Center for Studying Health System Change

Panel One: Internet Approaches

           We’ll turn to Jon Christianson, who will moderate the first panel.
           DR.CHRISTIANSON: I think we’ll go right into the presentations of the panel members, and, Ray, why don’t you start?
           MR. HERSCHMAN: Sure. Good morning. I appreciate the time today.
           I want to cover five key points: first, HealthSync, what we are. HealthSync is an employer-sponsored electronic marketplace or exchange where employees become consumers and purchase their coverage based on what’s most important to them as an individual. And there are some key words in there. Employer-sponsored, this is clearly a key criteria in meeting with employers. They are not looking to cut and run. Any notion of that is a showstopper, and this is clearly an area which provides a basis for which this system works.
           Two is that consumer-driven is an imperative. The way employers make decisions is based on averages, and it’s very different from how you as an individual would select your own coverage. And so you need to have that transfer of decision making from an employer to the employee.
           Point two. You need some rules. To have an exchange, to have a marketplace, there are rules that have to address two key areas. The first is from the buyer perspective, the buyers being employers and their employees. From the buyer perspective, no individual underwriting. There has to be maintaining of the social contract of insurance, pooling of risk. Employers will not migrate to defined contribution if there’s any risk that any of their employees would get priced out of the market. We’ve developed a rule system that addresses that area.
           From the seller side, you need rules to protect the interest of the sellers, the sellers being carriers and the provider networks. If the sellers do not have assurance that the premiums they receive correspond with the relative risk of individuals that end up buying them in the marketplace, you don’t have a marketplace. These are tough areas to address, and what we’ve done is we’ve addressed these in a very complex but rational basis using actuaries and computer systems to be able to maintain the pooling of risk on the one hand and the distribution of premiums addressing adverse selection risk on the other hand.
            If you have no rules, you don’t have a marketplace. If the rules are too lax, if there is not enough structure that brings down the perceived risk of entering the marketplace to at least where it is today, you won’t have a marketplace. And if the rules are too rigid, you won’t have a marketplace either.
            The rules have to be dynamic, and the rules have to be progressive, and they have to utilize technology and they have to utilize information. The key of the rules is to improve market efficiency. We can talk more about rules as we go on.
            The third point is process. For an employer to even think about moving towards this idea, there has to be a process whereby a very complex decision right now, purchasing health care coverage, is brought down to the level where the average employee--below-average employee can make that decision. It’s critical. This is very complicated. It doesn’t have to be complicated. I think one of the outcomes of a consumer-driven health marketplace would be radical simplification. I’m sure the carriers would welcome it. The consumers would welcome it. You won’t see those changes unless it does become a consumer marketplace.
            We’ve created a process by which there’s the Internet, there’s customer support, a contact center; there’s also humans that will sit down with employees and walk them through the buy process. It doesn’t mean that we will tell anybody what to buy, what’s better, what’s worse, but the process is critical.
            What we’ve done is we’ve looked at other software applications that have taken things very complicated and have simplified them down to the level where an 8th grader could do it. I think we’re aiming for 4th grade level. Right now we’re at 8th grade level.
            The easiest example is Turbo Tax. If we all did taxes in this room ourselves the old-fashioned way with the books, we’d all come up with a different answer. Thirty-eight million Americans use Turbo Tax. Why? They’ve created a process, a structured syntax, and it shows you where you’re at in the process. You could go back and make changes, and you get a result. We followed that same methodology to provide some structure to purchasing health coverage at an individual level.
            Decision support and strategic partners. This change will not happen if our company, these companies here don’t leverage the talents of other organizations that have core competencies in benefits administration, benefits consulting, payroll deduction, all the different technological aspects of bringing about a marketplace. That is a must-have, and we’ve gone about this in a very strategic way, not only from the employer transfer side but also from a consumer side, decision support.
            There are a number of companies--some of them exist now, some of the organizations, NCQA, Quality Compass--there’s a number of organizations out there that exist, there’s a number of new ones that are developing very rich information for informed consumers, which makes an efficient marketplace. We’re going about bringing that information to the table so that people can make that decision.
            And, lastly, the marketplace has to be objective and neutral. To have a marketplace, there can be no real or perceived bias. And so for our organization, the key is to make sure that we do not take money from insurance companies in investment, we don’t tell anybody what they should buy and create bias, but to create a neutral utility, if you will, that creates the marketplace.
            The way it works is an employer would establish what their contribution strategy is. This is an employer’s decision. This is how it works today. At one tier everybody gets the same amount of money; two tier, single plus family; three tier, single, single plus spouse/family. That’s up to the employer what their strategy is.
