The next big thing: health care when the patient pays; the consumer-directed healthcare movement is designed not to create a new market, but to move the present market to a less expensive model

Healthcare Financial Management, Dec, 2005 by John M. Shiver, Kevin T. Ponton

Whether or not consumer-directed health care addresses high costs, quality-of-care issues, and other problems in our healthcare system, the fact remains that this movement represents a profound change in how consumers soon may be paying for their health care.

Consumer-directed health care has gained momentum since the passage of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, which provided for the creation of health savings accounts.

Under provisions in the MMA, individuals may create pre-tax HSAs that can be used for a variety of health-related expenditures. When coupled with a high-deductible health plan, these accounts can be used to cover the deductible portion of the plan. Money deposited in an HSA can be used only for healthcare expenditures. However, many of the services consumers will be able to purchase with an HSA have historically not been covered by traditional insurance plans, such as vision correction surgery, cosmetic surgery, and health club membership.

With an HSA, a high-deductible health insurance policy becomes more attractive--and the economics are compelling. For example, a selfemployed individual or small business would pay about $900 per month for a preferred provider organization policy with a $500 deductible and no copayment after deductible. For a similar benefit but with a high ($2,000) deductible, the same policy would cost about $450 per month.

The number of people enrolled in HSAs tied to high-deductible health plans more than doubled to 1,031,000 over the six months between September 2004 and March 2005, according to America's Health Insurance Plans' Center for Policy and Research. And the number of people with HSAs will grow to more than 6.3 million by 2008, according to Forrester Research. This trend will place individuals with consumer-directed health plans into one of the largest healthcare purchasing blocks after Medicare, and it introduces price competition into the healthcare economic model. The CDHP movement is growing and will bring price competition to the consumer level.

In addition to price, convenience and choice are compelling drivers in the CDHP model, which emphasizes control and convenience for the consumer. The groundwork for CDHP acceptance has been laid with online banking, tax filing, retail, travel and entertainment booking, and even "distance learning" for professional development and academic credit.

HSA holders will make their purchases differently, also. No longer will it be necessary to bill insurance companies only to find out that the patient has not yet met his or her deductible. HSA participants will carry some form of debit or debit/credit card that the provider can use for electronic funds transfer at point of service, thereby reducing the cost of billing and carrying accounts receivable. On the downside, if the client does not have enough funds in the HSA, the provider has to find another way to be paid.

Provider Response to Consumer-Directed Health Care

How will healthcare providers react to consumer-directed health care? Those who drafted the legislation believe the market will force providers to change the way they do business. But what kinds of changes will we see? For one, providers may be more likely to go it alone.

Imagine, for example, that you are sitting in a diner, having lunch with a friend who is a primary care physician. Suddenly, his small laptop computer flashes a red light. He opens the computer, reads for a minute, types a response and sends an e-mail via a satellite link. He then clicks to a web site, types a couple of numbers, closes the computer, and apologizes for the interruption.

What you have witnessed is the primary care office visit of the consumer age. This physician practices a new kind of medicine. With a few mouse clicks, he has responded to a patient's e-mail describing a medical complaint. He prescribed a medication, sent the prescription to a pharmacy of the patient's choice, advised the patient regarding therapy, billed the patient and received payment--all in less than five minutes, without office overhead and without actually seeing the patient.

This physician practices without a formal office. He participates with no insurance companies, employs no one, and charges patients about what he would have received from an insurance company. Patients are provided sufficient documentation to submit claims for payment.

By eliminating the cost of a staff of nurses, aides, and administrative support, this physician has reduced expenses by about 40 percent. His practice overhead now consists of malpractice insurance, an answering service, a small office and exam room, and, of course, a top-of-the-line laptop with satellite service. And his revenue remains unchanged.

Not every patient encounter is as simple as this one. The physician in the example reserves "cyber visits" for patients with whom he is very familiar, whom he is generally following for a chronic condition, and who are articulate in describing their symptoms. Prescribing treatment over the Internet requires a great deal of trust between the physician and patient. However, as this physician readily admits, he has always had that type of relationship with his patients, even when practicing in a more traditional setting.