POLICY: Grace-Marie Turner podcast transcript.

I know a lot of people don't like podcasts and the one I did with Grace Marie Turner from Galen back in April was both fascinating and recorded in a painful way to listen to. So now I’ve found CastingWords who do excellent transcripts for relatively little money, I’ve had this one transcribed. My original comments and the podcast are here. Read enjoy and comment away

Matthew: So I'm talking with Grace-Marie Turner. Grace-Marie is the president of the Galen Institute, which is a think-tank based in the Washington, D.C. area which has been very vocal on the consumer directed healthcare and HSA side. She is also taking part in a consumer directed healthcare conference coming up in San Francisco, and as part of that, I thought it would be fun to interview her. So Grace, welcome to our THCB podcast. How are you today?

Grace-Marie: Thank you. I'm fine. Delightful to be with you.

Matthew: OK, so let me start off. As you know, people of different political persuasions are reading a lot of different things into the early data that's coming back from the consumer directed health plans, HSA, HRA, high deductible health plan movement that's going on. And there are people with different political persuasions looking at the same data in different ways. So I don't want to get too much into the mire of that, but I'm interested in the philosophy behind why you think that a consumer directed high deductible health plan is a good thing for the nation as a whole. So I'd like to get your take on that, and then I have some questions around how this thing how it works in theory rather than practice. So in general, why are you a supporter of this movement?

Grace-Marie: All right. First of all I'm not sure that it's the right thing for the country as a whole, but I think that there are millions of people out there who are truly shut out of the health insurance market that find health savings accounts an attractive alternative......

Grace-Marie:......Something that allows them to afford health insurance with higher deductible health insurance policies that have lower premiums and basically have health insurance rather than being uninsured. So that's one of the things that the early data is pretty predictably showing us that between 30 and 40% of the people who are signing up for health savings accounts were previously uninsured. That includes individuals. That includes small businesses. That were either ready to drop out of the market or dropping out or had dropped out already, and said, "Well gee maybe I can really afford this higher deductible policy, and make sure I am protected, my family is protected, in case something does happen that would cause us to have really impossibly high medical bills." Which in most instances is the first step you take into a hospital emergency room.

The difference really between buying a home owners insurance policy that covers you against floods or fire or the roof blowing off your house, as opposed to buying a home owners insurance policy that pays to have your front door painted. Most people know that would be a prohibitively expensive homeowner’s insurance policy, so they opt for the policy that pays for the things that they could not otherwise afford to pay for and then they do the routine maintenance things themselves. And that's really what health savings accounts do. However, they also allow people to have preventative maintenance as part of their health insurance contract. So if they need a colonoscopy or a mammogram or even prescription drugs to help them ward off high cholesterol or high blood pressure, that could also be part of the insurance contract. So there are a lot of people who find that is an attractive alternative to traditional health insurance, that basically for millions of people it is just unaffordable.

Matthew: OK, to a certain extent I think that you could, I'd argue that's not exactly how they're being sold. And I think that to lay my position on the table, I think overall the healthcare insurance market is, well from your research I think you'd agree with me, is in pretty disastrous shape. We may disagree about the reasons for that. We may disagree about the solutions to it, but I think that there's a fair agreement that it's an inefficient marketplace at the moment, especially on the individual side and as we also know in the group market which is primarily an employer-based market. Employers are getting out of offering insurance anyway. 

Grace-Marie: Well yes there is declining insurance, but it's actually the small groups that have a bigger problem than individuals. The individual market is a lot more robust than we tend to think sort of in this mythology about the healthcare system. There are online brokerages. People buy health insurance directly through eHealthInsurance and other online. Very affordable policies

Matthew: Oh of course and I'm not debating that there are that you can't buy it online. I'm a classic example of that myself. I've just bought an online insurance policy over eHealthInsurance, and somehow or other this year I managed to get under the underwriting barrier which had previously throwing me out. And my insurance policy was less than a fifth of the price I was quoted in previous years from basically the same company. I'm a perfect testament.

But here's the problem with that, this year I got under the underwriting barrier because I didn't think I was going to be sick. A couple of years ago, I wasn't, and there's a huge amount of underwriting in the individual market. So I basically just disagree with you about the fact that the individual market is robust and useful, because it's only useful to people who aren't sick. But that to my mind is where we are, and I think that you could argue that the reason that people try to get into group policies of various kinds such as joining associations or whatever else is because that means they can merge their health experience with other people. And so only sick people want to join that.

Grace-Marie: You really, the important thing is that you can have a policy that you own and that you can keep for five or ten years, and that policy, your relationship with that company. They are contractually obligated to pay for your healthcare costs if you get sick in any one-year and wind up with 50 or 60,000 dollars or more of health insurance bills. Just like your homeowners insurance may not hear from you for ten years and then you have a claim, and they can't say, "Well, we're sorry we don't want to cover you because now you're an expensive client and before you weren't costing us anything." You have a contract with that insurance company. That's where we can move with the system of individual ownership of health insurance affordability and HSAs really help enable that.

Matthew: Well, I mean, again I'd agree with you that once you're in the system that is correctly how it's supposed to work. Although this week we do have the news that a certain large health insurance company has been canceling policies, and there is a lot going on that I think you could argue back and forth over. But I don't want to get so much into the specifics of whether or how individual insurance companies underwrite and all the rest of it. I'm kind of more interested in the comment which I starting with, which I was hoping that you were going to take up, which is "What's the solution for the overall market?"

I'm inclined to agree with you that although it's not that the overall solution I think for the whole healthcare system that at the margin you're better off having a high deductible health plan than having nothing. They've been around for a long while. I mean the HSA makes them more attractive to people in the higher tax bracket, but the policies themselves have been around for some time. They're fairly cheap. They're being promoted a bit more. I'd argue that the way they're being promoted now is incenting employers to get out, particularly large employers with high income populations who can afford it, incenting them to get out of first line coverage and moving them towards cost sharing with their employees—which if you look at Intel that's clearly what's happening.

But, you know, this is all stuff at the margin of the system that has many problems. Can we talk perhaps about the overall concept of having people having a population buying a high deductible policy or if you like having a population in which you are a significant amount of the healthcare costs into a private, self directed account? Is that something that you think should happen more widely?

Grace-Marie: Well, I just want people to have this as an option. And I really think everybody needs to make their own decisions for themselves and for their families about whether or not this works for them. But I do think it's important when you look at our overall healthcare system which has of course got lots of different compartments from Medicare, and Medicaid, and the state children's health insurance plan, and individual insurance, and employment based health insurance, and we need to look at those with people in their particular circumstances and see would it make more sense to you to have a higher deductible policy so that you can keep your health insurance. We have 45 million people who are shut out of the health system at any one time. Some of them are flowing through because they are moving from one job to the next and they are in a period of several months without coverage. But basically health savings accounts can give these people an option to have health insurance that they otherwise might not be able to afford. So it's not so much the account as it is the high deductible health insurance that must accompany the account that I think is beneficial for society.

Matthew: Wait. Wait. Let me stop you there for a second. The argument you will get, and I can take you through it, and I've been looking for somebody to answer this for me for a long time, is the issue about beneficial to society. I clearly understand how, if you couldn't afford it before and you can now buy a cheaper insurance policy, that's a great thing. I also understand that if you are able to put aside money in an account and you don't spend it because you're basically healthy or you don't spend much of it and you get to roll it over for the next year or you get to keep it, that's also a great thing. But the core principle behind insurance and for that matter behind healthcare is the issue that many people on your side of the political spectrum have acknowledged but don't seem to have answered which is the issue that 80% of the costs go to 20% of the people. In fact, it's more like 90% of the costs go to 20% of the people, and that therefore everyone else needs to pay into the pool to fund those folks.

If you take money out of the pool and say to the healthy people, "You don't have to put in 40%, 50%, or 60% quote-unquote of the premium or of the amount you're putting into the pool, " there's not enough money left in the pool at the end of the day to care for the cost of the sick and so somebody else has to make up that difference. That's the theoretical underpinning that you know there's a mathematical problem that no one seems to have answered successfully in my view.

Grace-Marie: The issue really is people can afford the health insurance contract. Let's talk about traditional insurance with a $250 deductible and everything is covered after that at an 80/20 rate. That the person who has chronic illnesses is pretty quickly going to wind up being part of the insurance contract, and that's going to be true whether they have a $250 deductible or a $2,500 deductible. But for the great majority, those 80% of people who aren't going to have high health costs, what you're doing is saving them and the whole system from running all those little bills through the health insurance system and through the third party payment system and having doctors have to hire batteries of clerks and having insurance companies having to process all this paperwork and you and I having to deal with all these forms. Just get rid of that. Let's deal with health insurance as a major risk issue kind of thing.