            The consumer then goes to the marketplace. They go to the Internet or Intranet. They go to the contact center. They sit down with somebody. And they take from the broad marketplace and they query the marketplace what’s most important to them as an individual. Is it Dr. Jones in University Hospital? Is it price? Is it brand? My mom bought Blue Cross, I buy Blue Cross. Is it network? It’s all up to the individual. Is it benefits? Do they want a new type of benefit that allows them to be more in control of the claims detail process? That’s up to the individual.
            The individual puts these attributes in, and from the broad choice in the marketplace, we developed a query engine that brings back to you, the individual, what meets your selection criteria. And you can pare that down, you can broaden, and you make a buy decision. If you buy something that costs more than what your employer is funding, there’s a payroll deduction.
            All of the money from the employer, all of the defined contributions from the employer plus all the payroll deductions from the employees, if they opt to pay more out of their pocket, are pooled in an employer plan account. This is critical. It keeps the pooling of risk in place. So the social contract of insurance is maintained. Young subsidize old; healthy, sick; large contract size, small contract size. All the elements of insurance are still maintained in this pooled account. It’s an employer-controlled account.
            Also, because of this pooled account, you keep the tax treatment for the individual’s contribution. Our company then picks up that money and distributes that money out to the carriers based on who selected them. This is where the risk adjusting occurs.
            What we’ve done is we’ve created a series of variables. It’s the exact same variables that carriers use right now when they develop a quote for an employer group.
            In large employers, for example--and this is what we’re talking, large and medium size employers. There’s a number of reasons for that. When a carrier competes for some of that business, it’s called slice business. And what happens is they get experience, demographics, industry code, a number of other variables, and they go in the back room--this used to be my job--and you guess at what distribution of that population you’re going to get. And then you wait six weeks and you sweat. Okay? If you’re the underwriter, this is serious sweating.
            Then, if you miss, what you get from the marketplace--if you get older, if you get bigger contracts, you lose. What we have done is we’ve turned the elements that the actuaries use right now in rating, we turn them into variables so that when you as a consumer go out to shop, you see a group rate, a group rate that’s specific to the employer group you come from.
            There’s a number of reasons why. One is there’s no free lunches. If you have asbestos workers and architects, they can’t enter the marketplace and all of a sudden have a community rate. You won’t have a marketplace.
            DR.CHRISTIANSON: Ray, we’re going to have to ask you to finish up in another minutes or so.
            MR. HERSCHMAN: Sure.
            DR.CHRISTIANSON: And in the process of doing that, can you let us--you know, give us some information on how many people actually use your marketplace and why carriers would want to participate in it.
            MR. HERSCHMAN: Okay. The carriers are interested in participating because they are protected from adverse selection risk. And there’s no other model right now out there that does this.
            Two is we have had pilot planning meetings--we are not up and running yet--in both Atlanta and the Cleveland area with large numbers. On Thursday, last Thursday, we had 19 Fortune 500 companies sitting as a group so that none of them players are going out there by themselves exposed, so we could get up a marketplace. You get the critical mass. You get the group protection. And it makes for easier going on moving to this change.
            DR.CHRISTIANSON: And what’s your time target then?
            MR. HERSCHMAN: We will be up and running in February of next year, and we will have real revenues and open enrollment July 1st of next year.
            DR.CHRISTIANSON: Do you have any quick summary statements before Lee takes over?
            MR. HERSCHMAN: Quick summary. Just an example so this goes in your head because this is important. The young 25-year-old male and the 55-year-old male go with the marketplace. They both pick HMO 101. They both see a price of $150. Their employer has given them $120. They both agree to have a $30 payroll deduction. It goes into the pot. There’s $300 in the pot. A hundred dollars follows the young guy, $200 follows the old guy. Okay? So that idea, that notion of how the distribution works so that the carriers are protected is critical.
            Thank you very much.
            DR.CHRISTIANSON: Thank you. I don’t know whether I like the reference to the old guy, but other than that--
            [Laughter.]
            DR.CHRISTIANSON: Lee, why don’t you go ahead?
            MR. NEWCOMER: You just confirmed what my son’s been saying about my age for some time.
            We were just called about 20 minutes ago Internet entrepreneurs, and I was struck by that because I’ve never considered myself that. And I think as you listen to these three discussions today, the Internet is basically just a tool. What we really are is marketplace entrepreneurs. You just heard about our marketplace for health plans. Steve’s company is actually titled HealthMarket. Let me read you our mission statement.
