Institute. His publication recently devoted an entire issue to consumer-driven care. You had an article in that issue, didn't you?

Herzlinger: I did. The Democratic Leadership Committee is a think tank that was formed by President Clinton when he was Governor of Arkansas. The Committee is the home of the Progressive Policy Institute, which publishes Blueprint. Another one of its editors, David Kendall, was also at our conference. Dr. Levine is a diabetologist who works with children. He and Kendall are advocates of consumers. There is evolving political backing from Democrats, who heretofore preferred government-sponsored care.

Even Bill Bradley, who was arguably the most liberal of the presidential candidates, has good words for it. His health care platform emphasized the Federal Employee Benefit Program, which is a defined contribution plan covering more than 10 million federal employees. People who are in favor of government as a solution are beginning to support a health care plan that empowers consumers more than the government.

Q: What's happening on the Republican side of the aisle?

Herzlinger: Republicans have always liked the idea. Bill Thomas, the Representative from California, has legislation to commit tax credits, which is a variation of the theme of consumer-driven care. His bill would enable uninsured and self-employed people to obtain tax credits and would empower them by giving them money and a tax subsidy to purchase health insurance.

Dick Armey, the House Leader and a Republican from Texas, has legislation to get rid of the "use it or lose it" feature of Flexible Savings Accounts, which are a perfect vehicle for consumer-driven health care. Employers can deposit the money they normally would spend to buy health insurance on behalf of their employees into Flexible Savings Accounts. Employees can buy the health insurance they want without paying taxes on that money.

The only problem with Flexible Savings Accounts is that if you don't use the money, you lose it. There is no incentive to save money or to use it for some other purpose. Armey has introduced legislation to get rid of the "use it or lose it" feature. If my employer gave me $6,000 and I spent only $4,000 on health insurance, I could use the $2,000 for future years.

Lastly, the Republicans have included riders on the various patient protection bills to increase the number of Medical Savings Accounts and to get rid of the inhibiting features that prevent their widespread use and acceptance. For example, they have introduced legislation to permit the sale of MSAs in large corporate settings.

Q: Do you predict the revised MSA legislation will pass?

Herzlinger: I don't know. But, employers can implement consumer-driven health care without tax penalty to their employees, either through the use of Flexible Savings Accounts or through the extension of the IRS code that has always treated money paid for an employee's health insurance as non-taxable. Employers can do that without any new legislation. Consumer-driven care does not need Congress to pass MSA legislation to make this version happen. It requires large corporations to say this is how I will do it and to make it happen.

Large corporations are driven by three things: