The History of Healthcare Consumerism
Winston Churchill once said, “You can always count on Americans to do the right thing - after they've tried everything else.” Well , the United States has tried many different ways to lower the cost, expand access, and improve the quality of healthcare. We have tried payment reforms, insurance reforms, cost shifting, self-insured funding, HMOs, PPOs, and a myriad of other initiatives. How does Healthcare Consumerism fit into the history of reforms? Below is a time line of where we came from and how we got to the “market-oriented consumer-centric patient-centered, personalized-health” we now call “Healthcare Consumerism.” So, sit back, relax, and enjoy the history lesson because as the old saying goes, “Those who do not learn history are doomed to repeat it.”
Up until the early 20th century the federal government left health insurance matters to the States. The States, in turn, left health insurance up to private and voluntary programs. Here are key moments that formed the legal and market forces leading to Healthcare Consumerism.
1. 1920-30s - Blue Cross & Blue Shield: In 1929 Baylor University's health care facilities started the first insurance program in the U.S. for teachers in the Dallas area. During the depression years when most could not afford a hospital stay, a new financing system was adopted with a fixed cost (premium) that was paid for a guarantee of a limited number of hospital days. This became Blue Cross (BC). Following the lead of hospitals, Blue Shield (BS) was developed by employers in lumber and mining camps of the Pacific Northwest to provide medical care by paying monthly fees to groups of physicians. In 1939, the first official Blue Shield Plan was founded in California. Ultimately BC and BS joined to become dominant players in the U.S. health insurance industry.
2. 1944 – Public Service Act: The Public Health Service Act was enacted in 1944. It gave the United States Public Health Service responsibility for preventing the introduction, transmission and spread of communicable diseases from foreign countries into the United States.
3. 1940s - Employer-based Health Insurance: During the 2nd World War, wage and price controls were placed on American employers. To compete for workers, companies began to offer health benefits, giving rise to the employer-based system.
4. 1965 – Medicare & Medicaid: In 1965, President Johnson signed the Medicare and Medicaid programs into law, providing comprehensive, low-cost health insurance coverage to the elderly and low income.
5. 1974 - ERISA: The Employee Retirement Income Security Act of 1974 (ERISA) was enacted September 2, 1974. While originally thought to cover only retirement plans, subsequent court cases established self-insured health plans under ERISA to be exempt from state insurance laws. Self-insured plans shift the risk of plan solvency from insurance companies to employers. These rulings started the movement towards widely used self-insured plans that use insurers and TPAs as administrators. Subsequent amendments to ERISA include:
a. The Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) which provides some employees and beneficiaries with the right to continue their coverage under an employer-sponsored group health benefit plan for a limited time after the occurrence of certain events that would otherwise cause termination of such coverage.
b. The Health Insurance Portability and Accountability Act of 1996 (HIPAA) prohibits a health benefit plan from refusing to cover an employee's pre-existing medical conditions in some circumstances. It also bars health benefit plans from certain types of discrimination on the basis of health status, genetic information, or disability.
c. Other relevant amendments to ERISA include the Newborns' and Mothers' Health Protection Act, the Mental Health Parity Act, and the Women's Health and Cancer Rights Act.
6. 1978 – Flexible Spending Arrangements: This is the first account based option for employee contributions. However, it included a use-it-or-lose-it provision for unspent funds at the end of a calendar year. Allowed by Treasury In 1978, Flexible Spending Accounts provide for employees to have their compensation reduced by an amount necessary to cover certain fixed benefit costs and non-fixed benefit costs with pre-tax dollars rather than after-tax dollars. Eligible benefit costs include health insurance premiums, dependent care, dental care, vision care, other services not reimburse by the regular health plan, etc.
7. 1973 - HMO Act: It was the first step in creating a “Managed Care” system. Enacted December 29, 1973, the federal HMO Act provided for a trial program to promote and encourage the development of HMOs. The HMO Act amended the 1944 Public Health Service Act.
8. 1970-80s – PPOs/EPOs: This was the first step in creating proprietary insurance owned provider discounted networks. In the 1970s, employers began using preferred-provider organizations (PPOs). PPOs steer employees to cooperating doctors and hospitals that have agreed to a predetermined discount reimbursement for services provided. Various forms of PPOs were created, including Exclusive Provider Organizations (EPOs) that were very limited generally localized networks of hospitals.