            It says: We are creating an open health care market driven by personal values and choices. So this discussion today is not about the Internet. This discussion is about how do we take health care purchasing and bring to it all the positives of a true marketplace.
            And one of the consequences of that from my physician perspective is you will also begin to put the physician and the patient back together again in a true physician-patient relationship without a third party in the middle. But this time there is far more accountability for both the patient and the physician.
            So you’re taking, again, the positives of a physician-patient relationship, getting rid of all the things that used to get in the way of it, but making sure that both parties are accountable to each other, and that’s what a marketplace can do much more powerfully than millions of rules that you and I might write together.
            Let me tell you briefly how Vivius works and see if we can’t demonstrate how we are creating that true open health care marketplace.
            We also start with a voucher form of a defined contribution, so money is seeded into a health spending account by the employer, and it’s the employer who decides how that money--what kind of scheme they will have for funding the employee’s account.
            Once the employee has that money in their health care spending account, it is dedicated only to health care. It can be used for other purposes. And it can already be done in the existing cafeteria plan laws that exist today.
            The employee has two jobs with that money. The first is to select 22 different health plans, basically health care providers, ranging from a personal care physician--primary care, as we know them--to an orthopod, an OB/GYN, to a hospital, to an outpatient surgery facility, and a pharmacy. There are 22 selections they will make that become their personal set of providers.
            Those providers will be able to cover about 90 percent of any health care problems that patient would run into. For the other 10 percent, the employee is required to buy a mandatory indemnity insurance policy, good old-fashioned 80/20 coverage, and that indemnity policy applies only to those 10 percent of items that the 22 choices they made before can’t take care of. For example, you don’t choose a pediatric cardiologist. If you need one, the wrap-around insurance policy covers that.
            What my company does right now is provides the marketplace for the employee to make those choices. Think of us as a supermarket with 22 different aisles in it. There’s an aisle for internal medicine. There’s an aisle for orthopedics. There’s an aisle for dermatology. There’s an aisle for hospitals.
            And right now we’re stocking the shelves of those aisles with the various providers as we’re going out in the marketplace. We’re saying to them, before you put your box on that shelf, the first thing we want you to do is put a label on it. Tell us all the information that we should put on that label that a consumer would be interested in reading about your practice. Some of it’s very obvious: What are your office hours and where is your office? But it can also get as sophisticated as tell me about all the performance data in your practice. If you do surgery, what are your complication rates? How many cases did you do last year? It can be HEDIS data. It can be anything that the physician believes is relevant to their patient.
            And just as an aside, they won’t put HEDIS data there because it’s not relevant to most of their patients.
            The second thing they post on that label is their price. Just like every other product on a supermarket shelf, it has a price. This price is a retainer. The physician is saying for X amount of dollars every month, if you have a problem that requires my specialty, I’ll take care of you.
            Now, a lot of people in the old world would call that capitation, and it is. But there are some very important differences between this form of capitation and what you saw in the Californias and Floridas of the world.
            First of all, it is the physician setting the price, not the health plan. The health plan said here’s our budget, go make it work. The physician is saying I know I need this much money to deliver proper care, that’s what I’ll charge. It’s the consumer who decides whether or not that’s a fair price.
            Second is we’re not pooling the physician with anyone else. In all the large capitation schemes that have failed, you saw physicians get pooled with people they didn’t know, people they didn’t work with, people they had no business relationship with, and they couldn’t control it. Here the only thing they’re putting at risk is their time and their effort. That’s what they’re pricing.
            The third thing that they put on the label before their box goes on the supermarket shelf is a list of recommendations. If I were shopping with you, who would I tell you to pick in the other 21 aisles? We are stocking the shelves currently in Kansas City, Minneapolis, and Denver. We have about 2,000 physicians actively enrolled so far in the communities of Kansas City and Minneapolis.
            Now the consumer walks into our supermarket with their voucher in hand. They look at the 22 aisles, and the first thing they say is there’s no way I can do this. And they’re right. I can’t do it either. I don’t know a urologist in Minneapolis, and I don’t want to know a urologist in Minneapolis.
            So we give them a little help. We have them start with a personal doctor. It can be anybody. It just has to be somebody they know and they trust. So they type in that physician’s name, and what they get is a shopping list provided by that physician. I would type in Sam Carlson. He’s an internist who’s taken care of me for ten years. When I need a specialist, I call Sam and say, Who should I see? I would type in Sam’s name, and I would get on the next screen a list of those 22 aisles with Sam’s suggestion about who to buy.
