Risk Segments and Funding Alignment- A Requirement for Reform

When the whole health insurance idea was introduced in the 1930's the concept was pretty simple. The idea was to insure employees and protect them from the expenses of catastrophic health events. Even though the use of the term "insurance" in its purest definition was still a stretch- the primary focus was to protect individuals from the generally predictable hospital and doctor events existing in the population. Our reimbursement methods and funding (premiums and benefit design) were established and have evolved based on these original principles.

McKinsey recently issued a really interesting study showing how the risk categories in our population have changed over the years (primarily in the last 20 years) and how our methods to pay for the care and design benefits to represent these new risk categories have not changed at all. We've posted the study on our site- and you can grab it by clicking here.

This study indicates that today over 60% of our health care costs are now not even related to the categories for which our health care system was originally designed. In addition, over 30% of our costs are directly related to the management of chronic conditions (of which a significant portion is directly related to the lifestyles we lead).

In order for us to really reform our health care system we'll also need to look "outside of the box" to design reimbursement structures that represent the risk categories that have developed (and are very real) over the years. More importantly- benefit structures for individuals should be redesigned to reflect the needs of these new categories which will ultimately benefit our overall health care model. Consumer Directed Health Plans (high-deductibles/savings accounts) were a start, but they merely shifted the costs to the individual with some tax benefit. We really need to start to look at redefining benefit structures themselves to represent the needs of the population and to provide the incentive people need to take care of themselves in the first place.

Merely adjusting copays and deductibles will not work any more. Our health care population has changed to much and the cost is too great. It's time we get current.