Many initiatives have been put forth to limit the rise of healthcare costs. Here I discuss some of those initiatives while using key figures from the 2016 Milliman Medical Index (MMI) as a backdrop to help better understand how each one fits into the complicated puzzle of managing healthcare costs while delivering high-quality care for the MMI's family of four.

Consumerism
With the family of four spending over $11,000 between its payroll deduction for health insurance and average out-of-pocket expenses at the point of care, it is easy to see why consumers are hungry for actionable information to inform healthcare purchasing decisions. However, it is not as simple as supplying a price list of medical services, given the variations in payment and treatment patterns. In addition, as pointed out earlier, the people who consume most healthcare dollars reach their out-of-pocket maximums and thus have little financial incentive to be savvy consumers. As a result, some other concepts are gaining traction to address these issues.

Value-based insurance (VBI)
What is it? This is a term that means different things to different people. In health insurance, it usually refers to benefit plan designs that encourage behavior that keeps patients healthy. VBI includes things like reducing deductibles or copays for patients who follow a defined plan of care or have a certain disease. Sometimes VBI simply revolves around granting lower employee contribution rates for those who join an employer's wellness plan.

Opportunities and challenges. Some VBI initiatives are focused on that small portion of the population driving the majority of the cost. Incentives are often put in place to encourage changes in consumer behavior, such as $0 copays for prescriptions that treat a chronic condition. In turn, the expectation is that an investment like this will result in better management of conditions, fewer inpatient admissions or emergency room (ER) visits, lower costs, and better health outcomes. However, these programs must be carefully designed to avoid simply increasing costs. The hope is that proactively taking these actions will curb long-term trends by improving treatment and limiting the onset of preventable conditions.

Defined contribution
What is it? Employers typically subsidize the cost of coverage. As Figure 4 from the MMI shows, employers are subsidizing approximately 57% of the cost for the family of four. While the MMI focuses on typical PPO coverage, many employers offer other plans such as high-deductible health plans (HDHPs) or sometimes health maintenance organizations (HMOs). Offering multiple benefit plan choices creates financial risks for employers, varying with how much they subsidize each plan and the number of employees that enroll in each plan. To mitigate this risk, many employers are defining their subsidies via a defined contribution to the plan. Then employees simply pay the difference between the premium of their chosen plans and the employer's defined contribution.

Opportunities and challenges. Offering multiple health plan options can encourage employees to enroll in plans that incentivize appropriate consumption of healthcare services. However, these plan options can be less attractive to many employees. In addition, employers know all too well that offering more choices brings with it more costs from administrative complexities and adverse selection as employees choose the plans that minimize their own costs (while increasing the employer's costs). These challenges are getting more attention in the market as employers begin to question the value proposition of private exchanges, which often use defined contribution approaches. Until such challenges are addressed, it is difficult to say whether the movement to defined contribution will meaningfully reduce costs or simply continue cost shifting to employees. Although Figure 5 from the MMI only shows five years of changes, 2016 actually marks the sixth consecutive year of such cost shifting, whereby employees' share of the MMI has increased.



Integrating the delivery of healthcare
Figure 8 from the MMI illustrates how healthcare spend is split among providers and pharmacies for the typical family of four. A challenge today is that each piece of this healthcare pie is often disjointed, with suboptimal provider coordination among the slices to reduce waste and cost. Several initiatives could lead to better integration of healthcare delivery:

Narrow networks
What is it? There has been a recent push toward "narrow" provider networks, which typically include a limited number of hospitals and doctors in-network. In exchange for less choice among providers, premiums are often lower, which is due to the potential to deliver care more efficiently among a more tightly knit group of providers. In addition, price concessions are often made by participating providers, who hope to gain more patient volume.

Opportunities and challenges. There is an opportunity for narrow networks to expand their footprint with consumers who are willing to trade a greater choice of medical providers for a lower cost of care. These plans may be most attractive to healthier people who do not have established physician relationships or near-term expectations of needing care. Individual insurance exchange issuers have enrolled many members in narrow network plans, which is largely due to their price positions. A challenge for these plans is whether they can deliver high-quality care to those patients who require care from a wide swath of specialists, some of whom may not be in a given narrow network. It also remains to be seen whether providers in these networks are willing to continue accepting lower payments over the long haul once patient volume gains slow down, as well as whether they will achieve lower costs by reducing unnecessary care.

Provider payment reform
What is it? Most healthcare providers receive a majority of their revenue on a fee-for-service basis, which means that each additional lab test, office visit, or surgery results in more costs to consumers and employers, and often more income to the providers. The question many stakeholders ask is whether all of these services are necessary. Numerous initiatives put forth by the federal government and the health insurance industry are testing new ways to deliver care and pay for value rather than volume.