            At that point I have a couple choices. I can just walk down the aisles and take them all, everybody that Sam recommended, and I’m done. I can also go shopping. I can come to the orthopedics aisle and say, well, Sam recommended Jay Albright, I don’t know him, I assume he’s good because Sam recommended him. But, you know, I had a great experience with some guy named Greg Strathey three years ago. He took care of a sprained ankle. I liked him a lot. He was thorough. He explained things. I got right in. He was always on time.
            I could go down the aisle and look for Greg Strathey, do that on the Internet. I would find out that Greg Strathey is there. He costs, by the way, $2 a month more than Jay Albright. And now as a consumer I get to make a choice. Did I think he was that good? If I did, I’ll pay that $2 very willingly. If I didn’t think he was quite that good, I may go back to Albright and save some money. It’s up to me to use my values to determine who I want to take care of me.
            When I’m done with those 22 choices, I know exactly each month what I’ll have to pay to those doctors to have coverage, and I’ll have first-dollar coverage, basically a copayment, whenever I go see those physicians, hospitals, or pharmacies.
            Now, when you think about that, there are several things that we’ve done different from a policy standpoint in the marketplace. For the first time ever--and you’ll here this also, I think, with Steve’s presentation--is the physicians and hospitals that do a better job can actually ask for a higher price in the marketplace. You can’t do that today under current health plan laws. If I’m a physician, I’m an oncologist and I take care of a patient superbly, I send a bill into the health plan. If I take care of that patient very mediocrely, I still send a bill, and the health plan would pay me exactly the same amount of money regardless of how well I did it.
            The marketplace turns that around. If you’re delivering superb customer service, if the technical quality of your care is superb and you can show it, you can legitimately ask for a better price and people will pay it. They do it in every other marketplace we have today. I pay a ridiculous amount of money for a shaving system that has three blades because it works better. I pay a fairly low amount of money for an automobile because I don’t care about particular amenities and qualities of those. So I don’t have a Lexus. I drive a Chevy truck.
            Those are choices that I get to make in the marketplace, but I don’t get to make when it comes to health care. We changed that around with this system.
            The second thing we do is we put the physician and the patient back together again and take out the third party. There is no medical management in our system. The physician doesn’t have to ask for permission to take care of anybody because they have incentives that are correctly aligned. Their incentive is to clearly take care of their patient well or their patient will leave them in the marketplace and go to someone else. But because they are putting out a retainer fee, they have the incentive to be efficient about how they take care of that patient. Doctors under this system are a lot more likely to call their patients and talk to them over the phone than have them come into the office.
            The third thing that we do is bring back accountability. Each party now is accountable to the other in a way that’s direct. This is a direct contracting model. And I would argue that that purchasing clout is far more powerful than anything an employer can put together, because a physician pays the most attention not to General X but to their patient. And when their patient’s coming in saying you just did a 25 percent price increase on me last year, I can’t afford it, I’ve got to go find somebody else because they would do just as good a job, that will have far more impact on how that physician prices than whatever they might hear from a health plan or General X Corporation.
            DR.CHRISTIANSON: Lee, can I--
            MR. NEWCOMER: We’re done.
            DR.CHRISTIANSON: Okay. I have a couple of real quick questions for you, then. How do you make money out of this?
            MR. NEWCOMER: We make money by taking a percentage of the money that gets transferred from the employee to the employer every month. It looks a lot like a credit card transaction. So we go into the employee’s account, draw off the funds that he has promised to pay as a retainer, take 4 percent of that and send it off the physician.
            DR.CHRISTIANSON: And the second question is: You’ve noted that you have stocked the shelves with physicians in Kansas City and Minneapolis. How many people do you have that are actually using Vivius now, or what’s your target date for--
            MR. NEWCOMER: Our target date for opening to the public is first quarter 2001, so today’s there no employees enrolled at all. We’re still in the process of stocking the shelves and making sure that we have enough people on all those shelves to be attractive.
            DR.CHRISTIANSON: And third is more conceptual. I admire your attempt to substitute the word "retainer" for "capitation," and if you pull it off, it’s brilliant.
            [Laughter.]
            MR. NEWCOMER:Okay.
            DR.CHRISTIANSON: But what happens with the individual physician? How do you get enough patients signed up with an individual physician so that that physician feels comfortable with pooling of risk.
            MR. NEWCOMER: As we began with an employee count of zero, the physician is, in fact, joining us in this venture, because it’s quite possible that in the first year they may have to do a procedure, and you know what? They’re going to do that procedure for $100, maybe $200.