I mean when you put more people in that pool, the people who are sick are going to be better protected. You've got people in that pool who are saying, "I'm going there. I'm not going to buy health insurance." Let's say you get 10 million, 20 million more people buying health insurance who were not buying it before, and they're helping to subsidize the people who are going to have higher health costs. That has a way of spreading the risk that they might be the next one.

Matthew: Well, there are a couple of pieces to unpack here and I think you have philosophically totally lost me on the last part. I'm with you on the issue that yes it's incredibly complicated. The way we currently buy health insurance is incredibly complicated. Sorry, the way we buy physician care and low-dollar care is incredibly complicated and has a lot of waste.

Grace-Marie: And unnecessary.

Matthew: And unnecessary waste, no question. I honestly think that's going to change much because the typical HSA HDHP product is being sold by a large insurer, which is still within its PPO-negotiated network. I think that it's a physician fantasy that they're going to end up directly billing the employee, sorry their patients, with a price list, but maybe it'll work out. But take that to the side for the moment. I mean let's take a really basic mathematical example. Let's say you've got I don't know 100 households spending $10,000 each on medical care, just roughly.

Grace-Marie: Those are pretty realistic numbers.

Matthew: Yeah. And you have a million dollars being spent on the care of those households. If you forget premiums and other contributions to that pool, a million dollars is being spent and the typical insurance, let's say everyone was just buying premiums and had full first dollar coverage a million dollars and let's say every family put in $10,000 just in the sort of fantasy world that would be the premium. That's kind of the old world that we were taught was going to happen.

Now I'm not denying and let's take out there are all kind of problems and there are all kinds of issues around medical authorizations and all the rest of it, but let's just say that's the case. We know that 800,000 of those dollars are going on 20 of those families, 20 of those households. If you say, instead of each family putting in $10,000 into a risk pool, but each family takes out say $5,000. What is the family HSA rate? It's about $5, 000 you can put in an HSA now, and it has a high deductible policy. So the family does that instead. You now have half a million dollars, 250,000 of which is not being spent on care, because the average person in the healthy household, the average household, is only spending about two and a half thousand dollars on its care whereas the the sick household is spending $40,000.

So when you get to the end of the year, you'll find that the people in the sick households have blown through their $5,000 account and you've got to spend another $35,000 on each of them. You've got to find $700,000 to cover their care, and you've only got $500,000 in your original pool. To my mind you have to look and see where that number is coming from.

Grace-Marie: There are people spending $40,000 every year. Those numbers of 20%, 80%. A lot of that is coming from people who are very sick. They're the elderly. There's Medicare, and there are very sick people who...

Matthew: And I'm not denying that, I'm talking purely theoretically.

Grace-Marie: ...a support system to support that. But what you would find in the general marketplace is that there may be five families that have residual every year expenses. And those are the ones you want to keep in the private insurance pool so that you can really have insurance be insurance.

Matthew: But if they are the only people who stay left in the private insurance pool, where does the money for the pool come from to cover them?

Grace-Marie: It comes from people who... The problem with your charging $10,000 a year to people who aren't using the system very much is what we're seeing right now is people saying, "I can't afford this. I'm getting out." And you don't wind up with $5,000. You wind up with zero with a lot of people saying, "I am going to take my chances, that if something happens to me and I have to go to the emergency room that Medicaid will pick it up or it'll be on the hospital will have to take the cost and eat it, because I can't afford to pay."

So what you wind up with is fewer and fewer people participating in the insurance pool because their premiums are so high, and it actually makes it harder for the people who have chronic illnesses and who need insurance to have other people in the pool who are willing to pay in every year on the chance that something might happen that they need insurance.

So I actually say that the higher deductible policies that are less expensive are more likely to keep more of their family in the insurance pool than charging them $10,000 every year for insurance that they don't use. And that's actually, because people spend $10,000, $12,000 a year for insurance, that's why they say, "Well, I want to make sure that every single thing that I use in the healthcare system is covered by my insurance because I'm paying so much."

And what we find with people with consumer driven plans is they become better accustomed to looking for value instead of calling, they're getting their child wrapped up in the night because he's got a sore throat and they're worried it might be something more serious. They take him to the emergency room because the insurance will pay.

