'American exceptionalism run amok': Why it’s time for U.S. health care to try a new path 

consulting on the financing of health and retirement plans for workers and the benefits they provide. He served two six-year terms on the Social Security Advisory Board and as chair of the board during his last three years as a member. He won the 2012 T IAA-CREF Paul A. Samuelson Award for his book, “The Predictable Surprise: The Unraveling of the U.S. Retirement System.”

Based on his extensive experience with the health care landscape, Schieber recently wrote “Healthcare USA: American Exceptionalism Run Amok.” He spoke with BenefitsPro about his thoughts on current health care trends, role of benefits advisors and employees, and what to expect next. 

What trends should benefits advisors, employers and HR professionals be watching right now? 

Nearly two-thirds of workers with single coverage under an employer-sponsored health plan and 86% of those with family coverage underestimate the cost of such insurance or say they don’t know the cost of such coverage. Among those with family coverage who estimated the cost of such coverage, 82% estimated a price at less than half the cost of a typical premium for such coverage.

One clear take away from the analysis is that human resource managers have an opportunity to help workers better understand the value of the health insurance their employers are providing them. If workers do not understand the cost of their insurance, they cannot fully appreciate the commitment their employers are making for their benefit.

A less transparent takeaway concerns the effects of highly concentrated  markets. This situation effectively means that efforts to make workers and their dependents covered by employer-provided insurance more astute consumers of health care using higher deductibles, health savings accounts and the like are largely ineffective in controlling health care costs. The Health Care Cost Institute estimated that in 2019, three-quarters of municipal hospital markets were highly concentrated. Most specialty physician markets are also highly concentrated. The trends since the onset of COVID-19 have been toward further concentration in both hospital and physician markets. 

Anyone who has taken a course on the principles of economics knows that monopoly and oligopoly markets theoretically result in higher product prices than competitive markets. There is widespread empirical evidence to show this is the case in medical provider markets. 

This means that if there is a single producer or only a couple in a given market when a consumer in a high-deductible health plan needs medical care, it makes little difference whether he or she is an astute consumer. The consumers in these markets have little choice in their consumption decisions and their plan designs will not help them be more efficient when they are faced with market dominant providers charging monopoly prices.

What role can benefits professionals and employers play in helping to control health inflation?

In addition to aligning workers’ interests in controlling costs, plan designs should also evolve toward aligning providers’ incentives toward cost control. With health systems like Intermountain Healthcare and Johns Hopkins creating insurance components and traditional insurers like United Healthcare, Aetna and others creating their own provider operations, there is a growing opportunity for employers to contract for coverage of their insured populations using capitated arrangements where the providers of care have an economic interest in efficient and effective care delivery. 

The experience of Intermountain Healthcare analyzing their delivery processes and adopting documented improved methods in reducing costs shows that proper financial incentives can encourage adoption of cost-saving procedures that also improve outcomes of the people provided care. 

Many hospital systems are not currently structured to provide care on this basis. One of the most revealing lessons from the hospital regulatory system that has operated in Maryland since the mid-1970s is that these entities adapt fairly quickly to changing incentives. If employers begin to contract with existing providers on a capitated basis, these offerings will become more robust. It is highly likely that hospital systems will adapt fairly quickly to the new environment.

One of the examples discussed at length in my book is the appropriate treatment of cardiovascular disease and the evidence that surgical procedures are often applied instead of medication protocols. An instance of a hospital that remunerated its heart surgeons for the number of procedures they performed included evidence of the overuse of these procedures. The hospital was even reported to be “scheduling” emergency  heart procedures on weekends.

As long as insurance plans pay for each additional unit delivered, the supplier has little incentive to make sure each procedure is worthwhile medically as well as economically. When their nickel is on the line, they look more carefully at what they are doing.

We are hearing a lot of discussion around value-based care.  What are your views?

I believe it is generally a term that has had little practical implication for the operation or cost of most health plans.

The underlying concept of value-based care is that providers are paid for health outcomes rather than for the delivery of specific health-related goods or services. The implication is that health providers will deliver preventive care measures to help their clientele avoid the development of disease. For those with chronic disease, it means providers will help patients manage their disease(s) to arrest or slow the effects. For those with critical illness, it means the efficient provision of high-quality care necessary for patients’ speedy recovery and return to normal lifestyles.

Quality is a central element in the concept of value-based care. In a 2022 CMS blog posting, authors noted that, “Quality, including driving better health outcomes, will be an essential part of value and deeply embedded in CMS policies and programs.” 

In theory, the shift to “value-based” care should improve the quality of care providers deliver while reducing its cost. In practice however, it is not clear that either the higher quality or reduced cost goals are being met.

The Centers for Medicare and Medicaid Services has implemented merit-based payments and alternative payment models for physicians delivering services to Medicare and Medicaid patients. These programs have been criticized because of inappropriate indicators of quality for some practices, poor communication, and relatively small rewards for participation. CMS has also introduced incentive programs to reward hospitals for reducing readmissions and for reducing the incidence of conditions acquired by patients during hospitalization. These have been criticized because the small incentives involved do not warrant widespread adaptation. CMS has also implemented a quality incentive program for treatment of patients with end-stage renal disease. But again, the penalties and rewards for compliance are relatively modest.

Under Medicare Advantage, quality of care provided under participating health plans is a central element in determining their reimbursement for the Medicare beneficiaries they cover. The quality of care delivered under plans is measured under a five-star rating system with a score of one star being considered poor performance against 40 performance measures, a score of three stars considered average and a score of five stars considered excellent. Medicare capitation payments to the private insurers offering these plans are based, in part, on their star-rating. A Kaiser Family Foundation analysis estimated that in 2021, 80 percent of all Medicare Advantage Plans and 98 percent of retiree plans sponsored by employers were rated at four stars or higher.

