How the U.S. can lower out-of-control health-insurance premiums

They say in life you can only be certain of two things: death and taxes. But these days you can add rising health-insurance premiums to that list.

Annual health-insurance premiums for the average family are 4.4 percent higher in 2016 compared with last year, now above $16,800. Those increases are hard to take because they advance much faster than the average paycheck. Between 1999 and 2009, the average U.S. salary rose 38 percent, but health-care premiums jumped an incredible 131 percent.

Today, healthcare operates on an outdated business model, focused on boosting the volume of patients and customer satisfaction rather than ensuring better health outcomes. However, a consumer-centric approach, underpinned by an agreement between the individual and a health manager, would radically alter how health systems operate.

Elsewhere, we routinely expect rewards for loyalty or lower prices for certain behaviors. If I bundle Internet access, cable TV and my phone service, I receive a discounted bill for two years. If I don’t crash my car or get ticketed for a moving violation, I expect a driver discount on my auto insurance. But even if Americans are loyal to their insurer, work out regularly at the gym and make healthy lifestyle choices, our health-insurance premiums rise every year.

Healthcare is too procedural, with little focus on improving long-term health. There’s too much of a short-term approach to reimbursement, and consumers have split affiliations between physicians, health plans, employers and hospitals. Medicare’s Shared Savings Program has begun a dialogue about patient-physician loyalty, but we need a conversation about transforming that relationship into one where a health manager becomes a lifelong health coach for patients.

Disruption ahead

In an age where technological disruption is changing business models of everything from taxis to wealth management, it’s not surprising that healthcare has to change, too. That change will only come when health systems make specific commitments to reduce insurance premiums in return for patients promising behaviors that support their health.It’s a generational change where premiums will fall because individuals become active participants in managing their own long-term wellness.

It’s an approach that the Institute for Healthcare Improvement calls the Triple Aim — improving patient experience, improving health and cutting the per-capita cost of care. I believe it can transform our health-care system.

Some worry that cutting premiums might lower the quality of care, but it would actually force innovation, benefiting customers and leading to better clinical outcomes. That innovation is sorely needed. U.S. health-care spending per capita is twice the average of other developed countries, at $8,713 annually, according to Organization for Economic Cooperation and Development data. We spend about 50 percent more than France and about twice that of the United Kingdom. But our money is not well spent, as health outcomes are no better, and life expectancy is actually worse than in other wealthy nations.

That inefficiency has caught Wall Street’s attention. In 2014, private-equity funds poured $29.6 billion into health-care buyout deals globally, up from $16 billion in 2013, according to Bain. These investors will push to increase enterprise values by squeezing out efficiencies and buying up competitors for efficiencies of scale. Typically, private-equity investors like to boost the value of companies over five years and then cash out.

That sets the stage for a period of rapid transformation that will pressure health systems to be more efficient and deliver better patient care, changes that will lead to price guarantees.

The Affordable Care Act has introduced some guarantees, such as covering costs incurred as a result of hospital-acquired conditions. And some health systems have introduced warranties, such as Geisinger Health’s patient-satisfaction and procedure warranty. Greater use of guarantees will require proving the cost benefit to the patient and communicating the system effectively. And more than ever, there’s a pressing need for price transparency so consumers know the actual price of receiving care and, therefore, can make choices accordingly.

Healthier people

Once efficiencies have been wrung from the system, reducing spending on healthcare will require healthier people, placing a burden of individual responsibility on patients. For example, in return for lower premiums, patients will make commitments, perhaps taking a smoking-cessation or weight-management course. A patient might be asked to undergo DNA testing to spot markers for cancers early or to exercise weekly while using a smartphone app that logs performance. For example, Aetna is already paying its staff $25 for each night they get at least seven hours of sleep, as verified by a Fitbit.

Perhaps these kinds of rewards could be extended to the insured, allowing for reduced premiums or deductibles. The aim is encouraging patients to take actions that can maximize their health and are in keeping with their age and health. Successful health systems will build relationships with patients toward the shared goals of cutting costs and improving health outcomes.

All this raises the question: Why aren’t health systems offering guarantees to reduce prices now? The reality is it’s not something they’ve done before. Health systems are so used to passing on rising costs that they never explicitly compete on price. And patients don’t know the true price of health services. Health systems also complain that patients receive treatment elsewhere, meaning it’s hard to take responsibility for the entire health of the patient.

While all that is true, adopting a Triple Aim focus would encourage aggregating patient care under a single health manager who takes responsibility for the health of the entire patient, offering price guarantees in return for promises of certain behaviors.

Healthcare is undergoing a transformation, from vertical integration to cut administrative costs to huge mergers of health systems and application of electronic medical records to eliminate redundancies. All this sets the stage for what promises to be the biggest change of all: health systems working to reduce insurance premiums. If that happens, then the drive for delivering cost efficiency to the consumer will finally begin.