If it's coming out of their account, they say, "Maybe I should start with the nurse hotline first, see if there's something that requires me to go to the insurance company, or maybe she could just call in a prescription to the 24 hour pharmacy and I'll be OK." The health system then saves $1,000 it would otherwise have spent on somebody who could be making better use the system.

Matthew: Well, I mean you could argue and you go back and forth on this and it goes all the way back to the Rand health insurance experiment as to whether or not you get rid of inappropriate care or you get rid of appropriate care or whether or not.

Grace-Marie: Well, Rand pretty much showed that spending more on healthcare and going to the doctor more often does not, over their five year period seem to have an impact on costs.

Matthew: Now that and I mean if you want to be a real health economist doctors actually cost money and we should get rid of them all. But we're probably not going to do that. But that's definitively true, that if you add surgeons to an area you increase the rate of operations and if you reduce the number of physicians overall health costs stay the same. But that not a practical argument. That's not what we're talking about here. What we're talking about is, what are going to do to that overall risk pool? And it seems to me, you seem to be arguing that well let's take another example. Let's say all the 45 million uninsured, all those families, ended up buying a high deductible health plan. How are they? I still don't understand how we're going to cover care for the people who are really sick in that group in any one-year.

Grace-Marie: Because you've got, instead of having your 100 people or families in the pool, you've got 120 families paying. They're going to be paying less because their premiums are going to be lower because they've got the higher deductible insurance. You've got more people in the pools.

Matthew: Let's say that we've got 120 families in my example who are paying $5,000 each into the pool. So we've now added another $100,000 into our pool. We still are running short $200,000 because of the sick people we had, and we're adding probably we're adding two more families who are going to cost another $80,000. I mean the only way to do this.

Grace-Marie: But those numbers are not going to hold up over time. The insurance company will...the thing they are good at is pricing the policy that makes sure that they will be able to cover the costs based upon the premium they are charging everybody in that pool. You will have the premiums priced at a rate that will cover the costs of those high-risk people.

Matthew: And the way they do that is to exclude those people. Sorry too cynical. Say that again. The last part.

Grace-Marie: The more people you have in the pool, the lower the premiums can be. But that is not an arbitrary number. It's a number that is determined by the insurance company's actuarial estimates of the usage of that pool of healthcare costs. And they will price it according to the expected usage of healthcare. And the individual families will make their own decisions about, just as they are now, can I afford those premiums for this protection and is it really worth it for me?

Matthew: You still, I think what you're arguing is that because I'm now responsible for my health services account for the first chunk out of pocket, I'm going to use substantially less care overall as a household.

Grace-Marie: Some people are more likely to ask for generics.

Matthew: No, no. We don't have to go through that data.

Grace-Marie: They are more likely to question the doctor. Do I really need this MRI? Are you doing this because you want to protect yourself or is it because I need it? When you find people being more informed consumers about the things over which they have control.

Matthew: But the problem is they don't have control over the vast majority of healthcare spending because it's past it's beyond their deductible. And most of the money in the pool is required for the people who are beyond the deductible. It's being spent on the people who are costing $40,000 each, not the people who are costing $2,500 each.

Grace-Marie: But they don't cost $40,000 each every year. They may have one year in which they have, someone in the family has cancer, and then the next year their costs are $20,000 and then the next year they may be $5,000. So you don't have consistently the same people every year using $40,000 worth of coverage.

Matthew: In that case, why do insurance companies underwrite people?

Grace-Marie: There are government programs that are subsidized by the taxpayers, because we know they basically aren't insurable. What we want to do is have insurance for the people who are insurable and make that market work so people have the freedom to purchase the policy and make the financial arrangements that work best for them and structure their healthcare financing.

Matthew: All right. So you're contention is that the, and just so I understand this, your contention is that because over time the burden of disease if you like or sickness or costs will rotate amongst the members of the pool that go from year to year, that in fact everyone will be better off in a high deductible pool because they'll be paying in each year and although their out-of-pocket costs in the one year when they are sick will be high they'll be lower in future years. And that their overall costs will be low. I mean I think that is what you're saying.