            The key is, obviously, to have lots of patients so you can begin to do the good old-fashioned pooling and the actuarial disbursement of risk. But today, if you talk to any physician and asked him how many cases last year were denied by Medicare or by the HMOs in their community, almost all of them will pull off a stack of at least two dozen cases for which they received no payment. And most of them are quite willing to take that adventure and take that risk with us as we begin to grow.
            DR.CHRISTIANSON: Okay. Thank you.
            MR. NEWCOMER: Thank you.
            DR.CHRISTIANSON: Steve?
            MR. WIGGINS: Ten minutes starting now. Lee, have you noticed how many middle-aged guys like you and I are driving trucks?
            [Laughter.]
            MR. WIGGINS: Is there something going on?
            I’m going to talk about a completely different concept here. Hold on to your seats because it’s not an easy one to understand, and that’s probably our biggest challenge. We are creating at HealthMarket a business that is truly an alternative to all of the existing managed care models. It’s a completely different paradigm for managing risk. It’s a completely different paradigm for organizing, financing, purchasing health care, and in the process, we’re bringing both price and quality transparency to the market. And I will get into some of those briefly, very briefly.
            We are absolutely not dependent upon defined contribution in this business. We’re just creating a new product that will sit out there on the shelf, to use Lee’s wonderful metaphor of the grocery store. We will simply try to take up some of the shelf space which is occupied right now by what is essentially three different product designs. There’s indemnity, various permutations of that; there’s HMO, permutations of that; and there’s PPO, or point of service. And many of you in the room know, years ago, when I introduced the first point of service plan and we came up with that phrase, it was copying a Minnesota experiment that had been done by Blue Cross of Minnesota and reported in Health Affairs.
            And since that time, there’s really been no product on the shelf. And so what we’re trying to do is not try to catch the wind of defined contribution, but we’re trying to create an alternative product, whether employers move to define contribution or not. If they do, it’s going to be a heavy wind at our backs, and certainly we will have the sails up for it. But it is not really a defined contribution play, although most of these conferences I do sit on panels that are defined contribution health plan panels, and we’re stuck in this definition of ourselves whether we like it or not.
            I’m also not creating a health plan. I think that distinguishes quite a bit from I think Lee is creating a new type of health plan, and it’ll be exciting to see if people do want to make that advance selection of their network. I’m creating an operating system that allows any health plan to offer this new type of product I’m about to confuse you with. I’m creating an, essentially--we’re trying to be the "Intel inside" insurers that enable them to administer and execute on a new family of insurance products that address all of these issues of risk spreading, all of the things that Tootie or Trudy? Sally Trude, sorry.
            [Laughter.]
            MR. WIGGINS: I have three Tooties in my life and one Trudy.
            So let me take you through the product quickly. First of all, it depends upon self-direction of the health care dollar. We essentially give the individual subscriber total control of the insurance dollar to spend as they see fit. It’s a little bit radical, but it can be done with controls. It actually is an actuarial model that is more successful than managed care. And 1/1/2001, when we launch this in the first 11 states--it’ll be in all 50 states by the end of 2001 with insurance partners that we’ve already set up and that we’ll write it on their paper--it’ll generally hit price points, on average, that are about 15 to 20 percent below managed care.
            How do we do it? I’ll explain the three levels of coverage that we have.
            The lowest level are those things that are routine care. For 82 percent of you, you consume $500 to $800 or less, depending on your market, of health care services. We don’t do anything to manage those resources. I ran a Fortune 300 HMO that I built from scratch, and I learned that that model has profound problems. I also built a big physician practice management company that took lots of capitated risks and have contended with all of the dilemmas of capitation, both as it relates to restrictions on choice and as it relates to the bad outcomes financially for the providers. So for that low end, routine care, all it is is an old-fashioned insurance policy that says, "This is how much we pay for each service, go wherever you want, and you can access all of our networks." And we’ve contracted with every single network we can find in our first five launch markets, where we’re going deep with provider recruitment people in the markets. And we’ve signed up two big national PPOs that you can access their prices.
            And, by the way, you can go onto our Internet site today, and for the first time in health care you can actually see what it’ll cost in your town to go to your doctor at our deal. You can log on right now and see that. That’s price transparency for the first time in health care. It’s never happened. It’s a little bit controversial. It’s a lot controversial because health and law are the last bastions of secret pricing. And so it’s going to be a while before it’s completely accepted by all providers that their prices get put on the Internet. But you don’t need to be on the Internet.
