July 19, 2000
A FIRST LOOK AT
DISEASE MANAGEMENT UNDER DEFINED CONTRIBUTION
Just when you think all the acronyms
in health care have been used up, along comes a new one. This one,
however, is worth paying attention to. Defined Contribution (DC)
promises to be as strong a force in the 00s as was managed care in
the 80s and 90s.
WHAT ARE DEFINED CONTRIBUTION (DC)
DefinedCare.com provides the
following basic explanation of DC: Medical benefit defined
contributions involve employers and other traditional purchasers of
care providing an allowance, that empowers consumers to purchase and
select from a wide menu of benefit options that are arranged by the
employer or a purchasing administrator.
Here's another way of thinking about
DC. Today, employers usually provide a specific health plan (or
selection) to employees. Under a DC approach, an employer will say
"Here's $X,000. Use it to buy your own health plan. Don't blame us
or sue us for choosing a health plan that's not to your liking. You
want a basic, no-frills, catastrophic coverage plan....OK, that's
your choice. You want a Cadillac health plan....OK, but you pay the
cost above the basic DC amount."
There are a number of major
variations on the DC theme:
Risk adjustment. Question: "What
if I'm less healthy or have a chronic condition. Will my employer
pay a higher DC amount?" Short answer: Probably yes. The USBancorp
Piper Jaffray analysis referenced below refers to Risk Defined
Contribution (RDC), i.e., the concept of risk adjustment is an
essential element "baked in" to a DC plan.
Savings accounts. Question: "What
if I'm young and healthy and don't think I need a lot of health
insurance?" Short answer: some variations of DC would allow the
employee to pocket the difference, but the more likely option will
be required funding of a medical savings account for anticipated
health care needs later in life. This will resemble an IRA
dedicated to health care needs.
Menu of health plans: Question:
"How many health plans can I choose from?" Short answer: initially
probably from a list still selected by the employer, but
eventually from the open market. The Internet is seen as a major
force in providing consumers choices and information about health
(Refer to the articles below for more
in-depth information about DC.)
HAVE ANY MAJOR EMPLOYERS ADOPTED DC?
The closest thing to a verifiable DC
sighting occurred last fall in Rochester, New York. Xerox
Corporation reportedly planned a shift to DC, but backed off.
SO, WHAT'S THE BIG DEAL?
What's more notable than the amount
of interest in DC is the number of companies and amount of
investment ANTICIPATING the imminent arrival of this trend. An
analysis by Wit SoundView lists 32 recently funded companies
involved in ehealthinsurance infrastructure and related areas.
Investors and venture capitalists have
thrown hundreds of millions of dollars to these companies, many of
which are only a few months old.
Many established companies, including employee benefit consultants,
management consultants, and health plans are also preparing for an
anticipated DC feeding frenzy.
WHAT DOES THE DC TREND MEAN FOR
The first wave of activity in
developing infrastructure for DC is focusing around ehealthinsurance
options. Care and disease management options for DC plans are a
predictable second wave of infrastructure that will need to be
We've known for a while that about
50% of health care costs are related to individual lifestyles. Diet,
exercise, relaxation and the like are far more important to the
health of most people than a health care delivery system.
Our current health care system does little to reward or incentivize
a healthy lifestyle. We do a lot for you once you're sick, but very
little to keep you from getting sick.
What's different with DC? DC will
incentivize and promote a longer term perspective toward health.
It's not THE ANSWER, but it's a step in the right direction.
Consumers will become more aware of long term health cost
implications of their behavior because they will more directly bear
DC promises to result in an expanded menu of disease management (DM)
options available directly to consumers. Let's compare what the
current DM model looks like with what an expanded DM model might
look like under DC.
1) Current DM Model:
Principal Care Coordinator: a
third party (often a DM company) coordinates care on behalf of the
Delivery model: services provided
to patients (case managers, call center, nurses, doctors).
Spectrum of patients: today DM
services can only be delivered economically to the top 5-10% most
Primary customer: financially
at-risk health plans.
Economics: avoid short-term health
care costs on behalf of the health plan.
Timeline: short-term cost savings
(1 year). DM programs have been developed primarily around
diseases offering quick clinical and financial payback, e.g.,
congestive heart failure, asthma, COPD, and diabetes.
2) Expanded DM Model Under Defined
Principal Care Coordinator: the
most significant impact of DC is that the patient will be
repositioned as the principal care manager.
Delivery model: information,
Spectrum of patients: any patients
with chronic conditions.
Primary customer: the patient.
Economics: avoid long-term health
care costs on behalf of the patient.
Timeline: short-term and
Again, it's important to emphasize
that the expanded approach will not replace, but rather SUPPLEMENT
current DM approaches.
One last point. DC has been touted
primarily for the benefits it will provide for the healthiest
people. To date, little attention has been paid to implications for
people with chronic diseases.
In the short term, DC has the
potential to create bewildering choices, confusion, and gaps in care
for people who have chronic conditions. Patients will need to be
equipped with information, tools, and access to become their own
care managers....and this will not happen overnight.
In the long run, however, we anticipate that many resources will be
developed to assist people with health care information, treatment
options, tools, and access.