Grace-Marie: What I'm saying is it's better to have more people rather than fewer people in the insurance pool. What you wind up having when you wind up with a death spiral in health insurance is that it's got such a small pool of only sick people that the premiums get higher and higher and people drop out. What I want is a broad base of people participating in the health insurance market, and the only way you're going to get that, whether it's individuals purchasing health insurance on their own or companies buying it for their employees, is to have those premiums be reasonably priced and affordable. And I'm saying that I think the best way to get there is to have a higher deductible policy that is real insurance that is available to the vast majority of people who want to buy health insurance and who need it and not run every little small bill through the insurance company to the point that it gets so prohibitively expensive that people and companies drop it. I think that is bad for people and it's bad for society. They are so expensive that people, a consumer, can't afford it unless they are sick or chronically ill. That's not the kind of vision I see for costs of the future of our health insurance system.

Matthew: But it's expensive because of the expensive people, not because of the little things that are being run through it.

Grace-Marie: It's expensive because... There's a new study out by America's Health Insurance Plans a product done by Price Waterhouse. And it looked at where the cost increases for health insurance are coming from. Some of it is just general inflation. A lot of it is utilization, and a lot of it is defensive medicine by doctors that are prescribing tests and prescribing drugs and prescribing treatments that they're doing to protect themselves. And there is no check on that for consumers to say, "Do I really need this?"

And unless we begin to delve into some better constructs to help people be more active in their care. One of the things we see with high cost patients like those folks with diabetes is if you engage them through consumer directed healthcare programs by getting them better educated, giving them incentives to go to the doctor, making sure they are taking their medicines and making that as part of an active consumer directed product, that you can cut costs for diabetics. So it's not just that you are saying forever that high cost patients will always be high cost patients. Let's engage ourselves in making sure they are also partners in managing not only their health but their healthcare costs.

Matthew: And you are right to say that, but you can do that many other ways. The Disease Management Program that has been run inside of the Kaiser system or been run within the VA have been very effective at reducing costs. And you know you'll get no argument from me that consumers and patients should be more involved in their healthcare and all the rest of it.

Grace-Marie: You can't say there is nothing to be gained.

Matthew: No of course not. But that's got nothing to do with how you finance the actual care.

Grace-Marie: Oh, sure it does. People are just saying, "I don't care how much I'm spending on healthcare. Somebody else is paying for it." If you're saying, "Gee, I've got a stake in this."

Matthew: But that's already the case in Kaiser and the VA. Somebody else is already paying for it, and they've shown huge savings and huge quality improvements. How do they manage to do that?

Grace-Marie: And they also have a population of people who have chosen those policies. Both Kaiser and the HMOs have chosen those policies because that fits well with their philosophy. They're much more likely to be compliant with the recommendations, much more likely to accepting of some of the restrictions the HMOs and the VA place on people. But that's not going to work for everybody, and what we need to do is engage people more actively in managing both their healthcare and their healthcare finances. And McKinsey, as I was about to say, did a study recently, and it solved that people with consumer directed healthcare plans were more likely to engage in prevention, to become more aware more active participants in making decisions about their healthcare. And they asked them, "Why is that?" And they said, "Because if I take better care of myself, I'll save money in the long-run."

Matthew: Well, there's also, I mean, Grace, we could argue back and forth about these studies. The Price Waterhouse study also said the main cause of increased costs was technology, which has been clearly the case.

Grace-Marie: That was one of the contributors.

Matthew: Yeah. But that's been the case, if you look at studies done across national comparisons, Anderson's study in Health Affairs show that actually utilization it stated wasn't the prime change in healthcare costs, it was more the pricing.

Grace-Marie: There was Mark McClellan and Medicare.

Matthew: And Mark McClellan's study of defensive medicine was responsible for maybe 8%, if you were very generous with the way you counted it, of all healthcare costs and overall costs are going up at 10% a year. It all comes down to the point that if you've got a group of high cost people I just simply do not see if you say that we're going to sell low premium insurance plans to healthy people that there will be enough money left in that pool. And you may get more people buying into it but the only way it's been done successfully by the insurance company selling this is to underwrite out the people that you think are going to be sick. Because according to your logic, there should be no underwriting.

Grace-Marie: There are 45 million people who are not participating in the health insurance market.

Matthew: I know.

Grace-Marie: How can it not be helpful to get them to purchase health insurance at a more affordable premium?

Matthew: I'll tell you why. Because the...

Grace-Marie: It's a broader base for health insurance. That's the premium.

Matthew: The problem is the way the HDHPs are being sold with HSAs at the moment is more as you said. OK so if you believe the numbers that what is it 40% of the people buying these products are uninsured, that give you 60% who are leaving the insurance pool from the employer side. Who basically...

Grace-Marie: No, that's not necessarily true.

