Vintages for Insurance: How multi-year health insurance can improve American healthcare

The problem 

Fred is a 40 year old man who just came back from his annual checkup to find his blood pressure is 130/80, higher than normal, but not high enough to warrant medication. What happens from here? With a supportive insurance plan and a proactive primary care physician, Fred might get put in touch with a dietician, who identifies that a high-sodium diet and excess weight are the primary causes for his blood pressure. Fred is then enrolled by his health plan in a free weight-loss program that helps him address both diet and nutrition, and he soon gets his blood pressure under control. Alternatively, in a different setting, these preventative resources upstream to health events may not be available to Fred, and his blood pressure worsens into hypertension, eventually turning into congestive heart failure, a heart attack and a harrowing trip to the hospital. 

Only 8% of US adults aged 35 or older received all recommended, high-priority, appropriate clinical preventive services, and nearly 5% received none. [1] 

Upstream interventions represent a holistic approach to health, waiting until a condition worsens until it cannot be ignored anymore is a narrower and reactive approach to healthcare. Unfortunately, Americans receive too little upstream care, and as a result receive relatively more downstream care in the hospital (Americans have about half as many “upstream” outpatients doctor visits per capita as comparable developed nations). [2] Because we wait until preventable conditions emerge and worsen before addressing them, we also end up relying more on in-hospital care; Americans go to the emergency room over 40% more often than citizens of other developed countries. [3]

How the one-year renewal period keeps things from getting better 

Many factors contribute to our underinvestment in upstream care, but one of the major impediments has been the one-year health plan renewal period. For the most part, health insurance in America is selected annually, which means that individuals and employers can switch insurance plans as often as once a year. While this may be good in theory for consumer choice, it also leads to significant membership turnover. Annual retention can be as low as 47% for individually purchased insurance [4], meaning that more than half of the membership of a given plan will leave the plan each year. 

High rate of membership churn disincentivizes insurers from investing in upstream programs that address health conditions preemptively, programs such as robust preventative care, wellness programs like smoking cessation and weight-loss programs, and disease management programs that support members with chronic diseases like diabetes. These preemptive health programs by definition work over time, and studies have shown that it takes three years before health promotion programs generate a positive return on investment. [5] For health plans with high membership turnover, there is a strong disincentive against investments into these upstream programs because by the time the program has a significant effect, the members in question have probably switched to different insurance, therefore any investment made previous does not have a chance to generate a positive return.  

Certain insurance plans have solved this dilemma by minimizing membership turnover. Kaiser Permanente is the largest integrated delivery network in America, and the Kaiser brand has built up great loyalty among its members. In its largest market (Southern California), annual retention rate is around 90%. [6] The continuity in its member base has allowed Kaiser to invest boldly in innovative upstream programs even outside the traditional scope of healthcare, like it’s $200M commitment to address housing instability [7], a key social determinant of health. 

How multi-year health plans might help 

So how might we address this misalignment of incentives for health plans with lower retention rates? The segments with the lowest retention rates are individual exchange plans, and here in the individual exchange segment, multi-year plans can be a win win for members and insurance companies alike. Here’s how multi-year plans would work: 

1. Insurers currently participating in the individual exchange would offer new health plans with similar benefit structures to their existing offerings, but consumers will need to commit to a multi-year period, for example 3 or 5 years instead of 1. So if a consumer signs up for a 5-year plan in 2019, then they would be locked into the 2019 plan until 2024. 

2. Insurers will now invest more heavily in upstream health promotion programs, now that member retention is guaranteed for the period. These investments will result in healthier patients and lower overall medical expenditure with reduced hospitalization rates. 

3. In theory, the annual price for these multi-year plans should be more affordable than single-year renewal plans, because investments in upstream programs should lower overall medical expenditure. 

4. As a potential boost, there might even be positive risk selection for the first multi-year plans, because healthier individuals will be more likely to accept being locked into a single plan for a long period of time.   

In 2007, Humana introduced a 3-year health plan option for small to medium-sized businesses which provided greater premium predictability for employers. [8]

If multi-year plans can gain a foothold on the individual exchange, the concept might spread more broadly in the US into employer-sponsored insurance and potentially Medicaid and Medicare too. Such a trend would encourage a correction of where we invest our healthcare resources, towards upstream preemptive measures that prevent sickness and disease, and away from reactive emergent care for when conditions have gotten untenably bad. 

Many challenges exist for multi-year plans, and there are countless regulatory and logistical details to be worked out. For example, change in eligibility is a big cause of member churn and this will NOT be solved by multi-year plans. In addition, if a member of a multi-year plan moves in the middle of a 5-year term to an area where their health plan has no provider network, the member would be stuck with a useless plan. Nevertheless, to address special circumstances that warrant early plan termination, opt-out clauses for specific circumstances or fees for early cancellation can be added. As for the eligibility issue, insurers might offer integrated plans between different segments (e.g. An insurer can offer an exchange plan and Medicaid plan with the same benefits, and integrate the plans such that if an individual’s eligibility switches from exchange to Medicaid, or vice versa, their membership could port seamlessly from one plan to the other). The issues are resolvable, and the need to treat health and healthcare more holistically is dire. At the end of the day, multi-year plans may be a part of the answer for a more holistic healthcare system that better serves patients. 

About the Author:

Jack Wang

Jack is a second year 2Y MBA. Prior to Kellogg, Jack worked at Oliver Wyman’s Health and Life sciences practice, advising payers and providers on strategic issues including population health strategy, payer-provider collaboration, alternative payment model strategy, and care model innovation. This past summer, Jack interned at OptumCare working on strategic finance projects and business development. Jack is also co-president of the Kellogg Healthcare Club.

Sources:

[1] Borsky A, Zhan C, Miller T, Ngo-Metzger Q, Bierman AS, Meyers D. Few Americans receive all high-priority, appropriate clinical preventive services. Health Aff (Millwood) 2018;37(6):925–8

[2] How do healthcare prices and use in the U.S. compare to other countries? KFF, May 2018

[3] OECD Health Working Paper, 2015

[4] Insurance Churning, 2016 study by CHRT

[5] J Occup Environ Med. 2013 Nov;55(11):1356-64.

[6] https://www.kp-scalresearch.org/aboutus/fast-facts/

[7] Announcing $200M impact investment to address housing crisis, May 2018 press release

[8] Humana Press Release September 2007