Consumerism:
A Brief History
Presented by:
Kenneth L. Sperling
Senior Vice President
CIGNA HealthCare
December 4, 2008
Consumerism Defined
According to Webster:
con·sum·er (n): one that utilizes
economic goods
con·sum·er·ism (n): the promotion
of the consumer’s interests
2
1
In the Beginning
• 1870: Pasteur
develops
understanding of
bacteriology,
antisepsis, and
immunology
• 1895: X-ray
invented
• 1910: Identification
of infectious agents;
surgery fatality
rates fall
• 1920s: Surgery
begins to be
performed outside
of private homes
In The Beginning
• Lost wages > medical
expenditures
– “Sickness” or disability
insurance more
important than medical
insurance
• Standardization,
accreditation plus
increasing demand
puts upward pressure
on costs
• Indemnity-based
coverage evolved in
the 1930s to ensure
providers would get
paid
– The birth of Blue Cross
and Blue Shield
2
In the Beginning
And Then There Was Health Insurance
•
1942: Congress limits wage increases but allowed adoption
of employee insurance plans
– Tax-deductible to companies and tax-free to employees
•
1949: AMA lobbying defeats national health insurance bill
•
1965: Medicare program enacted, fee-for-service
reimbursement on “usual, customary, and reasonable” rate
Fee-for-Service Structure
Paying for intensity
+
Uncontrolled unit cost
UCR rates
+
Third-Party Payment System
Removing the Consumer
=
Explosive Demand and Cost
3
And Then There Was Health Insurance
Total Employer Spending on Health Insurance
Annual Spending (Billions)
$100
$90
$80
$70
$61.0
$60
$50
$40
$25.5
$30
$20
$10
$12.1
$3.4
$5.9
$0.7
$1.7
1950
1955
1960
1965
$0
1970
1975
1980
Source: Bureau of Economic Analysis
Irrational Economic Model
Other Industries
Buyer
tion
rma
Info
Seller
Purchase Decision
Seller
Inform
ation
Seller
Health Care Industry
Buyer
Purchase Decision
Seller
(patient)
Information
(doctor)
ll
Bi
Health
Insurance
4
The Rand Health Insurance
Experiment
Large-scale, multiyear experiment
concluded:
• Participants who paid for a share of
their health care used fewer health
services than a comparison group
given free care
• No impact on quality of care received
• Cost sharing had no impact on
participant health
And Then There Was Flex
Prevalence of Flexible Compensation Programs
among Major U.S. Employers
1,400
1,281
1,200
1,349
1,410
1,109
1,000
922
800
716
565
600
412
400
244
200
0
17
39
99
1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992
Full Flex
FSA Only
5
And Then There Was Flex
Total Employer Spending on Health Insurance
Annual Spending (Billions)
$200
$176.9
$180
$160
$140
$120
$110.0
$100
$80
$61.0
$60
$40
$20
$25.5
$0.7
$1.7
$3.4
1950
1955
1960
$5.9
1965
$12.1
$0
1970
1975
1980
1985
1990
Source: Bureau of Economic Analysis
Along Came Managed Care
20%
100%
18%
90%
16%
80%
14%
70%
12%
60%
10%
50%
8%
40%
6%
30%
4%
20%
2%
% of Total Enrollment
• The hook for employees
– Nominal cost sharing
and no claim forms
in exchange for
– Limits on provider
choice and access
• What worked
– Migration to managed care
models
– Unit cost discounts
– Market competition
– Use of preventive care
services
Annual Increase
• The promise of managed
care
– Provider reimbursement
(capitation) focus on
wellness and prevention
– Negotiated discounts
with specialists and
hospitals in exchange
for volume/exclusivity
– Management of
unnecessary utilization
– Voluntary (if steered)
enrollment
10%
0%
0%
1988
1989
1990
Health Insurance Premiums
1993
1996
1999
Managed Care Enrollment
Source: Kaiser Family Foundation, CIGNA estimates
6
Along Came Managed Care
What didn’t work
Capitation
Limits on utilization and access
Long-term trend moderation
20%
100%
18%
90%
16%
80%
14%
70%
12%
60%
10%
50%
8%
40%
6%
30%
4%
20%
2%
10%
0%
% of Total Enrollment
Annual Increase
•
•
•
0%
1999
2000
2001
Health Insurance Premiums
2002
2003
Managed Care Enrollment
Source: Kaiser Family Foundation
Along Came Managed Care
Total Employer Spending on Health Insurance
Annual Spending (Billions)
$600
$500.2
$500
$400
$331.4
$300
$242.8
$176.9
$200
$110.0
$100
$0
$0.7
$25.5
$1.7 $3.4 $5.9 $12.1
$61.0
1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
Source: Bureau of Economic Analysis
7
Those Were The Good Old Days
“Users” are NOT “Consumers”
Our biggest mistake:
Separating the consumption
of care from the cost of care.
