Thursday, September 17, 2009

Intriguing Carrier Trick

Did you know that carriers have their own R&D departments? It seems obvious that they would, but I hadn't ever given that much thought. I attended a product roll-out meeting recently where some folks from United HealthCare's (UHC) R&D department presented a new product they're test-marketing in our area. It's a pilot program now, whether it will see national distribution remains to be seen.
The product itself is interesting, but the mechanics behind it really intrigued me. The key to the design is information provided by UHC's Ingenix folks:
■ 65% of insureds have less than $1500 of eligible expenses each year (and thus get very little, if anything, "out of their plan")
■ 25% have between $1500 and $8000 of expenses (and much of these can be eliminated with simple lifestyle choices)
■ 10% have in excess of $8000 (most likely "maxing out" their out of pocket exposure)
The new product, called All Savers, "targets" that middle 25%. The goal was to design a product that specifically discourages these folks from certain choices by dramatically increasing their own out of pocket. That's accomplished via the plan's design: it includes what I'll call a carrier-sponsored HRA benefit (and which UHC calls "First Dollar Medical Credit" or FDC). The underlying plan includes office visit and prescription drug co-pays, a deductible and co-insurance (yes, very vanilla so far), but then adds a cash benefit to reimburse folks for minor or routine claims (including preventative care). This way, folks with a few small claims "get something" from the plan.
The "catch" is that if one chooses, for example, a brand name med instead of the generic, that benefit's going to be used up much more quickly, and one is going to be going "out of pocket" much sooner. So there's a real, identifiable incentive to make less expensive choices. It's another manifestation of the "skin in the game" precept in consumer driven plans.
Another unique facet of the program is that one can choose from a menu of benefits choices. An employer picks a "price point" (or premium level), and then each employee can choose what benefits he or she wants from within that rate. Joe, for example, could choose a higher deductible, with a correspondingly higher FDC amount. There's a lot of flexibility built in.
Perhaps the most intriguing piece is how the plan is underwritten. Typically, underwriters look at health issues within a group and assign values to them. There are guides and standards, of course, but it's essentially a "human-based" process. What UHC is doing with All Savers is different and, as far as I can tell (and I've looked), unique: instead of a traditional model, UHC is using something called "algorithmic underwriting."
[ed: I was told there'd be no math]
So what's algorithmic underwriting (AU)? Good question. In a nutshell, they've removed that "human element" from the process, and developed complex mathematical models which serve to predict how the group, and the individuals in that group, are likely to behave. I was very intrigued by this, and asked the gentleman who designed this approach if I could interview him specifically about it. He agreed, and we should have a post on this soon. In the meantime, I did find one (and only one) resource online that would serve as a reasonable introduction to the concept (available here).
I'm still not completely sold on the product: there are some areas that I think are unnecessarily complicated, and I'm still a fan of HSA's (and their inherent value and simplicity). But I like the idea of a carrier thinking outside the box, and particularly approve of the idea that one can use health insurance to rein in the costs of health care.
(Qualified) Kudos to UHC and All Savers.
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