October 11, 2015

A New Health Plan Paradigm

We are at the stage at which a new health plan paradigm needs to be adopted by governments and insurance companies.

The Old Paradigm: Healthy people subsidize those who get sick or injured through no fault of their own.

Throughout the history of U.S. health insurance, the prevailing paradigm was that everyone paid for health insurance, with the healthy people paying higher premiums to subsidize those who became sick through no fault of their own. State insurance regulators authorized the issuance of health insurance policies with three rating frameworks:

  • Community rating: everyone paid the same premiums;
  • Adjusted community rating: differences in premiums are allowed, based on population demographic factors like gender, age, and geographic differences in health care delivery costs; and
  • Experience rating: those with pre-existing conditions either were denied coverage, paid more, or had coverage exclusions.

All these systems assumed that insured people had no control over their health. Therefore, adjusting premiums based on individual behavioral risk factors, such as smokers’ penalties, allowed in life insurance policies, or premiums based on taking a drivers’ education course, part of automobile insurance ratings, were not allowed in health insurance policies.

The old paradigm made more sense in the early 20th century because most health care costs arose from life-threatening infectious diseases or catastrophic injuries, believed to be beyond individual control. There were fewer treatment options for major diseases, and they did not have huge cost differences. Therefore, rewarding patients with lower premiums, deductibles, or co-pays for intelligent, discretionary treatment decisions made less sense.

The New Paradigm: Health insurance premiums, co-pays and deductibles are adjusted based on patient behaviors.

Recent decades have seen a radical shift in health care cost drivers. Preventable and controllable diseases, such as Type II diabetes, heart disease, many cancers, and behavioral health and substance abuse conditions, comprise the vast majority of our health care costs.

Additionally, there are huge differences in the intensity of care provided to individuals, based on their providers selections and decisions they make among discretionary treatments. Differences among end-of-life treatment options are hundreds of thousands of dollars. Prostate cancer or back pain options can vary by tens of thousands of dollars. More health care costs are controllable.

Health insurance regulations and plan designs have not recognized these realities. Self-insured employers have the best chance to design health plans with the new paradigm because they feel the most pain and have the most plan design flexibility.

Value-based health insurance plan design is the new paradigm for self-insured employers.


Value-based health insurance plan design for self-insured employers is the new paradigm. It is based on the following principles:

  • Plan members are rewarded for behaviors reducing the risk of incurring preventable medical conditions.
  • Plan members are rewarded for making intelligent choices of high value providers.
  • Plan members are rewarded for intelligently evaluating treatment options.
  • Plan members that adhere to treatment protocols get rewarded. Those refusing to adhere to treatment protocols get penalized.
  • Providers delivering better care at lower cost are rewarded with higher reimbursement rates.

Evolution of value-based health insurance plan design

Employers like Pitney Bowes adopted relatively simple versions of value-based health insurance, and obtained excellent results:

  • They made preventive care free to plan participants, while charging participants for accessing the health care system.
  • They supported health plans by making preventive care such as immunizations, health screenings, and health risk appraisals conveniently available, and paid participants for health-promoting behaviors.
  • They enabled individuals to adhere to chronic disease treatment plans by making maintenance medications free of charge.
  • They steered participants to treatment paths that increased their intelligence in making treatment decisions:
  • Pitney Bowes provided higher mental health reimbursement rates to participants accessing eight free behavioral health counselor visits before selecting their treatment path.
  • Pitney Bowes introduced a multi-stage treatment path for treating morbid obesity, with bariatric surgery as a last-stage, as opposed to first-line, treatment.
  • They created higher charges for emergency department use for non-urgent care, or for excessive diagnostic imaging test use.

These plan design implementations were successful, but the patient-controlled, portable, personal health management system, with a core personal health record, takes value-based health plan design to a new level.

The newest paradigm: value-based health insurance plan design rewards the right behaviors more precisely, faster, continuously, and more powerfully through a personal health management system.

Large self-insured employers understood that employees needed help navigating complex health care systems. They purchased disease, care, and large case management programs, often from third-party insurance administrators to improve engagement. They also provided health-promoting behavior incentives, either within health plans or in separate employer-sponsored wellness programs.