The assessment of the Medicare Advantage quality measures has been critical. In 2021, the Medicare Payment Advisory Commission wrote to Congress indicating that, “The current state of quality reporting in MA [Medicare Advantage] can no longer provide an accurate description of the quality of care in MA… [The] current quality program is not achieving its intended purposes and is costly to Medicare.” The Congressional Budget Office has also been critical, noting some plans may have better systems for capturing what Medicare officials use as indicators of quality because of their systems, the populations they cover, or because they invest in the favored measures at the expense of other elements of quality care and also indicated that “there is evidence that plans have engaged in activities that increase quality scores without increasing underlying quality.” 

If quality is an integral element of value but we can’t measure quality, it seems incongruous that we can claim we are providing “value-based” medical care.

You make the point that the current health care system is focused on selling products and services rather than improving population health. What one or two changes in the way we incentivize providers (and insurers) could start to shift that focus?

In the book, I cite an example of Intermountain Healthcare adapting W. Edwards Deming’s philosophy that improving quality would result in improved productivity, reduced costs and increased market share. Deming was a quality guru whose theories were adopted by Japanese manufacturers after World War II and led to their strong position in U.S. and other developed countries’ consumer markets. 

Using the Deming approach, Intermountain classified their hospital services into 1,500 types of inpatient and outpatient care. They discovered that 104 of these accounted for 95% of the total care they delivered, which became the focus of an intensive effort to develop and introduce process improvement in their major activities. As they developed and implemented these processes, they reduced their operating costs by 13% and saw a reduction of 2,000 deaths per year across their hospital system. The problem was that the reduced costs of providing care also ended up in reduced revenues from traditional insurance reimbursement programs that were even more than their cost savings.

In order to make the delivery of their improved practices sustainable, they created their own insurance arm and now cover a significant share of their total coverage population on a capitated basis. They estimate that if they can cover between 25% and 30% of their service population on this basis, they can cover the losses from their remaining fee-for-service clientele from the superior approach to service delivery.

There are now opportunities available to begin pushing providers to accept a blanket fee for covering at least some of the provision of care on a basis that aligns the incentives of providers directly with those of plan sponsors in controlling costs.

Some elements of care may not currently be available under these arrangements, but for care associated with high-cost of individual cases, centers of excellence may be a significant opportunity. For example, sending patients needing major cardiovascular care to a center that will cover the costs of treatment on a guaranteed cost basis or where physicians are not compensated on a piece-rate basis is a way to get superior care delivered more efficiently than in a local setting.

What can plan sponsors and their advisors do to make the provider/insurer relationship perform more effectively in terms of better health for plan members at a lower cost?

In the final chapter of my book, I cite a recent analysis by medical doctors and researchers at the Leonard Davis Institute of Health Economics at the University of Pennsylvania. They argue it is time to quit the CMS experimentation with providers chasing “small pools of funds” testing complex sets of options, and to deliberately transition away from the existing risk-free fee-for-service delivery models toward implementing more “efficient and beneficent” care delivery models. They suggest the population-based payments would be the “linchpin” of the new system. Primary care providers would be paid on a capitated basis to manage care for those covered and procedure-based specialists paid through bundled payment arrangements.

The movement of insurers toward offering health services and providers creating their own insurance components marks the beginning of a transition in the interface between the insurer and provider elements of the system that is necessary for any significant move away from the currently dominant fee-for-service payment model. Given that all of the manipulations that have been tried with the fee-for-service model in past decades were unsuccessful, it is time to try a different path forward.

Are plan sponsors too focused on the cost to them (and their members) of insurance/health delivery? Would a focus on outcomes regardless of cost savings potential be a better way to view the current system and ultimately make it work better for employees?

I don’t think the problem is that sponsors have been too focused on costs. Rather, they have failed to fully grasp the underlying causes of health insurance premium inflation and how to address them. 

For years, plan sponsors have argued that the prices of health care delivered under commercial insurance plans is high because of cost shifting from Medicare and Medicaid to the privately insured consumers. The Medicare Payment Advisory Commission has rebutted that assertion, showing that private insurance rates were high when Medicare reimbursement rates were higher than the average cost of care provided under the system by the typical provider, and that they remained comparably higher as Medicare rates fell compared to costs of average providers.

The empirical evidence in recent years has suggested that the concentration of provider arrangements in local markets has resulted in higher prices for treatment provided to people with private insurance. Study after study has shown that more concentrated markets have higher prices charged to the privately insured than less concentrated markets and that prices rise when markets become more concentrated.

My conclusion is that the fee-for-service arrangements that dominate the payment of services delivered under private insurance give providers no incentives to become more efficient, especially when they are in a power dominant position to dictate prices. The generally untold result is that these inefficient delivery systems also represent a strong indicator of ineffective care that carries with it adverse consequences for the recipients.

The monopolization of health care delivery has been the result of a failure on the part of the regulatory bodies in enforcing existing antitrust law and regulations. There has been virtually no appetite on the part of those in charge of this regulatory infrastructure to disassemble the existing dominating provider systems. I believe that if people become aware of how they are being victimized by the system, they will clamor to their policymaking representatives to address the problems. I do not believe most policymakers appreciate the extent of concentration in our health care markets and how resulting market power is being used so adversely against those who are covered by private insurance.