The facts: There were fewer doctor visits, lab-tests, hospital admissions, and lower overall utilization in first three quarters of 2010 than the year before (1). Visits were down 7% in the first half of 2010 compared to 2009. Despite predictions that utilization would rebound in the third quarter when deductibles were met, it did not(2), which has surprised many. Such a downward trend is a new phenomenon. Insurers have never seen this before, even during past recessions.
According to the National Bureau of Economic Research (NBER), the cause of the decrease is primarily economic, resulting from losses of discretionary income and insurance (3). Its evidence stems from surveys where 27% of Americans report having cut back on their healthcare spending, compared to far fewer people who report cutting back in countries that have universal healthcare, such as Canada , France and the UK. Further supporting their theory, the decline in care-seeking seems was more evident in younger, lower income citizens than others (3).
While the economic “forgoing” explanation makes sense, there is no shortage of other opinions about why healthcare visits are down, including:
• Better Health. Flu season was much less severe than normal, lowering the severity of hospital admissions (2).
• Better Care Management. Providers have become better at providing just the right amount of care and negotiating better prices (2).
• Smarter Purchasing. The growth in consumer-directed plans has resulted inmore consumerism and patients getting only the care that they need (1).
• Postponing Care. Patients are delaying optional procedures until they are more certain about their employment and coverage (4).
The first two explanations (better health and better care management) were offered by Humana officials during Q3 investor meetings, where they announced 30% per-share profit increases as a result of paying for less care while premiums went up (2). Presumably they wanted to reassure the media and shareholders that insurance gains were not the result of tragic hardships experienced by paying customers.
The last two explanations (smarter purchasing and delays of discretionary care) broaden the interpretation of NBER’s economic hardship argument in a useful way. Acknowledging that today’s financial struggles are very real (5) and many citizens face choices between medical care and other basic needs, the reduction in utilization also tells another story. Yes, some people are going without care that would help them. But others are saving money by exploring less expensive alternatives. While general doctor’s visits were down, Minute Clinic visits were up 36% from Q2 2009 to Q2 2010 (6). Consumers report looking for less-costly, convenient alternatives, avoiding unnecessary tests or procedures, and generally considering costs when they hadn’t before (1).
If anyone wondered whether putting purchasing power in the hands of consumers would change care-seeking patters, wonder no more. When we spend our own money, we pay more attention and we spend less if we can. A perfect storm of recession, higher cost-sharing, and new consumer-friendly alternatives like retail clinics has given us a (tiny) glimpse of true market pressure perhaps for the first time, which is not all bad.
What will we learn from the downturn in healthcare utilization?
If we allow ourselves to learn from both positive and negative consequences, it points us toward more consumer cost-sharing for services, not less. Some focus only on reductions in necessary or life-saving treatment to justify universal coverage and free care for all. But this reaction overlooks useful lessons.
First, many of the avoidance and substitution choices that price-sensitive consumers make are good ones, meaning they do not harm the patient, they encourage innovation, and they save money across the system. These include switching to generic drugs, trying lifestyle improvements before a medical procedure is used, calling for a refill rather than seeing a doctor, and going to less-expensive providers when appropriate rather than to specialists. Why remove incentives that drive responsible choices?
The pieces of a smarter, consumer-oriented system are still evolving, albeit in piecemeal fashion. Combined, these pieces put more money in the hands of the individual, provide better information about cost and quality of service, and offer access to more affordable alternatives while maintaining higher costs for services that may be discretionary. A few examples of this smarter, consumer-oriented system include:
• funded health savings accounts, so money is available to choose and purchase medical services;
• better, more timely price information (such as that coming from organizations like ChangeHealth);
• better comparative information about physicians (such as that coming from organizations like HealthGrades);
• alternatives to emergency rooms for off-hour non-emergencies (such asTeladoc);
• low- or no-cost primary care, offering a package of consultation and maintenance medications (such as WeCareTLC);
• information services that support informed decision-making when care is complex and/or technical (such as KnovaSolutions);
• wider recognition of the link between work environment, benefits design and health-related costs.
Together, elements such as these may have contributed to the glimmers of a consumer market that appeared in the 2010 economy.
What health plans learn from the downturn in healthcare utilization.
Health plan leaders have largely rejected the notion that lower utilization is here to stay, saying that they don’t anticipate lowering premiums next year because consumption will inevitably “return to normal”(2). Conversely, industry analystspredict continued declines in 2011 (2).
But insurance plans do face an interesting dilemma: the decline in utilization has brought most plans to a Medical Loss Ratio (MLR, the portion of the premium must be spent on actual care or quality improvement versus administrative costs and profits) below the new legislative requirements for 2011 (7, 8).
In other words, if premiums stay high and utilization stays lower, plans will have to find ways to “spend more” on healthcare to avoid paying penalties. Some reports indicate they intend to do just that (2), although one might wonder how they can ethically accomplish that task while patients consume less. Something tells me that plans have ways to increase MLR that may or may not coincide with what patients want or need most.
So, what will be learned from lower utilization? How to fund, empower, and inform consumers to take an ever-increasing role in shaping more efficient healthcare? Or how to further convolute spending to meet legislative requirements rather than respond to the greatest needs of patients? It’s our choice.
Why this matters: The results of our natural experiment are in. Consumers do respond to financial incentives, with both positive and negative consequences for everyone involved. We can capitalize on this increase in consumer awareness and expand opportunities to provide information and purchasing power, or we can depend on a system that has misaligned incentives to charge ever increasing premiums while delivering just enough to keep federal auditors (not necessarily patients) happy.
Wendy Lynch advises businesses through Lynch Consulting Ltd., connecting human and business performance.