The 2011 Towers-Watson Survey of employee benefits executives indicates that large employers are dissatisfied with these programs. These programs achieve about 10% engagement from the target population, and have not produced hoped-for health outcomes.

Employers are also dissatisfied with prevention and wellness programs, because they believe that they are not securing additional participants.

How do personal, portable, patient-controlled health management systems solve these problems?

Personal health management systems allow data collection more frequently, more precisely, and in real time.

Daily tracking of biometric data increases the likelihood of controlling the disease being managed. For example, tracking blood pressure for a person with hypertension increases the likelihood of controlling hypertension by over 50%, based on a 2009 Kaiser-Permanente study. This supports Peter Drucker’s observation that “what gets measured gets managed.”

A new value-based health plan design application would reward an individual partially for tracking key biometrics and partially for controlling them.

Personal health management systems create new and more effective ways of delivering health care coaching that an employer can reward.

Rewarding someone for engaging in a wellness program or for engaging with a health coach, nurse, or physician to manage a medical condition has produced disappointing results. Wellness program providers routinely get only between 10-15% of the target population engaged in these programs.

Tailoring communications to consumer preferences will improve consumer engagement. The ability to supplement face-to-face and telephonic communications with text messages, or online web site, e-mail, and live chat tools makes these programs more effective, especially if the consumer receives rewards for every contact, not just the initial contact.

The value-based health plan could vary the co-pays and deductibles for an individual who engages frequently with health coaches or nurses in managing a chronic condition.

Personal health management systems are more effective at monitoring adherence with chronic disease treatment plans and other necessary medical practices.

One inherent frustration of self-insured employers is that high health care expenses come from individuals who fail to adhere to their chronic disease medication regimens, thereby ending up receiving expensive acute care. A personal health record will receive information as to whether a prescription is filled within minutes after it is filled. The Vitality Glowcap device also enables monitoring of whether users are taking their medications.

In addition to making maintenance medications free of charge, the value-based health plan could provide incentives for filling a prescription within a specified period, for taking medications on schedule and for getting timely refills.

Personal health management systems can provide exceptional patient decision support tools for health care treatment decisions on conditions for which a variety of imperfect treatment options are available, such as back pain, obesity, mental health, prostate cancer, and end-of-life care.

Treatment differences manifest themselves in such discretionary decisions as:

  • caesarian surgeries,
  • surgery as a first-line option for relieving back pain,
  • prostate cancer victims using either the most expensive laser treatment technology instead of watchful waiting,
  • administering chemotherapy extending life a few weeks, but resulted in shortening life for many patients, and
  • using bariatric surgery for morbid obesity.

The personal health management system can provide tools for patients to understand the strength and weakness of all treatment options. Requiring patients to study these options does not automatically nudge them toward the least expensive option, but helps them control the decision, as opposed to having it imposed on them by their physician. It also makes them more active partners in managing their health.

The value-based health plan gives strong financial incentives for patients to engage in a careful, interactive decision process before making a choice among discretionary, imperfect treatment options.

Personal health management systems are great vehicles for helping patients, those making care decisions for them, and those working with them to improve their health to determine their life goals and values, as well as their sources of well being in their daily lives. Armed with such information, physicians and other health care professionals can help patients and those making care decisions for them make the best decisions on how to optimize health and well being.

Many flawed health promotion strategies assume that, if we educate individuals on healthy behaviors, they will engage in those behaviors.

Optimal health does not generally drive individual behavior. Otherwise, no one would smoke, abuse alcohol, overeat, play inherently dangerous sports, or drive recklessly. Many factors influence health-related decisions, such as peer and family acceptance, the pleasure derived from unhealthy behaviors, the perception that unhealthy foods cost less than healthy counterparts, and the belief that the unhealthy behavior has healthy side effects (smoking suppresses appetite and keeps smokers thinner.)

We need to understand life goals and values before changing them. The personal health management system is wonderful for engaging in a dialogue to determine life goals, and figuring out what motivates both healthy and unhealthy behaviors. The Mayo Clinic has a wonderful tool called “motivational interviewing,” which is great for this purpose.

These life goals are particularly critical to understand when the individual is unable to make healthcare decisions. End-of-life decisions lend themselves to decision processes tested against life goals and values.

Value-based health plans, combined with personal health management systems, would be a major step forward in helping us produce better health care at lower cost.