PricewaterhouseCoopers

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Trend #1

Health Insurance Financing Trends are Converging as Europe and Canada Become More Privatized and the United States Becomes More Governmental

The United States has been the only country in the industrialized world relying primarily on optional employer-based health insurance. Access to care is not a legal right in the United States as it is in Europe, Canada and most other industrialized nations. However, a safety welfare net system exists for the poor and elderly.

In the rest of the world, access to healthcare is a right for all citizens paid for either by social insurance funds with member and employer contributions or from tax funding. Most of these systems allow for private medical insurance either by opting out of state-sponsored schemes or as additional health insurance schemes that provide additional benefits or reimbursement.

However, in the coming decade, these two different health financing systems will start converging. The United States will look a bit more like Europe and Canada. In turn, Europe and Canada's systems will embrace more aspects of the United States' system.

Government Control Strengthening in the United States

In the United States, more costs and decisions about health will shift toward government purchasers and consumers. Rising costs, changes in the workplace and the age of workers themselves are contributing to this shift. Baby boomers start turning 65 in 2010, moving more Americans into a government-funded system. The shift toward government as the primary payer is already under way. In 1997, government programs in the United States accounted for 46.4% of health spending, up from 40.5% in 1990. In addition, the United States government has been taking a stronger role in the regulation of private healthcare, with recent examples being the mandated 48-hour maternity stay, mental health coverage requirements and the much-debated Patient Bill of Rights. This is a sea change from regulation of private insurance, which previously rested with state governments.

In some European countries, higher income groups are required to buy private medical insurance. In other countries, such as Spain, Italy and the United Kingdom, it is optional and patients receive higher-end services such as private rooms, choice of specialists and faster access to treatment. In France, mutual insurance schemes are used by many people to cover co-payments which also reflect the standard and level of service offered; for example, some specialists with high levels of skill receive higher than usual co-payments. Across Europe, private medical insurance covers about 10% of healthcare costs and is growing at about 5% to 7% per year, with higher rates of growth in fields such as long-term care insurance where public funding is often very limited.

As national health systems encounter increasing funding problems and are faced with ever expanding options for medical treatment, one response has been to increase co-payments for services as in the case of France and the United Kingdom. Another approach is to attempt to set limits on the types of treatment to be covered. Any attempt to limit access to services has proven to be very controversial.

However, many commentators believe that an overt approach to limiting certain services would be preferable to the ineffective regulation of demand by waiting lists, which have been growing in the United Kingdom, Denmark, the Netherlands and Italy. While waiting lists can divert demand to the private sector, they also lead to higher costs because patients may require more acute care when they are treated.

The convergence means that the percentage of private insurance is falling in the United States, but it's rising slightly in other developed nations. Although the lines won't meet by 2010 or even 2020 without some cataclysmic event, the United States and those countries with universal access are moving closer together on a number of issues, payment being one. The United States government is increasingly absorbing more costs and control as the population ages. Meanwhile, in those countries with universal access, privatization is taking a larger share of overall health costs.

Two Types of Payers Emerge

These trends mean that most of the industrialized world will have both a strong federal health program as well as private, market-oriented one. As providers in the United States can attest, this can make them slightly schizophrenic, catering to the demands and payment systems of different constituencies.

However, both governments and private insurers will use the fact that patients demand less when they pay more out-of-pocket for certain discretionary services. Demand will fall if prices (in the form of co-payments, premiums or deductibles) go up, a market tenet that can be used to temper rising costs.

In addition, government and private purchasers need to be aware of how the private/public mix of payment can be radically affected in a recession.

National health expenditures rise at a much higher percentage than other spending during the recessions. This certainly happened during the recessions of 1981 and 1982 and again from 1989 to 1992. Workers, who are unsure about the continuity of their jobs and their health insurance coverage, use more healthcare services during a recession.

Privatization Will Grow Amid Government Health Programs in Europe and Canada

A type of "passive privatization" is oozing into countries that have prided themselves with the policy of universal health access. For example, Canadians now spend $24 billion on private health spending, accounting for more than 30% of the country's total health bill.¹⁸

"When we at the Heart Institute can no longer accommodate patients, we send them to a private supplier," says Wilbert Keon, director general of the Ottawa Heart Institute. "This is a huge problem for our seniors right now. We are losing $2 billion a year, mostly out of Ontario. This is not because Ontario has the longest waiting lists, but because Ontarians have the most wealth."

The shift to more privatization means that many European countries will move to multi-tiered systems by 2010. Already policy makers are discussing covering citizens for a basic benefits package, which includes limited amounts for prescriptions, hospital care and physician services. For care above the levels provided by those basic packages, citizens would have to foot the bill or purchase an umbrella policy.