            You can also call up and say, "I’ve got $100 for this office visit in my allowance, in my plan, for my routine services. Can you tell me what doctors I could go to in my Zip Code that would fall under that. Or you might want to log onto our site and do a qualitative examination of the providers. We have wonderful information, and it’s getting better every day. We have a release coming out every month right now of the website. And you can see exactly what it costs and what their background is. And we’re headed towards volume data, outcomes data. We’re relying on a lot of other firms to help us with that.
            Now, let’s move up the risk ladder to the 17 percent of you that have acute and chronic conditions for which you seek health care every year. You, 17 percent, consume 65 percent of the medical dollar. And it’s those of you that are in that 17 percent that have the widest variance in spending, often without good reason. And that’s where managed care comes in. We developed medical management, precertification, all of the utilization review programs, referral programs. All of that was developed to control generally that 17 percent of people that experiences wide variance in their cost outcomes.
            What we’ve done there is worked with the best people in the country, in the field of episode definition. And we create an episode allowance around getting a hip replacement or having a baby. So you, in our program, you would log on. We would send you an e-mail, as soon as we get an alerting claim that indicates you are pregnant, and we would send an immediate e-mail back to you indicating you have $21,000 or whatever the allowance is in your market to spend.
            You can either call us and an ombudsman will manage you, if you will. You can opt into managed care, and we’ll take care of making sure that you have no exposure. Or you can spend the money as you see fit, log onto our site. We’re getting bids from providers for those episodes. We’re going to hospitals and saying, "Will you give us a package price?" Physician groups are doing it, disease management companies are giving us these bids, and we’re creating a unit of purchase out there, a product, if you will, which is an episode. It is an episode of care that instead of buying a service that an ala carte service, you’re buying the solution, you’re buying total labor and delivery or you’re buying a hip replacement, you’re buying the total package from a provider. You are not forced to make any decisions about selection of provider until you need them, and you are motivated to do that selection.
            Finally, at the very top end, the catastrophic care--those are the neonates, the traumas and the transplants--you are covered 100 percent because nobody can be expected to work with an allowance there. And we do have old-fashioned case management there. You can opt out of case management, if you’d like, but then you opt into an allowance. But we don’t advise that for anyone in those situations.
            We’re very hopeful that people like HealthSync, and Sagio [ph] and E. Bennix [ph] and all of these companies are successful. To every one of them, we’re going to make our services available on their exchanges because this idea of an online purchasing cooperative really drives people to the individual purchase decision. And I don’t expect that the product that I’ve created here is going to be for all of you. It’s probably only for either the most savvy health care consumer out there or the most Internet savvy, sort of information-seeking person. We call them self-directed health plans. We borrowed the phrase from self-directed IRAs. And in the product, you can pretty much self direct as much or as little as you’d like. And that’s my ten minutes of time up here.
            DR.CHRISTIANSON: How many people do you expect eventually to use your product?
            MR. WIGGINS: Well, right now we have thousands every day just logging onto the site to see prices of health care providers, and then can bind our price online. You don’t even have to be an enrolled subscriber. We’re providing that to people that don’t have insurance right now. If you do not have insurance and you need to seek health care, you can get about a 40-percent discount by coming to our site. And we deliver to you the purchasing power of an HMO.
            The networks are a little nervous about it. Some of the health plans are nervous about posting their fees online. But we have three health plans that are teeing up to offer our products, one in 2001. We have a partnership with Zurich Financial Group. They’re offering it on their license in 50 states. In the event we can’t get local health plans to offer it, it’ll be available everywhere as an option.
            We expect that it’ll be most attractive to large employers where some employees join. We think it’ll also be very attractive in the individual market, where it’s more price sensitive and people are already making more of the individual purchase decisions. And we expect that over time it will become increasingly attractive in smaller employers that are a little bit more Internet savvy or information savvy.
            DR.CHRISTIANSON: Thank you.
            What we’re going to do now is I’m going to ask a couple of questions of the panel as a whole, and then Paul will field questions from the audience and direct them to the panel members.
            So let me just start out by asking everybody on the panel here to--I’m going to sort of turn around Sally’s observations earlier. She was talking about some of the public policy issues that might be raised by defined contribution approaches. I’d like to turn that around and ask the panel members if there are particular regulatory kinds of issues that exist right now that are important and significant to them in developing their products.
            Let’s start with Ray.