$7,000
$5,465
$6,000
$5,000
$6,281
$3,794
$3,999
$385
$390
$4,408
$4,714
$4,000
$3,000
$2,000
$1,000
$445
$451
$600
2001
2002
$823
$0
1998
1999
Gross Cost per Employee
2000
2003
Employee Out-of-Pocket Cost
“I don’t remember ever talking money with any doctor.
Can you imagine?”
Source: Hewitt Associates
— Focus group participant
8
...with One Exception
Market Maturity—DVD Players
25,000,000
$600
$500
20,000,000
$400
15,000,000
# Units
$300
10,000,000
Avg. Unit
Price
$200
5,000,000
$100
0
$0
1997
1999
2001
# of Procedures
Avg. Price (per eye)
2003
2005
1,600,000
Market Maturity—Lasik Surgery
1,400,000
$2,200
$2,100
1,200,000
$2,000
1,000,000
$1,900
800,000
$1,800
600,000
$1,700
400,000
20
05
20
03
20
04
20
01
20
02
20
00
19
99
$1,500
19
98
$1,600
0
19
96
19
97
Source: MarketScope, Consumer Electronics Corp.
200,000
The Essence of Consumerism
“...nobody spends somebody else’s
money as wisely or as frugally as he
spends his own.”
—Milton Friedman
Economist and recipient of the 1976
Nobel Memorial Prize for Economic Science
9
The Consumer Driven Health Movement
CDHP and Traditional Plan Cost Trend
(Net of Plan Design Differences)
12%
8%
-12%
4%
9.0%
The body of
evidence
continues to
grow…
CDHP
0%
Traditional Plan
-4.1%
-4%
-8%
Claim Level
Service Type
Inpatient
-11%
Low Risk
-9%
Outpatient
-12%
Moderate Risk
-18%
Professional
-10%
High Risk
-11%
Source: CIGNA HealthCare, 2007
The Consumer Driven Health Movement
…that dollars can be saved, not shifted (and even rolled
over)
Member Out-of-Pocket Cost Share
2006 vs. 2005
30%
27%
2005 Traditional Plan
2006 CIGNA Choice Fund
23%
25%
20%
20%
18%
13% 13%
15%
8%
10%
P e rc e n ta g e o f H R A U s e d
HRA Funding and Use
75%
74%
71%
68%
51%
49%
50%
25%
0%
8%
< $500
5%
$500
$501 $749
$750
>$750
Amount of HRA
0%
Under $1,000
$1,000 - $8,000
Over $8,000
Total
Source: CIGNA HealthCare
10
The Consumer Driven Health Movement
…with utilization moving in the right direction
CDHP Trend
Medication Days Supply
Select Drug Classes
-8%
Anti-Infectives
-15%
Pain
Penicillin - 8%
Migraine - 29%
Anti-ulcer - 18%
Gastrointestinal
-9%
Diabetes
22% Hypoglycemic +33%
Cardiovascular
2% ACE/ARB + 10%
-20%
-10%
Antihistamines -13%
Asthma-related + 21%
5%
Respiratory
0%
10%
20%
30%
Days Supply Change vs. Prior Year
Source: CIGNA HealthCare
The Consumer Driven Health Movement
Despite lower employee satisfaction, growth is following
predicted path and moving into the mainstream
30%
$400
25%
20%
$300
15%
$200
10%
$100
5%
$0
0%
Market Share %
$500
Current State
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
Premiums in $ Billions
Projected Growth of Consumer
Directed Health Care
Premiums
Market Share
Source: Forrester Research, 2003
34%
13.5%
34%
16%
2.5%
Source: Rogers, 1995
11
Conclusions
• Previous attempts at consumerism missed
the point
– Indemnity: Provider-centric reimbursement model
– Managed Care: Employer-centric cost management
model
• Consumer-focused models have the
potential to engage individuals in
appropriate decision-making if properly
designed and communicated
• Keys to success
1. Protection from catastrophic illness; focus on
discretionary health care decisions
2. Provide robust tools on cost and quality that are
easy to find and use at point of need
3. Support with personalized health advocacy
If We Don’t Get it Right This Time…
12