"The development in the last 10 years has shown a dwindling number of sick funds and health insurers in the Netherlands," notes M.W.L. Hoppenbrouwers, vice-managing director Strategic Policies and Development, Zorgverzekeraars, the Netherlands. "Within 10 more years, the number of health insurers will be reduced to about 10 main health insurers. The new framework could only succeed when the maneuverability for health insurers is large enough to provide additional health policies besides the basic standard healthcare package set up for every citizen. In this new healthcare system, the purchasers will exercise more influence and control in managing healthcare systems at the expense of governmental influence in healthcare systems."

The move to more private health insurance is spurred by employers in Europe who want to create better labor conditions and keep employees as healthy as possible. They see health insurance as a tool to attract and retain employees as labor becomes an increasingly scarce commodity. However, they will require a more thorough analysis of their benefits structure as they examine the options and alternatives of providing benefits to an increasingly vocal workforce under a quickly changing healthcare system.

Tiers of Care Will Break the Surface of Equal Access

Singapore officials are using a three-tier medical safety net, comprising the 3 Ms (Medisave, Medishield and Medifund). This "co-sharing" financing system ensures that the patients share in their healthcare costs and thus avoid the perception that medical services are "free."

Another approach to tier contributions is under development in Australia, where the government wants to regulate the healthcare process through a Lifetime Community Rating. Under this arrangement, individuals who enroll in health insurance while young would pay a lower rate throughout their lifetime than those who postponed membership until older.

Some United States health plans already require different tiers of pricing in which patients pay less when using a preferred list of providers and more for other providers. In addition, some plans have instituted three different amounts for drugs, depending on whether they're generic, name brand or non-preferred name brand. The co-pay for non-preferred brands can be as much as $50, certainly a leap from the $5 or $10 co-pay that United States consumers had been used to.

Although Employers Will Still be a Major Source of Health Insurance for Americans, They Will Cede More of the Control and Cost to Government and Individuals

When healthcare inflation was spiraling wildly out of control in the 1980s, employers contracted with managed care organizations that promised to rein in the costs. By and large, it worked as health inflation tempered between 1994 and 1998. Employers also tried to demand quality from providers through coalitions that demanded report cards and information. However, health inflation spiked back up in 1999 and some employers became frustrated with their quality efforts. As a result, employers are shifting to workers more of the cost and the responsibility to demand quality. This ties in with the empowered consumerate discussed earlier.

Still, "the ability to live better and better across age groups will mean fewer disabilities and increased productivity. So, although employers' direct healthcare costs will grow, they will be offset by gains in other areas that also impact the bottom line," says Mary Jane England, president of the Washington Business Group on Health. However, she says more employers will judge health plans by their "ability to keep people working."

Defined Contribution Programs Will Emerge in Healthcare

During the past five years, most employers have moved their retirement programs from defined benefit to defined contribution. Through these programs, employees take responsibility for their investments. "I think an awful lot of people think the defined contribution program is the way to go," says Edward Miller, M.D., CEO of Johns Hopkins. "Moving to defined contribution in pension plans has been very successful."

Moving to a defined contribution program may allow employers to better control their cost obligations of providing healthcare benefits. "Health benefits are becoming more of a dissatisfaction of employees," says one employer who spoke of the hassles of negotiating coverage denials with insurers on behalf of workers.

"There is a better than 50% chance that we will see a defined contribution system in Medicare by the year 2010," says Dr. William Roper, who formerly headed the agency that administered Medicare in the United States. Margaret O'Kane, president of the National Committee on Quality Assurance in the United States, agrees: "Medicare will definitely be voucherized by 2010. The rest of the system could go either way. But, the role of employers as the base of private health coverage will erode significantly."

Sixty-four percent of health leaders responding to the HealthCast 2010 survey believe employers will move to a defined contribution system by 2010 and 57% thought Medicare would move to a similar system. In addition, 60% believe employers will offer medical savings accounts as an option by 2010, the survey showed.

The Percent of United States Employers Offering Retiree Medical Benefits Will Continue to Drop

Most employers in the United States are contemplating how to reconfigure or reduce retiree medical benefits. Although Medicare pays for acute care, it does not pay for outpatient drugs, a cost that has been growing rapidly for seniors. However, for a majority of retirees, that cost is offset by medical benefits paid for by their former employers. As the population has aged, some companies have found themselves with as many retirees as active employees, creating a growing financial liability for them. The rub comes in that many of the new generation of high-tech companies don't provide retiree medical benefits, and if they start, they're likely to be entirely employee-financed. One rationale for not providing them is that the once strong bond of employer-employee loyalty is evaporating; few stay with an employer for life anymore.

