qotd: George Halvorson criticizes deductibles

Health Affairs Blog
September 30, 2014
An Interview With George Halvorson:
The Kaiser Permanente Renaissance, And Health Reform's Unfinished Business
By Jeff Goldsmith

Kaiser (Permanente) surprised the health plan community by announcing in
March 2002 the selection of a non-physician, George Halvorson, as its
new CEO.

During his twelve year tenure as CEO, Halvorson not only guided the plan
to solid profitability, but added a million members in California, its
largest market, despite a devastating recession and a national retreat
of commercial HMO membership.

The Growth Of High-Deductible Health Plans

Jeff Goldsmith: If you look at the Kaiser/HRET survey, which focuses on
the employer segment, the HMO wedge shrinks while the high deductible
health plan wedge seem to grow in proportion. In 2013, High Deductible
Health Plans (HDHPs) represented around 30 million lives. Are HDHPs
"managed care" in your view?

George Halvorson: Yes. I think they are a form of managed care. HDHPs
get involved to some degree in delivery of care. They require care/data
reporting. They have some care protocols or some care-related elements
they don't allow. So I would classify all those plans and products under
the broad category of managed care. If employers buy a $500 dollar
deductible plan from Kaiser Permanente — and about 10 percent of Kaiser
members are now in plans that have deductibles that are high or higher —
the employees still get their care at KP. When they pay the fee for the
office visit, they pay KP as opposed to paying it outside, so that the
cash flow for KP is basically the same. It just comes down two separate
channels, copays and premiums, instead of coming down one prepaid
premium channel.

Goldsmith: How hard was it for your colleagues, particularly the
Permanente physicians, to accept the philosophical change that
required? In the legacy Kaiser model, there was no cost to the patient.

Halvorson: Everyone at KP, including myself, strongly preferred the
model where there was no cost for the patient. However if 10 percent of
our employer customers want to buy a high deductible product and we
don't sell it to them, then they leave. Kaiser has hospitals, clinics,
pharmacies, lots of care-related infrastructure that would not do as
well if 10 percent of the patients were gone. It is important to point
out that we made a very conscious decision to not change care in any way
for those patients. That was a critical issue. It is easier to maintain
the old approach for all patients because 90 percent of the KP's members
are still in the older benefit model.

Goldsmith: Of the million people that were added to Kaiser in California
during your time as CEO in California, how many of them came because of
this change in your benefits strategy?

Halvorson: Now about 10 percent of Kaiser's members are in plans with
deductibles of some kind. I personally went to California's managed care
regulators and worked to persuade them to allow us to offer the
product. I had to give them assurances that we would not be changing
the delivery of care for those members in any way. Those members would
not be there if we had not offered a product with personal financial
exposure in it.

Goldsmith: Did the high deductibles make your job as a care system
easier or harder?

Halvorson: Harder.

Goldsmith: Why?

Halvorson: Because we had to bill the patient.

Goldsmith: What else besides the billing?

Halvorson: The billing was the major issue.

Goldsmith: It didn't make it more difficult for you to get them to do
things that were in their own health interest, even if it cost them money?

Halvorson: Because we are who we are and because we ask people to do
what we ask them to do in a very consistent and reasonable way, members
tend to follow. We didn't see a lot of people refusing to get needed
care based on the fact that they had deductibles. That was largely
because we are so committed to a particular set of care concepts and
protocols that the credibility of the individual caregiver for the
patient triumphed over the financial exposure.

http://healthaffairs.org/blog/2014/09/30/an-interview-with-george-halvorson-the-kaiser-permanente-renaissance-and-health-reforms-unfinished-business/

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Comment by Don McCanne

Former Kaiser Permanente CEO George Halvorson said, "Everyone at KP,
including myself, strongly preferred the model where there was no cost
for the patient." So why did they start selling plans with deductibles?

Simply stated, it was because many employers demanded deductibles and
other forms of cost sharing. Deductibles have become a standard
throughout the insurance industry, and most employers like them because
the premiums paid are lower since up front costs of health care are
being shifted to their employees' pockets.

Yet Halvorson said that deductibles made their job as a health care
system harder, mainly because of the administrative inefficiencies of
having to bill each patient for these charges. Kaiser received the same
total amount but they had to establish "two separate channels, copays
and premiums, instead of coming down one prepaid premium channel."

Either way, the employees were paying the costs - through forgone wage
increases that paid the premiums, or through direct out-of-pocket
payment of the deductibles. The only reason for making this change was
the pigheadedness of the employers who insisted, based primarily on
misguided ideology, that they wanted to join the high deductible,
consumer-directed bandwagon.

It is well known that deductibles frequently cause individuals to forgo
appropriate care which can then result in adverse health outcomes.
Halvorson said that they "didn't see a lot of people refusing to get
needed care." Without the data it is hard to know, but since most of
Kaiser's patients have decent jobs with employer-sponsored plans, these
are patients from a relatively healthy sector of the population, mostly
with reasonable incomes, so they may be less likely to forgo appropriate
care. But even amongst Kaiser's patient population, there will be some
who will find deductibles to be significant barriers to care.

There is nothing good about Kaiser's deductibles, but there are several
things that are bad. And this is in the best of circumstances.

With a single payer system there would be no deductibles, just as there
were not in Kaiser's legacy system. Perhaps the most revealing comment
Halvorson made is that before and after instituting deductibles, "the
cash flow for KP is basically the same." It didn't make a difference; it
just mucked things up!