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 / Fall 2005 / Issue 40(originally published by Booz & Company)


Prescription for Change

Health plans that put consumers in the driver’s seat are the last chance to avoid a government-controlled monopoly.

Illustration by Lars Leetaru
The American health-care system has been so troubled for so many years that it is a cliché to say that it is broken beyond repair. Errors, including fatal errors, are far too common. Health-care professionals, when surveyed, say they feel dissatisfied and overburdened. Consumers feel angry and powerless. And the costs rise unrelentingly. Overall, U.S. health-care spending tripled between 1990 and 2005, from $655 billion to $1.9 trillion (projected). Annual health insurance premiums that might have cost a family of four (or their employers) $12,000 in 2000 would probably cost $17,000 today. If the current double-digit rate of increase continues, those premiums could cost $25,000 by 2010 — and as recent news headlines about General Motors’ retiree obligations have demonstrated, such costs can be crippling to individuals and corporations alike.

It has long been recognized that these trends are unsustainable. Each of the major players associated with health care has taken its turn trying to rationalize demand and costs in the United States. Health-care providers (both institutions, such as hospitals, and individual professionals), employers, insurers, and government programs all took their swings with little lasting impact. Now comes the last group: consumers. During the next year or two, consumers will get a chance to reshape the system through a form of insurance called consumer-directed health plans (CDHPs), which have been written about at length but not implemented until recently. If this solution fails, it is hard to see any alternative but a government-sponsored “universal” initiative — perhaps not nationalizing assets, but almost certainly involving price controls, supply constraints, and utilization mandates.

But before we abandon private-sector initiatives entirely, it’s worth doing what we can to give CDHPs a fighting chance. They have the potential not only to transform health-care markets, but also to become part of new thinking about larger issues such as retirement savings, wealth-building in general, and even large government programs such as Social Security and Medicare. For the first time, in short, consumers could be given the lead role in shaping the health system of the future — which in turn would give providers and insurers of health care their first real incentive to transform. The next few years will be crucial in determining whether CDHPs can spark a new paradigm for health care, or whether we’re simply taking another step toward what is, to many, an inevitable nationalized approach.

Health Care’s Backstory
The U.S. health-care system didn’t arrive at this juncture overnight. The problems — and various attempts at solutions — have been around for more than 50 years. Before 1950, providers themselves sought to bring equity to health care by providing services to the needy through free care, barter (a chicken for an office visit, for example), and solicitations of financial contributions. The federal government was involved primarily on the supply side by giving money to communities for hospitals, and through programs to expand the number of new doctors being trained. Employers, unions, and insurers started to expand their roles during World War II, when the Ford Motor Company, in trying to avoid a labor strike over health benefits, approached the war-saddled government for relief. The solution came in the form of a tax deduction for health benefits by employers, spawning the employer-based group benefit model that became prevalent in the 1950s and 1960s. Then, in the mid-1960s, the Medicare and Medicaid programs were launched. Medicare and Medicaid greatly increased the demand for services at the same time that medical advances were making their biggest strides. Second-generation antibiotics, advanced imaging, chemotherapy, and revolutionary new cardiac care technologies combined with increased overall demand to create the industry’s first cost crisis — a dramatic rise in hospital costs toward the end of the decade.

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