|
|
A Big Insurer Bets on Hot Trend: Shopping Around for Health Care
By Vanessa Fuhrmans, The Wall Street Journal
October 24, 2005
In its three decades, UnitedHealth Group Inc. has helped drive some of the biggest shifts in the U.S. health-care system -- and made hefty profits doing so. Now the big health insurer is at the leading edge of the latest trend sweeping the industry: so-called consumer-driven health care.
The principle of consumer-driven plans is that people will shop for the best care at the lowest price if they have to pay more of the cost themselves. The idea is a response to traditional plans in which employers pay most of the bill after modest deductibles and co-pays, leaving consumers with little incentive to curtail their medical spending.
UnitedHealth's efforts show how consumer-driven plans are beginning to shake up the way Americans get their health insurance. UnitedHealth has spent hundreds of millions of dollars to buy two pioneering companies in the field that help it offer plans with high deductibles. It wants to help people navigate the health-care system more wisely with information on cost and quality. And with a landmark federal law allowing people to build up a health-care nest egg in tax-free "health savings accounts," the company has opened a bank. It hopes to manage the accounts much as Fidelity Investments handles corporate 401(k) plans.
There's nothing wrong with UnitedHealth's business at the moment. Net income nearly doubled to $2.59 billion between 2002 and 2004, and the stock price is up more than 60% in the past year. Chief Executive William McGuire, a pulmonologist who joined the company in 1988 and became CEO in 1991, earned $124 million last year, mostly from cashing in stock options.
But UnitedHealth sees the writing on the wall: It is a leading player in a steadily eroding business. As premiums climb ever higher, more companies are saying no to traditional health insurance. Just 66% of private full-time workers now have employer-sponsored health insurance, down from 80% in 1989, according to the Bureau of Labor Statistics. Though the U.S. economy has created 3.5 million jobs since 2000, the number of people with commercial health insurance hasn't budged.
"Our agenda isn't to try to preserve yesterday's approaches, which none of us is satisfied with," says Dr. McGuire. "If we can't find new ways to provide value, we won't grow."
Until now, UnitedHealth and the rest of the health-insurance industry have had little to complain about. As health costs rise, insurers can simply raise their premiums. Large companies typically "self-insure," meaning they pay their employees' health costs themselves but hire someone like UnitedHealth for administrative tasks such as deciding what to cover and handling paperwork. Self-insured employers bear most of the risk of rising costs; UnitedHealth collects its fees regardless.
The traditional health-insurance business suffers from just one problem, says McKinsey & Co. director Paul Mango: "There is zero growth there."
As the cost of insuring a family for a year skyrockets to around $10,000, many employers are looking for a new way. That's the impetus for consumer-directed plans. Typically the employee, often with a contribution from the employer, puts a chunk of cash each year into a health-savings account to spend on health care or carry over tax-free to the next year. The plans carry a much lower premium, but higher deductible than normal plans -- often at least $2,000 a year for families.
The idea is to make people think about what they spend. If a weekend football player strains his knee and is offered a $750 MRI, he has to decide whether to shop around for a cheaper one or perhaps just take an aspirin and wait a week. Some companies say the plans show signs of working well, especially by discouraging emergency-room visits and encouraging people to search for cheap generic drugs.
There are also risks to consumer-directed plans, both for Americans generally and for shareholders of UnitedHealth. The new plans may discourage some people from getting care they need. Also, by letting healthy young employees use employer money to build up health savings, the plans potentially disrupt the economics of a traditional health plan, under which young people subsidize the care of older, sicker employees.
It's not clear whether market forces will work in medicine, because doctors rarely tell patients how much their services cost. Critics say the sickest patients, who account for the majority of health costs, would blow through even a high deductible and still have little incentive to save.
As for UnitedHealth, it may have trouble finding as much profit in consumer-directed plans as it does in its traditional business. Along with managing health-savings money, it hopes the high-deductible plans' lower premiums will appeal to new markets such as America's 45 million uninsured. UnitedHealth also is selling cost- and quality-measuring tools to employers and rival health plans and other companies getting into the consumer-directed business.
UnitedHealth has more than a million members enrolled in consumer-directed plans, about a quarter of all such enrollment in the U.S. That's up from 560,000 in December 2004, although the new plans are still only a small part of UnitedHealth's empire, which boasts 23.5 million health-plan members. In a show of commitment, UnitedHealth required its own 41,000 employees to switch to consumer-directed plans this year.
Makes 'No Sense'
The consumer-driven concept also applies to some insurance sold to individuals. Wes and Carrie Johnson of Malvern, Ark., couldn't afford the $400 monthly premium on insurance offered by Mr. Johnson's employer when he took a new job as a farm-store manager. The couple figured they'd probably spend only a fraction of that because their main expense is checkups for their 2-year-old son, Hayden. "We're healthy, we're young, we don't use that much health care," says Mrs. Johnson, who is 27. "It makes absolutely no sense."
In May, the couple bought an individual health-insurance plan from a UnitedHealth unit with a $100 monthly premium and a $5,000 deductible. That means they have to shop carefully for everyday medical costs but are insured against calamities. "It gives me enough security that we wouldn't lose all of our money if something hugely traumatic happened," Mrs. Johnson says.