            MR. HERSCHMAN: Not any specific issue. I think that in meeting with a number of folks in the legislative process, I think what we’ve heard most is that they don’t want to develop code that will actually ruin this momentum. I think our business, different from these businesses, because they are very different, provide a framework where you can bring in under an uninsured if there was going to be some type of government subsidy voucher, payroll deduction. Where would you go with that? You need a marketplace.
            So the issue is how do you not have legislation ruin it as opposed to what’s in place right now. And I think in discussing this in more depth, it’s clear that if the government is going to step in to provide some relief, some graduated way to provide coverage for an un- and underinsured, that it’s going to be through payroll deductions of some sort initially. There’s no other way that you would be able to have that happen at an individual level through your annual tax filing or something like this.
            So I think the key is is that there’s communication. I think aside from that, the government really has started to talk about how do you aggregate small groups. There are some actuarial and underwriting issues and a lot of state regulatory issues around a small group that have to be addressed at a federal level. This is going to really work its way down to a small employer.
            MR. NEWCOMER: I would ask for two things. The first is, in all of our programs, if a consumer decides to save a little money, they should be allowed to carry that over to the following year tax free. We’d love to have that provision. Because it doesn’t matter what program you are talking about, unfortunately today, if a consumer saves some money and it’s in a cafeteria plan, it goes back to the employer at the end of the year. It’s use it or lose it.
            So what are the incentives? Spend it on something. That’s why we all have new eyeglasses in December. That’s why we all get shinier teeth in December. And to be able to carry that over to save that money for a rainy day, when I finally do become one of those 17 percent, I may want to use that money then. That would clearly help in all of our existing laws.
            I think the second thing I would ask for is a little bit of diligence in the FTC area. My kids have braces on. I priced 18 different orthodontists in the Minneapolis-St. Paul area and got exactly the same price from all 18. Where’s the marketplace? And why doesn’t the FTC or someone else get a little interested when every single provider in the community has exactly the same price? I think we need to look at that within the health care arena that exists today. I think the opportunity for it exists even more with products like Steve just described or I did, where the prices are very obvious, very public. If they all come to the same site, it makes you wonder about what’s going on.
            DR.CHRISTIANSON: Lee, that’s interesting. In the tracking study, one of the things that we’ve noticed over the last two rounds is a lot of mergers of single specialty groups. And I think your model really depends on competition among physicians to hold prices down. And if there aren’t competing groups in these communities, it’s a little hard to see how that’s going to work for the consumer in the long run.
            MR. NEWCOMER: That’s one of the risks.
            DR.CHRISTIANSON: One of the articles about Vivius on the Internet that I read quoted an insurance commissioner from Kansas talking about how they couldn’t decide whether to regulate you as an insurer or not. What’s your position on that?
            MR. NEWCOMER: Well, the wraparound is clearly an insurance. And that we have no problem with. The other 90 percent, the physicians in hospitals who are taking their own small individual piece of risk, we would argue that is a business risk and not an insurable entity. And today as we’ve been in front of both Minnesota, Missouri, Kansas and Colorado, no one has decided that this product is a regulatable entity from the provider’s standpoint today. Now, that could change. We understand that. But they’ve all seen the model, and at least the first pass has said it’s not a regulatable entity.
            DR.CHRISTIANSON: Steve?
            MR. WIGGINS: Well, I served with that insurance commissioner on Clinton’s Commission for Patient Protection, and she’ll regulate you for sure.
            [Laughter.]
            MR. WIGGINS: She’ll come up with a strategy, I have no doubt. Nancy is a regulator at heart.
            There’s really no restrictions on our product in current law. It exists very nicely within all existing insurance laws and regs. The problem is not many people understand it. Our biggest challenge is really at the consumer side and on the provider side. On the consumer side, making sure consumers are comfortable with self-directed health care concepts, and it won’t be for all at first. My guess is it takes some time to get into the marketplace.
            And on the provider side, there are 82 episodes for that 17 percent of the people. We have defined 82 episodes. Each episode has modifiers for complications and risk that raise the reimbursement based on what comes in. It’s the most sophisticated data analytic undertaking I am aware has ever happened in organizing health care around episodes. And when we get out there and begin communicating it, a lot of people want to go into that detail, and you lose them. And so the big problem there is just the risk adjustment to raise the allowance a lot of people get lost with.
            DR.CHRISTIANSON: Second maybe question for the panel before we turn it over to the audience, one of the things that clearly happened with Internet companies, and I know you don’t want to be called Internet entrepreneurs, but--was, you know, you’ve got Amazon.com and then you’ve got BarnesandNoble.com. One of the things that I wonder about with this is what’s the response of the existing managed care industry? Maybe that’s more relevant for Lee’s product than some others.
