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Published: 5/05/03
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Consumers Take Charge: Defined-Contribution Health Plans

What Comes Next
Although consumer-directed plans will never grab 100% of the market, experts from Booz Allen and Wharton agree that these plans will eventually be used by perhaps 10% to 15% of workers. That’s a powerful number. They note managed-care plans have never captured more than one-third of the market. Nonetheless they changed the face of health care in America.

And so it will be with the new defined-contribution approach. “Consumer-directed plans will grab an across-the-board slice of the market,” Pauly predicts. “And I don’t think they will be attractive only to the young and healthy. They will attract the attention of people willing to try new things and people who want health-care costs to be low. They also might well appeal to employers of low-wage and secondary workers who otherwise couldn’t afford to offer health benefits.”

Nicholson says defined-contribution plans may have the ironic effect of convincing some people that much-maligned managed-care plans are not so terrible after all. He argues the establishment of these plans might segment the market so that the strictest HMOs will probably come back into style. Why? “Once people get into these self-directed plans, they’re going to recognize that the managed-care product doesn’t look so bad. In the end, the upside of the defined-contribution market will be capped by how many sophisticated consumers there are who are comfortable shopping for the best medical prices and taking control of their dollars,” he says.

Meanwhile, Booz Allen expects to see more of the largest health-care plan pioneers exploring ways of diversifying beyond the core business — seeking opportunities for new products and lines of business, including so-called “concierge medicine.” Concierge medicine typically involves a single physician, or several doctors, taking on a relatively small group of patients and charging them a flat fee of, say, $2,000 a year. In exchange, each patient gets 365-day access to the doctor, and perhaps even house calls – a sort of Marcus Welby, M.D., redux. “The beauty of concierge medicine is that patients can once again get to know their doctors on a personal basis, spend time with them, and play a major role in directing their own medical care,” Ahlquist says. “That’s what people say they miss when they enroll in an HMO.”

 With the growth in popularity of consumer-driven plans, Ahlquist and Knott foresee other developments in the months and years to come. First, they expect to see the first inklings of the commoditization of catastrophic risk coverage in 2003. This sort of coverage will be the cornerstone of all consumer-directed health plans, and is likely to continue to be purchased by employers on behalf of their employees. Since the benefits of pooling are so substantial, and the opportunities for differentiation so limited, this is a business that wants to be commoditized, perhaps even at the national level, they say. A decade from now, this could be the unwitting forerunner of a kind of national health insurance.

“With concierge medicine, a patient can pay a premium to get 365-day access to the doctor, and even house calls – a sort of Marcus Welby, M.D., redux.”
What is more, as the industry's insurers and payers continue to experiment with consumer-directed plans, the new requirements of an increasingly retail-driven marketplace will need to be addressed by new capabilities and business systems for providers and suppliers. In many cases, say Knott and Ahlquist, these needs will be met through alliances with newer entrants offering consumer-friendly Internet-based portals for enrollment and claims, medical advisory services, and health-related products. In others, they will be met by direct-to-consumer advertising by pharmaceutical companies emphasizing not just the merits of one drug versus another, but the merits of drug therapy versus other treatment alternatives.

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