The California HealthCare Foundation has published an issue brief on pre-paid primary care plans, known as direct primary care. Direct primary care (DPC) unbundles physician office visits and some other limited services from health insurance coverage and is directly paid out of pocket by consumers, leaving insurance to cover hospitalizations and catastrophic care events. It has the potential to lower premiums since it eliminates the administrative burden on both payers and providers to process routine care reimbursements as well as potentially avoiding higher cost care by allowing primary care providers to offer more intensive preventative care and lifestyle coaching to ward off preventable, chronic conditions.
The issue brief notes some DPC providers have pegged overall health care cost savings in the 20 to 30 percent range. Cost reductions of that size can go a long way toward achieving the triple aim of better care at lower cost and with better outcomes and warrant independent research to more fully investigate the potential savings. The research should also examine how DPC might favorably affect the business model of primary care medical practice and its potential to attract more physicians to the field at the same time the number of people with insurance coverage – and the concurrent need for primary care practitioners – is expected to increase starting in 2014 under the Patient Protection and Affordable Care Act.
Proposed California measures would help create framework for direct primary care and high deductible insurance combinations
Starting this tax year, federal income tax law raises the existing deduction for medical expenses from 7.5 percent of adjusted gross income to 10 percent. California income tax law generally conforms to federal law. However, proposed California legislation, Assembly Bill 1018, would allow medical expenses to be deductible from income by a yet to be specified amount including the cost of care for elderly dependents.
Two other California bills could establish a framework for what’s known as direct primary care covered directly by consumers and not insurance. In such a model, consumers pay their own primary care costs and buy high deductible insurance policies to cover major, catastrophic events such as hospitalizations. Section 1301(a)(3) of the Patient Protection and Affordable Care Act explicitly recognizes direct primary care medical home plans as qualified health plans eligible to be sold on state health benefit exchanges.
Assembly Bill 1028, the Patient Centered Medical Home Act of 2013, would define “medical home” and “patient centered medical home” as a health care delivery model in which a patient establishes an ongoing relationship with a primary care physician. As defined by the bill, a medical home would be a “physician-led practice team to provide comprehensive, accessible, and continuous evidence-based primary and preventative care, and to coordinate the patient’s health care needs across the health care system in order to improve quality and health outcomes in a cost-effective manner…”
Another bill, Assembly Bill 1129, would conform California law to federal tax law allowing deductions for contributions to health savings accounts used in combination with high deductible health insurance policies.
Witnesses at a recent California legislative committee hearing bemoaned what is well known among health care policy wonks: poor access to primary care and its relationship to complex, chronic conditions that drive the 80-20 rule on health care spending: that 20 percent of patients account for 80 percent of the health care spend.
An excerpt from the California HealthCare Foundation’s California Healthline report on the hearing:
“We need to look at better management of chronic conditions,” said Assembly member Richard Pan (D-Sacramento), chair of the Committee on Health. “It’s one of the greatest cost factors in our health care system.”
How much cost?
The numbers are “astounding,” according to Sophia Chang, director of the Better Chronic Disease Care Program at the California HealthCare Foundation and one of the panelists at yesterday’s hearing. CHCF publishes California Healthline.
“We’re dealing with an epidemic,” Chang said. “Growing numbers, growing costs.”
The article goes on to quote testimony by Kevin Grumbach, chair of family and community medicine at UC-San Francisco:
“All this talk about chronic care and the patient-centered medical home is fundamentally about the primary care foundation of a well-functioning health care [system],” Grumbach said. “Systems that are built on a solid foundation of primary care are much better able to deliver the triple aim of better care, better outcomes and lower cost, and in an equitable way.”
Unfortunately, he said, California’s primary care system “is completely topsy turvy,” he said.
A little noticed provision of the Patient Protection and Affordable Care Act could contain the means of restoring the primacy of primary care and putting health insurance into the more logical and sensible role of covering large, unexpected medical costs. It allows state health benefit exchanges to offer qualified health plans (QHPs) that are bundled with primary care directly paid by the insured, not the QHP. These “Direct Primary Care Medical Home Plan” QHPs would logically be those offering lower actuarial value (such as the “bronze” and “silver” metal tier plans that cover 60 and 70 percent, respectively, of expected claims costs).
Such a product could offer real benefits for both individuals and small businesses purchasing coverage in the exchanges starting this fall as well as for health plan issuers. The former would benefit from lower premiums since they would be purchasing a lower cost plan. Health plans would benefit because insureds that pay for their own primary care – likely through pre-paid primary care contracts with primary care doctors and clinics – would have access to primary care and lifestyle coaching to ward off the development or progression of chronic conditions. And primary care providers would also benefit by pre-paid direct primary care plans since they would provide a degree of predictability to their business models and potentially attract the large number of new primary care physicians that will be needed by the many newly insured under the ACA. That sounds like a promising means to achieve Grumbach’s triple aim.
Plan issuers, however, might initially resist offering such Section 1301(a)(3) plans since they would require them to retool their plans to be more like the “major medical” plans that predominated in the United States until all inclusive managed care plan models covering primary care proliferated beginning in the 1970s. But amid relentlessly rising medical costs that threaten their current business models and the opportunity presented by the new exchange marketplaces to devise new plans, now may be the right time for them to adopt DPC-based plans. Such plans might be marketed as “DPC (Direct Primary Care) compatible” just as high deductible plans are termed “HSA compatible.”
To spur their adoption, the Internal Revenue Code should be amended to allow individuals to take an income tax deduction for pre-paid direct primary care, just as they now can for contributions to health savings accounts.
Silicon Valley is internationally noted as a technology innovator. Now it’s home to another form of innovation, this time in medical care with something known as direct primary care. Direct primary care involves patients pre-paying for routine medical services. In the case of Silicon Valley startup primary care company MedLion, patients pay $49 per month and $10 per visit. “MedLion is able to provide high quality medicine at a price point nearly any family can afford,” notes David Chase on the TechCrunch blog.
I’ve opined that with burgeoning health care costs and their hyperinflationary effect on premiums for insurance and managed care plans, we could see a bifurcation of the market where these traditional forms of medical coverage are used only for major, unexpected expenses and not routine care such as provided by direct primary care providers. In that respect, it’s back the future when “major medical” coverage of decades past was designed to cover only what its name denotes to protect people from financial catastrophe. After all, that’s the key benefit of any form of insurance.
The direct primary care model could be embraced by both employers that have been shifting more risk to employees in the form of higher deductibles and co-pays as well as individuals seeing monthly premiums starting to rival the size of mortgage payments. If this happens, it would represent a major realignment of the private health care finance system. It could also lead small employers and individuals to opt for “bronze” level qualified health plans that state health benefit exchanges must offer beginning in 2014 under the Patient Protection and Affordable Care Act. Such plans must be cover 60 percent of an individual’s actuarially projected medical costs and would offer lower premiums than qualified plans covering 70, 80 and 90 percent of expected losses. With the current level of growth in premium rates, by 2014 bronze level plans may be the only ones that are affordable for many, as I’ve speculated in a previous post.