Opportunities and challenges. The opportunity of payment reform is extensive and takes on a variety of forms, many of which are being tested by Medicare, ranging from delivery models like accountable care organizations (ACOs) and patient-centered medical homes (PCMHs) to strict payment changes like bundled payments for episodes of care, or global and partial provider capitation. And therein lies a critical challenge. With so many experiments happening in the market today, it may be a while before conclusions are drawn, efforts are refocused on optimal approaches, and healthcare savings become widespread. In addition, many of these programs are very focused on altering financial incentives to influence the delivery of care. This is no easy task and one that operationally requires scale across a good portion of a healthcare system's patient base before it begins to bear fruit. However, if such changes are pushed through on a grand scale via the Medicare program, then history has shown that the changes will likely migrate to the commercial market, where the typical family of four can benefit as well.

The role of technology
Critics are quick to point out that many changes taking place in the market today are similar to managed care concepts that gained popularity (and then lost it, in many instances) a few decades ago. However, technology has advanced dramatically since that time and some believe it holds the key to improving those old concepts. Here we explore some of the changes taking shape as a result of technological advances which may contribute to a continued decline in the MMI's annual increase.

Telemedicine
What is it? Telemedicine is a mode of healthcare delivery that allows patients to remotely connect with a clinician for diagnosis and treatment. Insurance coverage of telemedicine varies and may be restricted to minor urgent care services, such as sinus infections, urinary tract infections, and diarrhea. It is also used to expand access to certain specialty services not readily available in some geographic areas, such as pediatric psychiatry. And telemedicine is used to provide post-discharge follow-up care and ongoing care management for individuals with asthma, diabetes, and other chronic conditions. Whether via phone, computer, or mobile device, this new form of healthcare delivery is beginning to take hold.

Opportunities and challenges. Proponents of telemedicine point to the increased access to care it provides to patients not able to travel to a doctor's office, along with more efficient use of a doctor's and patient's time. Telemedicine can also improve care management for patients with chronic disease, decrease absenteeism, and reduce use of expensive ER or urgent care visits, all while improving patient satisfaction and compliance. Critics point out that this mode of care delivery can increase costs as patients simply point and click their way to a physician's office, and therefore programs should be designed carefully with respect to mode of payment for services provided and perhaps certain limits and protocols. Now that a large portion of the population has access to the required technology to leverage this new mode of care, it is reasonable to expect continued adoption of telemedicine. Whether it can bend the healthcare cost curve depends on how well integrated such services become with the rest of the healthcare system, and at what price.

Electronic health records (EHRs)
What is it? EHRs are a real-time digital version of a patient's paper chart, which can be shared among providers so that each has a current and holistic view of the patient's clinical history.

Opportunities and challenges. The opportunity to improve care delivery with EHRs is seemingly endless. Much is being done to incentivize healthcare providers to install such systems today so it is not inconceivable that EHRs could become a broad force in improving care delivery. Challenges are still many, though, including interoperability and data exchange among providers, physician adoption, and lack of configurability to suit physician workflow. And in today's HIPAA-regulated (and wired) world, privacy is always a concern. While much progress continues, true EHRs that provide the complete spectrum of a patient's medical history across all providers are still in the distant future for many patients. Whether that future state has a meaningful impact on trend remains to be seen.

Big data
What is it? "Big data" is a relatively new and quickly evolving area of study. In healthcare it often refers to the rapid collection of complex, large data sets from a variety of sources, which are synthesized to do such things as identify a patient's current health status or possibly predict future health-related events. Big data includes information gathered from wearable devices, social networks, consumer data, monitoring devices such as electronic scales, GPS information, EHRs, and a myriad of other sources. At its core, big data is about using data analytics to pinpoint therapies that might work best and for whom.

Opportunities and challenges. The potential to harness the unthinkable amount of information available in today's world to improve the healthcare system is compelling. Use of big data could reduce treatment mistakes or change behavior, such as better diet and exercise. Researchers could also benefit from linking this vast amount of information to clinical data from EHRs, along with administrative and cost data from payers. New information can help them assess cost drivers, quality, and efficiency in a way some might have never imagined, maybe even determine the ways to cure diseases or, better yet, prevent them altogether. Enthusiasts of tomorrow's "personalized medicine" say this data can point to the bio-cure for Britney's cancer or the pill that will prevent Jared's diabetes. Both the "do it better" and the "new cures" schools share a passion for big data and its menagerie of techniques like machine learning, decision forests, genetic algorithms, and regression analysis. The new talent in public health and research labs are "data scientists"; they work in big data and they do not wear lab coats. However, this is not something most in the healthcare world have top of mind right now. So again, the impact on the MMI is probably a ways off.

This content first appeared in the 2016 Milliman Medical Index.