For that reason, employers are mulling over the following changes in retiree benefits:

• Charging retirees, if only a minimal amount such as $5 a month, for health benefits.
• Changing the retiree medical plan to make it as restrictive or more restrictive than the active plan, i.e. the inclusion of a drug formulary and mandating the use of a provider network. In the United States, most employees have no other choice but an HMO, while retirees can stay in Medicare's traditional fee-for-service plan.
• Increasing the premium for retirees to stay in the medical plan. In the United States, employers could make their retiree benefit premium so high that they drop out and rely solely on the government for healthcare.
• Dropping a retiree medical plan for new hires.

Trend #2

Health Processes Will Be Standardized as the Science and Measurement of Medicine Improves

Empowered consumers will demand to know more about the treatments proposed for them, their effectiveness and the track record of the medical team offering the treatment. This will accelerate the demand for the standardization of health processes despite resistance from some doctors to "cookbook medicine." Governments, health purchasers and insurers will also support standardization because without common platforms and benchmarks, inefficiency and costs will continue unchecked. That's why the 21st century will abound with new rules, protocols, and care paths aimed at the overuse, underuse and misuse in healthcare processes. Common computer interfaces in use in other industries will lead to a more connected world in which health data can be exchanged, measured and updated. With benchmarks, consumers and physicians can make personalized health decisions in a more objective manner without the wide variations that currently exist.

Common platforms will facilitate two-way communications. Ideally, information will be sent, collected and analyzed in a secure electronic format that both patient and provider can use. If privacy concerns can be overcome, this will drastically re-engineer the traditional relationships.

"In the future, we're going to go to the doctor's office a lot less often, but we're going to send him data more often,"says Newt Gingrich, former United States Speaker of the House.

Technology Is Ready and Waiting for Healthcare to Embrace It

The concept of compiling and updating standardized patient information using a common platform is already a reality in Europe. One of the largest deployments of technology in healthcare is under way in France where the government has issued 40 million Sesam Vitale health smart cards and is in the process of distributing 12 million more over the next three years.

And France is not alone. Governments in Spain, Germany, the Czech Republic and Russia are either implementing or piloting health smart cards. Spain's is the first to use biometric technology - scanning an individual's fingerprint as a security check.¹⁹

Smart cards have microprocessors that experts say make them more versatile, reliable and secure than the swipe credit cards that are popular in the United States. These microprocessors enable the cards to store, process and exchange data, a natural application for health records. New technology has made them contact-less, meaning they can be read by holding the card up in front of a reader device. The French cards don't contain a complete medical record, but they do have enough medical information for an emergency.

In France, 50,000 health professionals also are being issued smart cards that give them access to a centralized patient record warehouse.

Another smart card project is the DIABCARD project, which is focused on patients with diabetes mellitus and cardiovascular diseases to enhance cooperation between healthcare professionals involved in the care of those patients. The DIABCARD has been implemented in Austria, France, Germany, Greece, Italy and Spain.

Smart cards, combined with telecommunications advances, will give healthcare providers a far less expensive way to communicate and learn from each other.

The electronic patient record fosters the need for data warehousing. Health leaders, particularly in Europe, believe hospitals are most likely to fill that role, according to the HealthCast 2010 survey. However, in the United States, 35% of survey respondents said patients would store their electronic medical record on a source that's not part of the current healthcare system. In fact, 24% said it would be an Internet portal service, perhaps America Online or Yahoo!

Standard-Setters Will Need to Reflect the Views of Consumers and Doctors

Guidelines are becoming more meaningful, more outcomes-oriented and more granulated. Thought leaders know the need is pressing: "We don't know what is happening to our inventory [of patients]," notes Marjorie Beyers, executive director of the American Organization of Nurse Executives. "We've got to be learning what people use the system for."

In the United States, the National Committee for Quality Assurance, which issues report cards on managed care plans, has increased the participation of plans in its survey, as well as the degree of detail in the reports. Breast cancer screenings, immunizations and the use of beta blockers after heart surgery are among the quality indicators for which it grades some 400 HMOs. By 2010, we expect this grading system to become even more detailed or personalized for consumer interaction.

In the United Kingdom, the National Institute for Clinical Excellence was established in 1999 to review new treatments that would be made available across the National Health Service. Its first analyses will be of 13 drugs and procedures, including hip prostheses, hearing aids, extraction of wisdom teeth, coronary artery stents, asthma inhalers for children and interferon beta for multiple sclerosis. The United Kingdom Department of Health noted that NICE is designed to move toward a system that is "based on need and need alone, not on who your general practitioner happens to be or on where you live."20 NICE and its sister organization, the Commission for Health Improvement, both have consumers, as well as doctors and nurses, on their boards and aim to take a patient-centered perspective.