UnitedHealth has a long history of remaking health insurance. It was founded in 1974 under the guidance of Paul Ellwood, who is often credited with coining the term "health maintenance organization." Dr. Ellwood envisioned HMOs as a combination of insurer and provider of medical services. He thought HMOs could compete with each other on price and quality.
UnitedHealth rapidly bought up HMOs and managed others. But unlike Kaiser Permanente, the well-known California HMO, UnitedHealth's HMO networks consisted of outside doctors rather than UnitedHealth employees. Under Dr. McGuire, it steered further away from gatekeeper-model plans that required patients to get permission to see specialists and shifted its focus to negotiating discounted rates with hospitals and doctors and managing pharmaceutical costs.
As a backlash mounted against managed care's more restrictive cost-control practices in the 1990s, Dr. McGuire made UnitedHealth one of the first companies to abolish "preauthorization," the practice of making doctors get permission for certain tests or treatments. He says a review showed the company spent millions of dollars each year making such decisions, yet ultimately denied only 2% of the requests.
Over the past 15 years, Dr. McGuire has aggressively bought up rivals and helped spur consolidation of the industry into a few big players able to win large corporate accounts. Last year it bought Oxford Health Plans for $4.9 billion. Until the recent merger that created a new WellPoint Inc., UnitedHealth held the highest health-plan membership in the U.S.
Dr. McGuire's more recent acquisitions have reflected his strategy of expanding beyond UnitedHealth's traditional business. This year, UnitedHealth struck a deal to buy PacifiCare Health Systems Inc. for $8.1 billion. PacifiCare boasts a strong business in private Medicare plans, which some seniors choose as an alternative to getting their Medicare benefits directly from the federal government. Those plans are expected to grow further because the new Medicare drug benefit is only available through private insurers. UnitedHealth already has an exclusive deal to sell supplemental health benefits to the AARP's 35 million members.
In 2003, UnitedHealth spent an estimated $500 million to buy Golden Rule, a pioneer in medical savings accounts. Shortly afterward, Congress passed a bill that allows people to accumulate money in the accounts tax-free.
At first UnitedHealth developed consumer-directed plans in-house. But the company found itself losing business to nimbler start-ups. Whirlpool Corp. saw its health costs rise 13% in 2003 and decided to offer a consumer-directed plan from Definity Health Corp., though it already used UnitedHealth to administer a traditional plan. Janice Pushaw, Whirlpool's global director of benefits, says she considered UnitedHealth's offering but liked Definity's easy-to-read statements and tips for employees about saving money on medical care.
UnitedHealth bought Definity for $300 million in November 2004 and brought in Tony Miller, Definity's chief executive, to lead UnitedHealth's consumer-directed health businesses.
UnitedHealth hopes that people will store their medical savings at its bank, called Exante, which now has $34 million in assets. Exante Bank pays 4% interest and issues a MasterCard debit card with which patients can pay their doctors' bills. Eventually, Exante will introduce mutual funds tied to the accounts, UnitedHealth says. The bank also oversees health-savings accounts for smaller health insurers.
By 2010, consumers are expected to accumulate $10 billion to $26 billion in health-savings accounts. Others seeking a piece of the business include J.P. Morgan Chase & Co., Mellon Financial Corp. and Wells Fargo & Co., some of which have tied up with other health insurers.
UnitedHealth says it wants to help people be smart consumers of medical care, although opaque pricing at the doctor's office makes that difficult. The company's Web site for members allows them to compare hospitals on quality and calculate the average cost of treating an ailment. The site doesn't show actual fees for itemized medical treatments -- information that rival Aetna Inc. began disclosing this summer.
Giving cost information to patients is critical, Dr. McGuire says. "If we're going to be successful, just giving financial responsibility isn't enough," he says.
UnitedHealth is using its vast databases on health claims and tools developed by its data-mining unit, called Ingenix, to supply customers with price and quality information. It's also selling the tools to other health plans and employers.
Several Groups Revolt
Some of UnitedHealth's attempts to provide doctor-quality data have drawn complaints of heavy-handedness. In St. Louis this spring, several doctor groups, with the backing of the American Medical Association, revolted when UnitedHealth implemented a rating system that employers could use to give a financial incentive to employees who went to doctors meeting specific quality and cost standards. The doctors asserted that UnitedHealth focused more on price than quality. When one 13-hospital chain, BJC HealthCare of St. Louis, threatened to withdraw from UnitedHealth's network this summer, UnitedHealth agreed to modify the rating system but still plans to roll it out across the country.
Dr. McGuire thinks some of the features of consumer-driven health plans can be imported back into traditional plans. UnitedHealth is adopting some of Definity's steps to make statements easier to read, and encouraging all its members to check out cost and quality data online.
This summer, UnitedHealth sent to health-plan members in Wisconsin thousands of miniature plastic guillotines with instructions on how to split pills to reduce prescription-drug costs. Many drugs carry the same price regardless of dosage, so buying a high dose and splitting the pill can save money. UnitedHealth even said it would give pill-splitting members a 50% discount on their usual drug co-pay.
It is now taking the pilot program nationwide. "It might feel crude," says Mr. Miller, the executive brought in after the Definity acquisition. "But it's the stuff that matters."
|
|