Matthew: Well, where are they coming from?

Grace-Marie: You said 40% previously uninsured?

Matthew: I think that's the number you quoted.

Grace-Marie: Yes, so that means 60% are moving from some other kind of insurance to high deductible policies.

Matthew: Which is almost certainly coming from employer based insurance, which as you said has been falling off. So you're seeing less money being provided by employers into the pool and less money by the individuals in the pool. So overall, it's reducing the amount of money going into the pool. So how does that help the system?

Grace-Marie: It's a matter of are you sending that whole $10,000 of to the insurance company, or are you putting $5,000 into an account which is $5,000 into insurance and $5,000 into the account, and it still comes out even for the company. Then that one person may have expenses in one year of only $2,000 so they have $3,000 to roll over to the next year. Next year they have $8,000 in the account. So individuals instead of sending al that money every year off to the insurance company, individuals start building their own accounts.

Matthew: Look, you don't have to tell me. I understand the rhetoric about building money over time and all the rest of it.

Grace-Marie: It's really just the numbers.

Matthew: Look for the employers it's great because you've now got out of half the cost. You're telling the employers to put their money in. If you look at it, and that's why Intel dumped their first dollar coverage. They said, "If you're going to join, you're either going to pay for your premiums for the expensive full-benefit health program, or we'll give you a $4,000 deductible which we'll cover premiums for the cheap part." And I understand how that's working out. I mean I'm a realist about the way the market's working out, and what employers are likely to do. What I'm arguing is that you're just as likely, you're hurting the pool by the new people who are contributing to the high-deductible plans as you are helping it by getting some money into the pool from those that are uninsured.

Grace-Marie: More money in the pool. That's got to be helpful. People putting money in the pool who aren't using health services and are willing to make that trade-off because they're saying, "The premiums are lower. I can afford this. There is the risk that I get hit by a truck or someone in my family gets cancer, and I want to make sure I get insurance coverage if that happens." They're much more likely to pay that premium if it's lower than if it's higher and they say, "I just can't afford this high cost health insurance, especially when I don't ever use the healthcare system.".

Matthew: So this is only good if we're only attracting healthy people into the pool. What about uninsured people who are not healthy?

Grace-Marie: What I'm saying is, I think there is a huge potential pool of healthy people. 45 million uninsured. Many at home could purchase health insurance, not only with the some of the subsidies that Congress and the White House are considering, but also if the health insurance were more affordable. We are shutting out tens of millions of people from buying health insurance by saying, "You can only have traditional policies with a $250 deductible and $10 out-of-pocket copay, and by the way it's going to cost you $1,000 a month." A lot of people can't afford that.

Matthew: But there are two things going on. One is that high deductible policies have been around for a very long time, and we've had the uninsured for a very long time.

Grace-Marie: Not really.

Matthew: I had one in 1998.

Grace-Marie: Just a few individuals and some farmers had high deductible policies, but it's a new thing for American businesses.

Matthew: It's a new thing for employed people. I'll give you that.

Grace-Marie: Yes.

Matthew: And you could go back and forth, but the chances of, we know the majority of the 45 million uninsured are workers in low wage businesses who aren't likely to be offered insurance. You might argue that giving a tax credit of two grand a year each or five grand a year per household, they may be able to purchase these policies. That would be great. The other problem though, if you add them all into the system, and they're only putting in say you add 45 million into the system. Twenty-percent of them in any one year are going to cost 80% of the dollars and we're only catching as you said maybe half, maybe less than that in the premiums.

Grace-Marie: And I said what we need to do is figure out a better way to not just throw money at people who are sick but do a better job of engaging them in managing their own care.

Matthew: No one's arguing with you about that. But we also know that most of that money is not spent at the choice and discretion just of consumers. It's also spent at the choice and discretion of the providers and the doctors and hospitals who make most decisions about very sick people, and that's true across any insurance pool. If you ask me there are plenty of things we can do in that area, but that's not really a part of this discussion.

Grace-Marie: When you have a third party payment system that's based upon paying doctors for doing things to people you wind up with a system for example that will pay for a diabetic to have a $300 or $400 dialysis treatment or. God forbid, a $10,000 amputation, but they will not pay $75 for nutrition counseling and exercise counseling. So you wind up with a system that is totally oriented towards paying medical professionals for procedures rather than reinforcing these people to do a better job of being participants in their care. That's really where I think consumer directed healthcare, of which HSAs are one example, involve people in "How can we partner together in doing a better job of managing healthcare and healthcare costs?"

