Regina E. Herzlinger

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 <h4 class="ideainbrief-title">The Idea in Brief</h4>
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 For business, health care has become a lose-lose proposition: You pay way too much, and you get way too little. Despite massive company expenditures ($450 billion in premiums in 2000 alone), employees still lament the quality of care they receive, burdensome out-of-pocket expenses, and inadequate coverage.
 The health care industry has been shielded from consumer pressure—by employers, insurers, and the government. As a result, costs have exploded as choices have narrowed.
 There is a way out of this mess—if companies embrace a radical new treatment: consumer-driven health care. This new model places control over costs and care directly in the hands of employees by giving them more health-plan choices, greater control over what they spend on coverage, and more information for wiser choices.
 When consumers control any industry, competitive forces spur productivity and innovation. Quality improves, choices expand, prices fall. Business can restore these vital signs in health care, too.
 The Idea in Practice
 To start the shift to consumer-driven health care, companies need to revamp their health benefits in six ways:
 Give employees incentives to shop intelligently. “Give” them the sum you would have spent on benefits. Require them to spend some on insurance to cover financially catastrophic medical events. Let them spend the rest on other options (e.g., prescription or long-term-care coverage). By shopping as if they’re using their own money, employees tailor coverage to their needs.
 Offer a real choice of insurance plans by varying benefits (e.g., preventive, long-term, prescription), out-of-pocket maximums (versus lower premiums), term lengths (e.g., multiyear plans promoting long-term health), and provider organizations (e.g., groups specializing in specific diseases).
 Charge employees actual prices. Many companies subsidize certain plans to encourage employees to choose them. But when employees don’t know health insurance’s real costs, some select more expensive plans than they need. Price transparency reduces wasteful spending.
 Let providers set their own prices. When insurers set prices they pay providers for each discrete care “episode,” providers aren’t motivated to create bundles of integrated services, especially for chronic-disease sufferers. When providers determine prices, care quality improves, and costs fall. Example:&nbsp; 
 Buyers Health Care Action Group, a coalition of large employers, contracts with care teams (primary care physicians, specialists, hospitals) that determine their own policies and prices. Employers provide employees at least enough money to select the lowest-cost plan, plus coworker ratings of caregivers’ quality. In five years, the percentage of employees enrolled in high-cost groups fell from 70% to 17%. Overall, there was no reduction in quality of care, and quality increased for some chronic diseases and health-promoting activities. 
 Adjust payments for each enrollee based on need. When companies pay the same premiums for every employee, regardless of individuals’ health status, insurers and providers have no incentive to create innovative programs for the sick. To address this—without employers or employees paying more—use risk-adjusted pricing to vary payments according to individual employee’s care needs, through a neutral third-party that maintains employees’ privacy.
 Provide relevant information. To help employees select coverage and care wisely, give them objective information about the quality of care provided by specific doctors, hospitals, and insurers.
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</article-ideainbrief>The health insurance system in the United States is broken, and business is paying the price. Employers’ insurance premiums reached an estimated $450 billion in 2000, and then shot up again, at three times the rate of inflation, in 2001. With managed-care cost controls collapsing, patient-protection legislation promising to set off a round of expensive lawsuits, and costly genomic technologies on the horizon, the price of insurance is almost certain to continue its upward spiral in the years ahead. And what do companies get for their massive expenditures? A lot of unhappy employees. Workers fret about the quality of the care they receive, the burden of out-of-pocket expenses, and gaps in coverage for long-term care, prescriptions, and catastrophic illnesses. For business, health care has become a lose-lose proposition: You pay way too much, and you get way too little.

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Let&rsquo;s Put Consumers in Charge of Health Care

Businesses spend billions on health insurance, yet employees remain unhappy with the coverage they receive. It’s time for a radically new approach.

Let’s Put Consumers in Charge of Health Care

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