            The health insurance industry, in general, has been I think pretty successful politically, in terms of influencing legislation. Where do you see the existing industry, in terms of how it’s going to respond to the development of these new products? And I guess, in your case, Ray, the issue is why would a carrier want to participate in your market?
            MR. HERSCHMAN: Carriers will participate if there is an at least equal, if not better, probability of making money. That drives the market. I think the key is that if you look at carriers, CIGNA, look at a national carrier, they really don’t have depth in that many markets. They have single-digit market share in most markets and then high penetration in a handful of other markets. So there’s an opportunity for them to compete for volume at a direct individual level that does not exist now. I could use examples. Pittsburgh is a key area where CIGNA has zero market share. This is an opportunity for them to go at the market directly, without the intermediaries that kind of control the marketplace.
            The other aspect is, if this becomes the standard convention, then they could keep their customer for a longer period of time. When you change employers, you are just changing who is funding your coverage. You actually address another issue, which is portability. The price might change because the employer you are with has different risk factors, but otherwise the carrier can now keep their customer for the first time for a long time. The churn is incredible. It’s about one-sixth every year, is the churn rate in a population--big population of coverage.
            Where is the ROI on disease management? Where is the investment in the managed care part of managed care? Well, there isn’t really that deep investment. Why? Because you make that investment now, and your customer is gone. So there’s a huge opportunity, from a carrier’s perspective, because that is where the money-marketing opportunity is, managing care over a long term. It’s viewed as a short term.
            So I think the carriers are saying: At least, I want control over the products I sell. I want control over the price that’s presented. They say that. But I need the protections of the adverse selection risk. If those needs are met, we’ll play ball.
            DR.CHRISTIANSON: Good. Lee?
            MR. NEWCOMER: I would simply say that I, too, would want to be in a HealthSync, Sagio, whatever. Because that’s just another way, a good distribution arm.
            I think the major insurers right now are watching us as a curiosity. We are too small, not well established enough to be considered a serious threat. And that’s just fine with me. We’ll see if we can prove the concept and then compete in the open marketplace against them.
            I don’t think, and let me make this very clear, the insurers are not going away. If you’ve read that kind of hype in the news, then it really wasn’t worth the paper or the electrons it was printed on. There’s clearly a large demand to stay in the mainstream, and that’s going to stay there. What we’re working with are the early adopters, the early innovators who are looking for something different, who are highly dissatisfied with the current system, and there are plenty of those people. And if we can offer them a solution that they like, they’ll spread the news for us. But that isn’t going to happen tomorrow. It’s going to happen over a longer period of time.
            MR. HERSCHMAN: I want to make one quick point. I think our model is pretty different from Sagio and E. Bennix because we do risk adjust, we do not dictate the product that the carrier sells. And there’s a huge difference there. I think it’s a subtlety, unless you really look at it from a carrier perspective, and then the carrier says that is a big difference.
            DR.CHRISTIANSON: But those are your two main competitors.
            MR. HERSCHMAN: Those are similar. You know, we’ve talked about migrating to dealing with risk adjusting, but they haven’t yet. So they definitely--they validate what we’re doing, which is a good thing, but they’re not doing it the same way.
            MR. WIGGINS: Well, given that we’re actually selling our product through the carriers, at first they looked more at me as, oh, God, he’s back.
            [Laughter.]
            MR. WIGGINS: And so they were a little worried because we really handed it to quite a few insurers as we grew Oxford. And the game plan now is to--there’s been really no innovation in the insurance markets in the last ten years. Think of, we introduced an alternative medicine program now nine years ago, and I can’t think of another major innovation that’s happened in the insurance product arena. And so we’re just trying to bring really a new insurance product, but also, as you get older, you just don’t have the energy to create a new health plan again. So you say, well, why don’t this time let’s just be the operating system for other people to do it.
            And also our product will be so much more attractive if it’s on, let’s say, Lifeguard in California or Coventry in Pennsylvania, if it’s on their license because they’ve got really good discounts with providers that individuals will get access to so that they spend their allowance with all of the purchasing power that Sally alluded might be lost in defined contribution. You really need to hold that. You need to deliver the purchasing power of those big payers to that individual. And we’ve done that with PPOs and existing networks.
            But, for instance, in most markets the dominant carrier has price points on their provider contracts that are generally 7 to 15 percent below the price points of most other payers in that market. So you want that payer to offer this product because it’s going to be most attractive to the individual.

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