Matthew: I can't argue about that.

Grace-Marie: How can they care for yourself if you're not taking good care of yourself?

Matthew: I can't argue with you about that because that's the core behind disease management. That's also the core behind capitation, which was created essentially as a way to get physicians and medical groups to absorb the risk as an incentive to get people to use cheaper care, and as you said the loss of restrictions and things that didn't go well with HMOs because of that. There was also no regulation to stop people from shirking the market against it. But I haven't seen anywhere a high deductible plan that is talking about reducing fee-for-service which is really the basic incentive for physicians to do more, not get it right the first time, not involve people in their care and you end up being paid on procedures rather than being paid on the...

Grace-Marie: Once consumers start to ask questions, I think that will be the next step. A consumer asking a hospital, "How much would you charge for the gall bladder surgery? And I want to know the price for the whole procedure." This idea of package pricing comes. Consumers are going to start shopping, and they're going to want to look online and find out quality and outcomes.

Matthew: But we have that.

Grace-Marie: You'll see a real transformation.

Matthew: And this is an argument between people from the Enthoven  school, which I am in, and people from the Porter school. To my mind there is a place we do that, which is a package price for how much it is for you to take care of me as a diabetic, as a healthy person, whatever it is. And that there is a number there, which is if you like the "capitated" premium number, per member, per month, or whatever. And you can argue back and forth. Of course they're opaque. Of course there is multilevel pricing. Of course there's a whole bunch of cross-subsidy in which may or may not be a good thing, and there's no transparency. No one's arguing that the way it's happening is a good thing. But if you're going to focus on the individual getting clearer pricing of piecemeal activity, when what we need is better care of a population of certain people over the course of that population, that's the wrong thing to look at.

Grace-Marie: There are people saying, "How much is this going to cost, and am I getting good value for this dollar? Are you the best person to do this? I've heard that there are other people doing this procedure in a different way." And people are going to start using health advisors. A whole new phenomenon I think is going to evolve in the marketplace. And they are going to become smarter users of the healthcare system rather than passive participants in a paternalistic system treating that's people like cows. They are going to become engaged.

Matthew: But this new bit that you're talking about is not coming from the fact that people are paying in a different way. That's coming from a larger wider consumer movement that's been building up for the last 15 years.

Grace-Marie: But if people don't have control over the finances, they can't act on that information.

Matthew: But at the moment they don't have any incentive.

Grace-Marie: They will have more discretion and more control over how they use the healthcare system. And the only way they can do that is being able to say, "I can direct my resources to a different place because I have done the research and this is where I want to go for gall bladder surgery." Rather than be told by their health plan or by their employer this is where you have to go.

Matthew: Well, again, you can argue that. It seems to me that that's the wrong unit of analysis, but you know you can argue that back and forth. Because in the end it doesn't matter if you shave off let's say the cost for, let's say you're diabetic and no one cares about you, you haven't been to the program which has looked after your care and you need your leg amputated. Yeah, you may be able to go out and bid out the amputation, but you'd be better off if you paid a fee over years.

Grace-Marie: That is totally the wrong end of the equation. What you want to do is have a guy who will say, " I know I'm diabetic."

Matthew: So they want to choose the best program.

Grace-Marie: They have an incentive to do the very best job and help me manage my medications, understand my blood sugar, and make sure I'm on a treatment regimen so I never have to go to the hospital for an amputation.

Matthew: And I agree. I think what you're saying is that's a provider based level and in our procedural based provider system, the only way I see you can do that is if you are to fund that entity, that Diabetes Center, on an annual basis or monthly basis for the care of that diabetic.

Grace-Marie: That's what's happening. In fact, the Medicare Modernization Act actually is providing a new way of having doctors define how they are going to do a better job of coordinating care for patients with one or more chronic diseases. And they will be paid based upon their success and how they do at making sure those people stay healthier, and they have a big incentive to engage the patient as well in being a participant in doing a better job. I mean, they can't be standing over their patient every single eon making sure they're eating right. They have to find new ways to engage participants in their own healthcare.

