Emerging Health Care Delivery Model May Offer Cost-Effective Care to Retirees

A health care provider’s primary goal is to get the best outcome for each patient. However, as the provider tries to develop the most effective care plan, they may not always consider the final cost of the treatment. Ordering more tests and treatments may end up with a healthy patient, but it also increases the cost of care for the patient. Value-based health care is an effort by the full industry spectrum – insurance companies, the government, pharmaceutical companies, and providers – to try to reduce the cost of health care while improving patient outcomes.

For financial professionals and their clients, this shift has important implications for retirement planning and how retirees approach their health and lifestyle.

How Value-Based Health Care Is Different From a Fee-for-Service Model

 

At its core, value-based health care aims to address the high health care costs that are often concentrated in the latter half of a person’s life by promoting a more well-rounded care plan. Rather than having patients see a doctor only when they have a specific concern, value-based health care places a greater emphasis on preventive care and overall health – including factors that aren’t necessarily covered in a checkup.

The Five Social Determinants of Health

Source: About Social Determinants of Health. Centers for Disease Control and Prevention, August 19, 2020.

Research has shown that about 80% of health outcomes are caused by five social determinants outside the health care system.¹ For instance, if an older adult finds themselves lonely or socially isolated, they are four times more likely to be re-hospitalized within a year of an initial hospital stay.² Value-based health care focuses on these five social determinants and takes them into account when trying to map out a care strategy.

Financial professionals and their clients can also consider how a client’s plans for retirement and lifestyle impact those determinants and, by extension, their health and potential health care costs. For instance, being sure a retirement location offers convenient access to quality health care would improve that social determinant and, by extension, potentially improve the retiree’s health and reduce their health care costs. Similarly, financial professionals and their clients can look at lifestyle choices, such as travel or community service, to consider how those choices can help boost social and community engagement. Reviewing these types of scenarios can help financial professionals and their clients build the right plans for retirement that account for the impact of social determinants and potentially reduce future health care expenditures.

Reducing Unnecessary Expenses

Value-based health care is about more than just living in a healthy environment – it extends to care decisions as well. In a traditional
fee-for-service model, which is what health care providers currently operate under in most instances, providers charge for each service they perform – routine appointment, surgery consultation, hospital stay, or test. They are then paid by the patient’s health insurance company, the patient, or both, whether the specific service ultimately solved the patient’s issue or not.

While 76% of doctors say they have a prominent role in limiting the use of unnecessary tests and treatments, the fee-for-service structure doesn’t necessarily reward providers for efficiency because they, or the system they work for, gets paid for every service.³ Through a value-based health care model, however, providers are encouraged to streamline their practice since insurers base reimbursements on their analysis of the outcome as compared to the cost of achieving that result. The end goal is still a healthy patient. Doctors who can achieve the end goal of improving patient health efficiently – by leveraging preventive care, requesting fewer tests, or relying on automation – could benefit financially.

For financial professionals and their clients, the move to value-based health care could be an ideal situation if the efficiencies result in a reduced cost of care for the consumer. If a healthy 65-year-old couple retires in 2021, they will potentially spend more than $650,000 on health care throughout their retirement.⁴ Lowering the cost of health care could allow retirees’ savings to last them additional years or allow them to allocate money toward other goals.

Many Retirees Have Multiple Chronic Conditions

Source: Managing the Most Expensive Patients. Harvard Business Review, January – February 2020.

One area in which value-based care could have a significant impact for retirees is the treatment of chronic diseases. Industry research estimates that 50% of Medicare members over age 65 have five or more chronic conditions, and the number of people overall with chronic diseases was expected to more than double between 2015 and 2030.^5,6 Under a fee-for-service model, health care costs for people with chronic diseases can quickly climb, even if the provider can’t offer a resolution or diagnosis.

Value-based health care, on the other hand, focuses on early detection and preventive care, which has been found to reduce costs associated with treating chronic conditions.¹¹ For example, studies have shown that the progression of chronic kidney disease can be slowed when the condition is detected early. This is critical because the costs of treating this condition, similar to other chronic diseases, increase as the condition worsens. When considering all costs, including related conditions that are more likely as the disease progresses, there’s a $50,000 per year cost difference between stage 3a and stage 4 and 5 kidney disease.¹² While much of this cost may be covered by health insurance, any reduction in the overall cost could lower an individual’s out-of-pocket expenses as well.

Early Results Show Cost Savings for Consumers

In a 2019 study, Humana Medicare Advantage members who saw providers practicing value-based health care reported fewer hospital admissions and emergency room visits than Medicare Advantage members who used physicians who were not using value-based health care. Patients within a value-based health care system also had lower rates of hospital admissions and ER visits than patients with Original Medicare plans.¹³

Similarly, after completing an 8-year study, Blue Cross Blue Shield of Massachusetts reported that patients in their study who were included in a value-based health care program saw a 12% savings on their annual medical spending as compared to patients not utilizing
value-based health care.¹⁴

Value-Based Care May Help Reduce Hospital
and ER Visits

Medicare Advantage patients in Humana’s value-based care program have noted positive results compared to those not in the program.

Source: Value-based Care Report. Humana, 2020.

Adjusting Retirement Planning Strategies for Value-Based Health Care

 

It’s anticipated that value-based health care could become the norm in the next decade, so from a retirement planning standpoint, financial professionals and their clients should consider taking steps now to prepare.³

As value-based health care focuses on preventive care and a more holistic approach to health care, both physicians and health insurance companies may be empowered to recommend and cover types of services that are different from what has been previously covered in a fee-for-service model. Some Medicare Advantage plans that are progressing toward value-based initiatives, for example, will now reimburse enrollees for services like meal delivery, transportation, and adult day care. As value-based health care becomes more widespread, financial professionals and their clients will want to pay close attention to whether the coverage of additional services expands beyond Medicare Advantage plans.

Consider Alternative Savings Options

Regardless of what services may be covered in the future by value-based health care plans, financial professionals and their clients can still benefit from looking at various savings options. For pre-retirees who are still working and have the option, health savings accounts (HSAs) can be a valuable financial tool to help pay for future health care expenses. Contributions to HSAs are tax-deductible, and growth within the accounts is tax-free. Withdrawals are also tax-free for qualified medical expenses. Still, these types of accounts are often overlooked.
In 2019, only 8% of baby boomers contributed to an HSA, making it a highly underutilized but extremely effective tool in managing future health care costs.¹⁵

Overall, the total assets invested in HSAs has grown dramatically since their inception in 2003. In the future, with more years of being able to contribute to an HSA, people are likely to enter retirement with significantly higher HSA balances. If the value-based health care model results in more services qualifying as health care expenses, having an HSA becomes even more valuable.

Industry Change Is Coming

The potential industry, provider, and patient benefits of moving toward value-based health care are already being seen in studies:

• Humana estimates $4 billion less in plan-covered costs for Medicare Advantage patients seeing value-based health care providers compared to patients enrolled in Original Medicare¹³
• Physicians in value-based agreements with Humana earn about 2.5 times more than Medicare’s fee schedule¹³
• Medicare Advantage patients consistently ranked their experience with a value-based health care system above their experience with a fee-for-service model²

With a goal of better patient care at a lower cost, a wider shift to value-based health care could benefit financial professionals and their clients. Holistic health care plans could lead to lower costs and overall healthier lifestyles that provide more opportunities for the pursuit of retirement goals.