Consumer Directed and Carve OUTS– 
A Natural Combination
By Ward Humphreys, Vice President, Evergreen Re

The reasons for a health plan to offer consumer directed options can be summarized in two related categories: reduce medical costs and competition. The first includes the primary value proposition of CDH: fostering more cost effective health care purchasing decisions and better lifestyle choices. The second and critical part of the reduced medical costs category is, by early indications, positive selection (members choosing the CDH option assess the health status of themselves and their families, do the math, and enroll for the savings in their payroll deduction). The competition motive for offering a CDH option speaks for itself. The urgency to offer a CDH, however is more acute given the likely reality of a health plan’s competitors siphoning their healthier membership with a CDH option.

The potential for positive selection with a CDH product has been confirmed by a leading managed care actuarial firm. The long term projections could be even better financial incentives – likely to rise until the rate of premium increases stabilize – leveraged with quality of life issues, should foster real and lasting behavioral change leading to better long term health. While the “change for the better” that should come from CDH is in process, health plans will be faced with the peak years of health care costs for the baby boom generation, a continued surge in medical technology which on a net basis is still fueling medical trend, and the largely unpredictable catastrophic claims that can dramatically impact their medical loss ratio. Health plans with a CDH product will also face, in varying degrees, members who delay care until acutely necessary, “buy” less care than the optimum treatment for their condition warrants, or choose care solely on the basis of cost. In either case, the result equates to a member that needs a higher intensity of care that translates into higher costs.

The positive news for health plans is that they may need only to continue on their current path to meet the “new challenges” faced under CDH. A path that has been leading plans to outsource even more services; from disease management to information systems. Up until recently, the rationale for doing so had been cost savings and the ability to focus on their core competencies. Now, and in the future, outsourcing – and specific to medical management, carving out or transferring all or a portion of the risk for certain medical conditions – may be a very effective means of managing their risk.

Firms that will “carve-out” all risk or assume risk beyond a dollar threshold offer health plans
the ability to significantly reduce their expense in some high cost medicalareas while affording their members very high quality care. With a full carve out of risk, available currently for solid organ and soft tissue transplants for example, a health plan pays a PMPM rate for coverage that encompasses treatment 10 days prior through 365 days following transplant surgery. All transplant related charges (follow up care, immunosuppressants, professional charges, etc.) are included. Similarly, a health plan with a member who suffers a burn, or severe trauma, or who is born prematurely, may cede the risk on a case by case basis to a firm that provides intensive management and risk assumption for the specified condition. Congestive Heart Disease, Oncology , and fertility treatment/NICU management products are in the final stages of development. The basis of each of the carve out/risk assumption products are highly specialized clinical, and in the case of NICU, scientific, care management models. These firms have amassed huge databases on treatment protocols and successful outcomes, and have advisory boards typically comprised of the leading Physicians in the specialty indicated.

With some adjustments to their CDH product, health plans could direct members into the carve out program for the earliest possible interventions. For a health plan to have a successful CDH product, they will need to continue to evolve into organizations that orchestrate “best of class” medical care management for their members. This will begin with their ability to provide easily accessible and useable information to their members to facilitate qualitative and financial based medical care decisions and continue with effective disease management and carve out programs – the combination of high tech and (highly specialized) high touch.