Matthew: But of course. But this is being done primarily by innovative provider based quote unquote managed care organizations. And they're the people, you can look at Intermountain, you can look at Kaiser, you look at the groups who are funding Medicare. That thing keeps on changing its name. The CCIP it used to be called. It's now called Medicare Health Support, I think the program you just mentioned. I think this is a great thing, and I'm completely in favor of it and you seem to be a great advocate for managed care which somewhat surprised me at the beginning. It's cool, but I mean I'm still confused as to how these different things are predicated on having high deductible policies. It strikes me that the financing doesn't work.

Grace-Marie: I just want kind of the whole constellation of things involved in consumer-based healthcare. And the bottom line for me is allowing consumers to be able to be participants in making decisions about their healthcare, be actively engaged, find new incentives to do that. If I want millions more people to be able to have health insurance, and if we can get that insurance to them by making premiums more affordable that's great. But I also want people to have more of an incentive to see the cost consequences of their behavior. And if they will stop smoking and lower their blood pressure they may see that they not only feel better but the healthcare system will benefit as well from engaging consumers as the managers of their own care and their healthcare dollars.

And whatever the financing question is, let's figure out some way to get them. For some it's the high deductible policy. For others it's a much more actively engaged better chronic care management program. For others it may be a health savings account. But there is a whole mosaic of things in getting any consumer to be a more active participant in making good decisions about their healthcare instead of feeling that they are cogs in a system in which they have no control, no authority, and no responsibility. In a system that that is cost-based, we have people wanting to participate, wanting to take better care of themselves, wanting to purchase health insurance and being unable to do that because it's not affordable. High deductible policies are great. If you can find some other way to do it, fine. But that's my goal.

Matthew: I understand completely, and you're going to get no arguments from me about the beauties of having people more involved. And there will be arguments from me about how much impact people can actually have in impacting their overall health costs, especially the more expensive people, but you know you can go back and forth on that. Clearly, there are a lot of things we can do both with patients and with providers to improve adherence to practice guidelines and all the rest of that. Let's talk about a couple of other things. One is the issue of underwriting. If we end up in a system, which seems to be where we are going to, with far more individuals unable to being pushed one way or another into the individual market, which in most states is heavily underwritten.

Grace-Marie: Why do you say that? I think there are a lot of public policy changes out there that will allow people to be a part of groups in different ways. Maybe not just the employment groups but perhaps labor unions or professional trade organizations or even church groups. I think that if people pool themselves in different ways other than just through work.

Matthew: Here's the fundamental problem with that, and this is well known in the health care literature. If you allow an association to voluntarily form, and I was just in one by the way, you will attract the people.

Grace-Marie: That's not allowed. They have to be formed for some other reason besides health insurance.

Matthew: Yeah, whatever. For whatever reason there is an association. The people who are buying health insurance for that association are going to be the people who can't get it cheaply in the individual market, which is underwritten.

Grace-Marie: That's not necessarily true.

Matthew: Of course it's true.

Grace-Marie: They may find that they could get more affordable health insurance through a group rather than personally.

Matthew: But they can only do that if they're sick. I was in one of these associations. I paid 200 bucks a month for health insurance which I'm now buying for 100 because I'd been previously quoted 400 in the individual market. I joined an association like that. And then eventually I got well enough, or by the way the association got thrown out of the group it was buying insurance through. But that's a separate problematic issue. And when I got re-underwritten, somehow or other I made it into the healthy group, and my insurance premium was 100 bucks for exactly the same coverage. If I could have bought it for 100 bucks in the individual market, I would have done. I wouldn't have paid 200 bucks to go through the association. So these things automatically have a death spiral and that's been the case with all of them .(NOTE Matthew’s right—the PacAdvantage buying Association went out of business in August 2006–-4 months after this conversation)

Grace-Marie: But that's a very shortsighted view that I think most people don't take with health insurance. One of the problems is that everybody thinks of health insurance as a year-to-year contract. We need to think of health insurance as a five year or ten year contract. You want to be in a pool because if one year you wind up with high health costs then you're protected because you're in a pool with other people who are paying premiums for your health insurance. Over the long run most health insurance, especially the economics of it, is cheaper than individual insurance.

Matthew: But that's not how people buy it. I agree with you completely, and I think we should have one big pool by the way in which the whole country is in. But that's beside the point.

I want to say we've had a wide-ranging discussion. I want to thank Grace-Marie Turner from the Galen Institute for chatting with me this afternoon and we look forward to seeing her in San Francisco.

Grace-Marie: Thank you so much.

Matthew: You take care. Good bye.

Transcription by CastingWords