Patients will be incentivized and
rewarded for actions such as:
knowing and understanding their
health care risks
reducing their risks
requesting data about quality and
price from providers
using data to understand their
Let's continue watching as DC begins
Best Analysis of DC's impact on
USBancorp Piper Jaffray
Defined Contribution Defined: Health Insurance for the Next Century
Best explanation of the DC concept
Real Consumer Revolution in Healthcare: Defined-Contribution Health
Best compilation of resource articles relating to DC
Managed Care On Line
The Top Eight
Reasons Why Employment-Based Health Insurance Is In Trouble
Care's New Electronic Marketplace
YOUR OPINIONS ARE
WANTED. HEALTHCARE ASP SURVEY!
HealthCIO and Survey.com are
conducting a first-of-its-kind survey regarding health care
application service providers (ASPs).
What do you think about using an ASP
in health care? Please take a
brief survey about
ASPs will allow you to outsource and
host particular healthcare applications at the vendor's site, such
as discharge planning, electronic patient records, claims
processing, care management, purchasing and supply-chain, etc. Most
of these applications will be available on a subscription basis and
accessible via a Web browser.
Respondents will receive a
complimentary executive summary of the final report.
WHAT DO PEOPLE
THINK ABOUT DEFINED CONTRIBUTION HEALTH BENEFITS?
Depends on who's asking and what they
The consulting and accounting firm
KPMG surveyed 14,626 employees and 103 senior executives from
Fortune 500 companies. Most favored a health insurance system in
which employees would make a defined contribution and purchase their
own coverage along with funds provided by their employers.
Among employees, 73% expressed
interest in a defined contribution system.
Among senior executives, 46%
indicated that they would be receptive to a defined contribution
Another survey sponsored by the
Commonwealth Fund found general satisfaction with employer sponsored
health insurance. "Listening
to Workers: Findings from the Commonwealth Fund 1999 National Survey
of Workers' Health Insurance" (January 2000)
A significant majority (67%)
wanted some form of group coverage, either through employers or
A significant majority of those
insured through employer plans (73%) believed that employers
generally do a "good job" of selecting quality health plans.
Only 12% said employers do a "bad
job" of choosing quality health plans, and 8% gave employers a
Yet another study was conducted by
Democratic Leadership Council. It found that Americans would
prefer a health care system that gave them, rather than their
employer or the government, the primary role in selecting a health
care plan. Nearly two-thirds (64%), including a majority of
Republicans, Democrats, and Independents, said they are better able
to select their health plans than their employer, and only about a
quarter (27%) said employers are better able to find the best
1999 DRUG TREND
Express-Scripts, a pharmacy benefit
management company, has recently published its 1999 Drug Trend
report. The bottom line:
Per member per year(PMPY) Average
Wholesale Price (AWP)prescription expenditures grew at a significant
rate in 1999 -- 17.4%. This annual growth rate surpassed the
1997-1998 rate of 16.8%, continuing a trend of increasing rates of
drug outlays seen since 1993....PMPY drug costs are projected to
grow at an even higher rate to 17.6% in 2000, before gradually
slowing to an annual 12.1% growth rate in 2004.
134 pages of additional details are
available in the
TAPPING THE NET TO
PICK YOUR NEXT DOC: THE SEQUEL
Doctor referral and rating services
are springing up all over the
article by Gomez Advisors rates the quality of four new
services: DoctorQuality, Healthgrades, MedAvenue, and BestDoctors.
TOP 10 E-HEALTH
First Consulting Group has written an
insightful report listing their
Top 10 E-Health Trends
1. Online health content, as a standalone business model, is
starving to death.
2. The connectivity and transaction
vendor market space is consolidating rapidly -- yet the promise of
delivering bundled solutions and a sustainable business model
3. eTransformation of healthcare has
not yet taken hold among providers or payers.
4. The eTransformation of supply
chain management for providers and RACER (referral, authorization,
claims, eligibility and reporting) management for payers will set
the stage for the eTransformation of the care chain tomorrow.
5. Provider-based medical records
will become the remnants of the episodic and fragmented healthcare
and legal systems.
6. The battle over the physician
desktop will expand to the battle over the physician handheld.
7. "Hypermediation" (as opposed to
disintermediation) will create the need for value-driven
8. Demanding connectivity and
communication with their providers of care and payers, consumers
will begin to vote with their feet.
9. Consumers will finally trust
online healthcare companies when the Dalai Lama becomes the Master
of the Internet in 2077.
10. The devolution of
employer-purchased health insurance will be a major stimulus for the
eruption of consumerism and emergence of 1-to-1 marketing in
E-CareManagement News is an
e-newsletter that tracks a major change in health care and managed
care—the paradigm shift from “managing cost” to “managing care”.
This e-newsletter is brought to you by Better Health Technologies,
LLC (http://www.bhtinfo.com). BHT provides consulting and
business development services relating to disease management, demand
management, and patient health information technologies.
You may copy, reprint or forward this newsletter to friends,
colleagues or customers, as long as the use is not for resale or
profit and the following copyright notice is included intact.
Copyright © 2000, Better Health Technologies, LLC. All rights