Standardization + E-business = Speedy Dissemination of Information

The publishing of "report cards" in healthcare is ballooning on the Internet. Through the point-and-click sorting of the Internet, consumers can get the meaningful information they need. "There are much more mass media approaches for disseminating healthcare information," says Ronald Peterson, president of Johns Hopkins Hospital and Health System. "There is somewhat of a free-for-all emerging."

Most healthcare practitioners and purchasers applaud the use of guidelines and the value gains in cost and quality. For example, some American hospitals have recently used bedside terminals to collect patient information and found reductions of up to 80% in medication errors.

The use of computerized, possibly Web-based, decision-support systems is likely to have several benefits, according to the HealthCast 2010 survey. Seventy-one percent of those surveyed believed quality of care would increase, and 47% said patient confidence would grow as well.

Despite the support for standard guidelines, the unity ends when the tough questions come up about who develops standards, who pays for their development, how are they applied or are they mandated. "We will see guidelines and protocols applied in different contexts, but they will need to have enough flexibility to not limit physician alternatives," says Joan Rodes, M.D., a renowned medical researcher in Spain and director of la Fundacio Pi Sunyer de la Corporacio Sanitaria Clinic. "We are at risk of misunderstanding evidence-based medicine with obedience-based medicine," adds Alicia Granados, a director of one of the most active technology assessment agencies in Europe, Catalan Agency for Health Technology Assessment.

Patients feel comfort in treatment guidelines, but surveys have shown that they want doctors, not government or insurance companies, to formulate those guidelines.

Even then, issues arise. For example, "every cardiac patient, if there is evidence of heart disease, should be on ACE inhibitors," says Wilbert J. Keon, M.D., general director of the University of Ottawa Heart Institute. "Yet, only 5% are. ACE inibitors cost $200 to $300 a month. The Ontario Cardiac Care Network designed excellent disease management framework for Ontario - but it was never fully implemented because of its cost. There is a conflict between what is good for the individual and what is good for government."

One big question is how standardization will alter the industry's compensation models. Will it move healthcare to commodity pricing? Maybe not, but "we will see a demystification of what is medicine," predicts Nancy Formella, senior nurse executive at Dartmouth-Hitchcock Medical Center in New Hampshire.

The combination of standardization and empowered consumers could be very powerful. Once patients understand more of the details of their care, they may shop around for a better value. This is bound to hurt low-quality providers, but could enable high-quality providers to charge more. This is already happening in other areas, such as higher education. Published rankings of colleges, which have flourished in recent years, spur demand for the top-rated colleges and allow them to increase tuition; while the lower ranked ones may not be able to raise tuition as much as they would have liked because of lower demand.

Standardization Will Have the Biggest Effect on Hospitals as Information Is More Readily Shared and Technology Pushes More Devices and Diagnostics Into Outpatient and Home Settings

One area in which these trends intersect is the laboratory, whose role will be much more automated and much less centralized and less labor intensive. Point-of-care testing, such as hand-held blood and saliva analyzers, will be pushed out to the bedside, the clinic and the home.

Standardization will allow purchasers to determine the most efficient setting of care. In addition, care venues can keep better track of which services they should provide and which should be outsourced. One view is that "instead of large general hospitals with a large number of specialist departments and a large number of inpatient beds, the trend will direct to small, highly sophisticated cure clinics with only three departments: intensive care, surgical/radiology and emergency," says Michael Kuhn, head of the research department of Philips Medical Instruments, Philips Forschungs Labor Hamburg. After a short stay, the patient will be referred to a patient hotel or ambulatory care, he adds.

The move to shorter hospital stays will be especially dramatic in some countries. The United States has the fewest hospital days per capita - 1.1 - according to a study by the Commonwealth Fund and 1998 OECD data. That compares to 4.0 in Japan, 2.8 in Germany and 2.6 in France.21 Length of stay is heavily impacted by payment criteria, and in the United States, health insurers and government purchasers have put pressure on providers to cut hospital stays.

"The outsourcing of some hospital departments such as lab facilities, administration, restaurant and kitchen, purchasing department, facility management, and even nursing staff may become necessary. Hospital managing directors have to become more professional with vision and daring," says Ton Rabelink, a professor of medicine at the University Medical Center in Utrecht, The Netherlands.

The outsourcing of clinical and non-clinical services has been popular in the United States, but not as much in Europe. However, HealthCast 2010 respondents saw continued outsourcing, particularly in information technology.

"More recently, auto companies have gone into massive outsourcing, keeping the car design as the key piece of their value chain. My hospital has to stake out as much claim as possible to the rules design business and not to be too pre-occupied with the size of its production (health service delivery) activity," adds Michael Guerriere, M.D., chief operating officer of The Toronto Hospital.

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