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.