Tuesday, October 15, 2013
The Health Care Market
The form of a competitive market in health care may be
emerging.
An article in the September 19 issue of The Boston Globe
reported that Walgreen, the drug store company, was converting its health care
benefit to one of defined contribution.
Defined contribution means that the employer pays a fixed amount towards
the cost of the employee’s health insurance.
The employee then selects and buys an insurance policy and pays the
difference if the policy selected costs more than the employer pays.
Walgreen employees will buy their health insurance through
an exchange that includes as many as 25 insurance companies. The exchange will be set up and run by consultant
Ann Hewitt, who also performs this function for Sears and Darden Restaurants,
which operates the Red Lobster and Olive Garden chains. Presumably, one purpose of this arrangement is
to help employees make informed and responsible decisions about which insurance
policy to select.
The Walgreen benefit manager was quoted as saying “I think
the only way to drive down costs in the health care space is to have the
consumer buying the health care be knowledgeable and educated and understand
what they are buying.”
The assumption seems to be that insurance companies will compete
in the exchanges by trying to offer an attractive package of benefits and holding
their premiums down by negotiating the prices they pay providers and controlling
the rate at which services are utilized.
Providers will be able to accept that only if they gain effective control
of both cost and the utilization of services.
Up until now, providers have not shown much inclination to
do either one and people don’t like it when insurance companies get involved in
controlling utilization. We will see
whether under the defined benefit approach, insurance companies can find a way
to cause providers to get serious about both.
