Shared Value in Health Care

April 11, 2011

The Jan – Feb Harvard Business Review contained an interesting article entitled “Created Shared Value” written by Michael Porter and Mark Kramer. Porter is revered in both corporate strategy and health care circles — which is why  I was surprised that he didn’t use health care as the prime example of a sector of the economy where corporations can  embark on a new mission to create shared value — with far reaching, long term potential impact.

Creating Shared Value Forum 2010

Image by Nestlé via Flickr

In health care, the provider sector wants more procedures at increased prices in order to be profitable. Self-insured payers (American corporations) want cost control, price transparency and employee engagement. It is the most inherently conflicted sector of the U.S. economy and one ripe for the creation of shared value across providers, payers and American health care consumers.

One month after this article appeared, in the March edition of HBR, loyal readers criticized Porter’s piece as being “cheerleading” and unrealistic given our capitalist economic system. Porter responded saying (I’m paraphrasing), “The key is to harness the connection between shared value and the core economic principles of competition.” We see this happening today on our Medicare exchange. Shared value is being created through hundreds of plan selections and enrollments.  Here’s why and how.

Before the advent of Medicare exchanges, employers only knew one way – a group Medicare wrapper plan — for their post-65 retirees. These group plans were underwritten by one of five major health plans in the US. There really isn’t any competition in the group market; as the former EVP of sales for the largest national health insurance carrier once said to me, “Bryce, all the large health plans do is trade each other’s pissed off corporate customers every three years via a predictable RFP process.” Medicare exchanges allow employers to cancel shoddy group plans, and as a result, create consumerism by giving their retirees a subsidy and allowing them to buy their own plan from an exchange featuring many carriers and thousands of plans.

When real apples-to-apples plan pricing and competition happens, an interesting dynamic occurs. The employer can pay less for the same or better benefits. This is where the “shared value” effect emerges. Employers contribute less because individual competition holds down plan prices. Retirees benefit because they buy only the plan they want or need, not a plan chosen for them back at headquarters that may not be competitive in their zip code and may not even have their doctors and hospitals “in network.”

When we installed a Medicare exchange at the Ford Motor Company, the average retiree household received $500 a year more in benefits, at a lower cost to Ford.

Because an individual (not a group) plan is personalized to the recipient’s needs, it is far more efficient. Only benefits needed are bought and used. This is especially true when matching seniors to the right Part D drug plan. In addition, now that the retiree is paying for the plan with a fixed subsidy, they become better buyers. Every day in our call center, retirees ask “Is this plan the best deal for my dollars?” That conversation is not occurring in many places in the health care ecosystem today. Why? Because traditional group plans obscure real health care costs from the end user.

I agree with Professor Porter that shared value is a great vision on which the “new” corporate America should set its sights. I suggest that health care is the largest sector of the economy where this concept is sorely needed. As exchanges, both public and private, replace the obfuscation of group coverage, I predict that competition will drive massive shared value. Extend Health has saved its clients more than $1 billion in just five years, and we only work within the post-65 retiree market. The shared value revolution will be led by the most powerful force in any capitalist society: a consumer empowered with choices, transparent cost information and the radical notion of a person with self-interest in getting the best deal. Imagine that.

Visit Extend Health — the nation’s largest private Medicare exchange.

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