9. 1983 – DRGs: This was the first phase of establishing a bundled payment for hospital services. On October 1, 1983, Medicare’s new Prospective Payment System (PPS) became effective for payment of services to hospitals.. According to this payment scheme, , hospitals are paid a fixed amount per patient discharge. The rate of reimbursement will be based on Diagnosis Related Groups, a classification of 467 illness categories. For Medicare, the Prospective Payment System replaces the fee-for-service plan in which the payment is cost-based and retrospectively determined following treatment.
10. 1990s – Hospital Owned HMO’s: This was the first movement towards provider risk-bearing through owned insurance companies. During the mid-1990s, starting hospital owned HMOs was a managed case growth industry. New opportunities were opening to serve employers, state Medicaid programs and seniors on Medicare. Hospitals concluded that the best way to regain some of the economic power they had lost to HMOs was to try and play the same game. From 1995 to 1997, literally dozens of HMOs were formed (or acquired in a few cases) by hospital organizations.
11. 1996 - Medical Savings Accounts (MSA) – The MSA must be coupled with a high-deductible health plan (HDHP). This is first form of Consumer-Driven Healthcare. Pat Rooney, founder and president of Golden Rule Insurance Company was instrumental in the 1996 passage of Medical Savings Account (MSA) pilot program that allows for tax-free contributions to a medical savings account. It was passed as a part of the Health Insurance Portability and Accountability Act (HIPAA) in 1996.
12. 2002 - Health Reimbursement Arrangements (HRA): HRAs were the first non-pilot savings accounts option that spurred the initial Consumer-Driven Healthcare Movement. While only employer allotments were allowed, this is first time a continuous carry forward of an account was allowed. An HRA is an arrangement that: (1) is funded solely by the employer, (2) reimburses the employee for medical care expenses incurred by the employee and the employee’s spouse and dependents and, (3) provides reimbursements up to a maximum dollar amount for a coverage period and any unused portion of the maximum dollar amount at the end of a coverage period is carried forward to increase the maximum reimbursement amount in subsequent coverage periods.
13. 2003 – Health Savings Accounts (HSA): HSAs are the first to financially empower employees with medical dollars to spend in addition to coverage under High Deductible Health Plans. HSAs continued a trend of employee empowerment and the movement to Consumer-Driven Healthcare. In December of 2003, the Medicare Modernization Act (MMA) prescription drug bill was passed that also included Health savings Accounts. HSDA are real dollar put into savings account and owned by employees. Employers, employers, and even other third parties can contribute triple tax advantaged dollars into an HSA (tax deductible, tax free accumulation, and non-taxed qualified withdrawals).
14. 2000s - Healthcare Consumerism: Healthcare Consumerism is the natural market extension of account-based plans. As account-based plans, including HRAs and HSAs, gained favor in reducing costs, additional support services surfaced to expand on the pure account-based plan designs. Wellness initiatives, Disease Management, incentives and rewards, and health education allowed for effective engagement of plan members in making better informed health and healthcare decisions.
15. 2010 – The ACA & Health Marketplaces: The development of Healthcare Consumerism has been spurred on by the Patient Protection and Affordable Care Act that was signed into law on March 20, 2010. The ACA established comprehensive health insurance reforms, including the creation of health insurance marketplaces (also called health exchanges). The ACA mandated coverages have highlighted the relative affordability of HSA High Deductible Health Plans. The Health Marketplaces, sometimes under employer fixed defined contribution financing, offer individuals more choice of coverages. Healthcare Consumerism has continued to grow and flourish under the ACA.
16. 2017+: Patient-Centered Healthcare Consumerism (PCHC) – PCHC is becoming the descriptor of health reform as the post ACA legislation is significantly driven by physician politicians. In most surveys on healthcare, individuals do not see themselves as consumers but as patients. As the ACA is repeal, replaced or at least substantially changed, the basis of change will be based on the more inclusive concepts of PCHC. New care models will develop with lower cost, greater convenience, and higher quality. Tele-health, direct payment, concierge services, bundled services, and IoTs will provide more personalized services.
As we shift emphasis from health insurance reform to healthcare reform, we will also see a shift from health and healthcare to a goal of productive longevity. Science, genomics, technology, and social media will influence the course of future healthcare products and care. Governmental laws and regulations will form the basis for change and opportunities. Government laws and regulations can speed up or slow down the expansion of Patient-Centered Healthcare Consumerism, but cannot stop it as a megatrend.