We Are Almost Perfect Consumers, Except For…


August 31, 2014


We Americans are amazingly sophisticated consumers. So much so that fully 70% of our $18 trillion economy is consumer spending. We love to compare the prices and specifications of everything from toasters to cars to homes and we use the internet for most all of it. Beyond the net, chances are there is an app on our smartphones that allows us to check the best prices and quality for gasoline, hotel rooms or the best burger in the area and then where we can go park to find it.

We’re almost perfect as consumers, except for healthcare. When it comes to the $2.3 trillion we spend each year on healthcare we usually have no idea what something will cost before we consume it. Those of us with insurance hand over our magic card and hope whatever we’re doing is covered with a minimal co-pay out of our own pockets.

How did we end up in this spot? How did we end up not really seeking or caring much about health care costs on our way to consuming health care services?

I know people who will drive across town to save 2c a gallon on gasoline but wouldn’t question the cost of medical procedure. Amazingly, its mostly human nature, as someone else has been making our decisions and as long as that goes on, the paternalism of the present system effectively delays any hope of instilling real consumerism in our health care services system.

Let’s take one example here – colonoscopies. The word alone instills fear and pain, not to mention a certain degree of degrading personal feeling given what goes on here. Setting all that aside, the New York Times had a brilliant article in 2013 about how the cost of the procedure ranged from $750 up to $8,500, depending on where the procedure was done. Does that sound right? What’s worse about the disparity in price is the fact that it is exactly that type of information that is usually denied us as we enter the mythological system of healthcare where its professionals don’t like to talk about cost and outcomes, almost as though they were lawyers talking about advertising for car crash defenses.

What does it take for us to become consumers in this arena? First, we need to end the system of how we get our health insurance that has existed since World War II. Yes, blame it on the Axis but we have employers picking benefits for employees entirely as a result of the federal wage and price controls that were in place in World War II. Employers could not raise wages, so the clever way around that was to add benefits – health insurance! The employer picked the carrier and plan and its contents and, like any good “father” operating in a paternalistic system, “gave” us the insurance.

Fast forward to today and 70% of employees don’t understand their own benefits. No wonder. The employee doesn’t pick the benefits they receive but are asked to pay for a portion of a decision made by the employer.

How do we fix that? Simple actually. The old system was called “defined benefits,” where the employer literally defined the benefits of the employee. The new system is called “defined contribution,” where the employer budgets how much to spend on employee benefits and then the employees select what they want to buy in a company or association marketplace. When the employee runs out of employer subsidy then the employee begins to spend his/her own money out of payroll deduction.

The important transition here is the one where the employee is put in charge of picking the benefits the employee wants, and all with the help of a benefits expert to make sure everything gets covered properly – but the employee decides.

After we put employers in charge of budgets, and then employees in charge of buying benefits, the system itself needs transparency that does not exist today.

As with the NYT article on colonoscopies, our healthcare system needs to become transparent with regard to costs and outcomes so that we, acting as true consumers, can see competition and make choices between desired prices and outcomes. For all of the alleged wonder of the Affordable Care Act and its 2,700 pages of law and 26,000 pages of regulations – it does not begin to touch on issues of real transparency of the entire system.

Where government is failing, the private sector comes to the rescue. We strongly believe in the evolution of private association-based marketplaces as a source of real competition among carriers, benefits and plans to be chosen by employees [http://gbacapg.com/pheib/index.php] Further, there are developments in healthcare insurance delivery that may portend a glimmer of hope for the near future in other areas.

Just two weeks ago a new company opened in California called Collective Health. The idea behind the self-insured option that could well be in our gbacAPG marketplaces in a few months, is that while self-insurance is not new the key elements of healthcare transparency and competition that we could be armed with, and negotiated rates for rapid payments, are new. This company is just starting to enroll companies in its new system and could be in all 50 states next year. I am interested in developing a version of this program in the East, and have spoken with Collective Health about what they’re doing.

If we want to drive down the cost curve on health care costs, that leads to driving down the curve on health insurance costs, we first need to become participants in a system that demands we act like consumers. That starts with choosing our own benefits and understanding how to use them properly.

More than three years ago we decided to make the commitment to fundamentally change our agency and our approach to benefits and our clients. The ACA and medical loss ratios was going to drive these changes in part, and in part we needed to introduce a greater thread of consumerism into our client’s thinking and that of their employees. When our broker associations went to Congress to try to get MLRs changed under the ACA in 2012 but failed to get the law changed, we knew it was only a matter of time when our transition away from commissions and toward consultative-based fees was headed in the right direction.
We became a national reseller of the bswift platform after having vetted more than 8 others. We prefer bswift for its degree of flexibility of configuration for clients, its tremendous depth of connections [now more than 4,800] with carriers, and the relatively inexpensive connection for client’s use. With some training, every broker can learn how to use this powerful tool effectively with clients. More here…


Let’s put employees in charge of making their benefits choices. Let’s have benefits professionals working for and paid by employees and employers. Make no mistake about it, who you work for depends on who is paying you.

Then we are going to need collaboration among the health care system, from providers like hospitals, clinics, pharmacies, doctors and others to work with benefits professionals and insurers to peel back the layers of the onion and infuse transparency into our health care system.

We have a magnificent economic system that has raised more billions of people out of poverty through competition and consumer choice, innovation and profit than any other system in human history. The basic underpinnings of that system need to be introduced into healthcare so that we can all play our rightful role as true consumers and begin driving costs, availability of services, and outcomes.

That begins with what we can do today. With our employers giving up the World War II defined benefits system and setting their budgets in a defined contribution system and allowing employees to choose their benefits in a great marketplace.

Gene Guilford is a partner at the gbac Association Practice Group, a non-profit corporation services and advisory company focusing on solving the most challenging problems of today’s trade associations and chambers of commerce. Gene is a 28-year trade association CEO and former Reagan Administration political appointee as Chief of Staff at the General Counsel’s office at the US Department of Energy.

About gguilford

A successful executive well positioned to leverage extensive skill and experience in the business, government and political environments within which I have worked to bring energy, vision and skill to managing human capital, strategic planning, crisis management, corporate management, financial management, government and public affairs challenges. Positioning for the future in managing and directing change and as well as seeing and seizing opportunities others miss.
This entry was posted in Association Health Insurance and Employee Benefit Marketplaces, GBAC APG News, Health Insurance Reform, Uncategorized. Bookmark the permalink.

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