Making Health Insurance That Consumers Actually Like

Health insurance that consumers like? Doesn’t sound possible, but South African company Vitality is doing just that. By focusing on consumer-driven health insurance ideas like paying customers to take care of themselves, Vitality has expanded to the UK and China. Professor Regina Herzlinger discusses why this idea of paying for self-care has the potential to improve health care in the United States as well.

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Transcript edited for brevity and clarity

Brian Kenny: : Health care. Those words can cause blood pressure to rise. It's one of the most perplexing and contentious issues of our time, but one thing we can all agree on is that it's better to have a healthy workforce than a sick one.

The CDC reported that in 2015, productivity losses linked to absenteeism cost employers nearly $226 billion. Four of the ten most expensive health conditions for US employers are related to heart disease, and all are highly preventable with proper diet and exercise. Even so, it's hard to motivate people to drop the pizza and hit the gym when the payoff is months or even years down the line. So just what would it take to motivate us to take better care of ourselves?

Today, we'll hear from Professor Regina Herzlinger about her case study entitled, The Vitality Group: Paying for Self-Care. I'm your host, Brian Kenny, and you're listening to Cold Call.

Professor Herzlinger is an expert on consumer-driven health care and innovation in health care. She researches, teaches, and writes extensively on these topics and has even been called the “godmother of consumer-driven health care” by Money Magazine. Wow, that is high praise, Regi. Thank you for joining me today.

Regina Herzlinger: My pleasure.

Kenny: This is obviously a case that's ripped from the headlines. This is a very current topic. We are within weeks of the repeal of the failed effort to repeal and replace the Affordable Care Act. The company that we're going to talk about actually opens the door to a lot of discussion around the ideas that are front and center.

Herzlinger: I hope so.

Kenny: To get people started, can you give a quick definition of consumer-driven health care, because that's one of the central points we're going to talk about.

Herzlinger: Consumer-driven health care just means you, me, our listeners, we control our health care system. After all, it's our money, but we have so little control over how that money is spent.

Kenny: We're all learning more and more about that as we go. It's a crash course. Maybe you could begin just by setting up the case for us. Who are the protagonists and what's on their mind?

Herzlinger: They're so cool. For me, they hit the trifecta. They're consumer-driven. Vitality's an insurance company in South Africa, and the CEO is very consumer-driven. His idea's to make health insurance that consumers like. That might seem almost impossible given that health insurance is the most disliked industry in the US, but he's managed to do it. Second is, he's an entrepreneur and I love entrepreneurs and innovation. I think that's the way health care is going to be cracked. He's actually an actuarial entrepreneur, which might seem like an oxymoron, but he is that. And then the third thing that is so important about Vitality for me is the company is global, and I think that many of the innovations in health care will come not from the United States, other than medical technology in which we excel, but the delivery innovations, the health insurance innovations, they come from a developing country in which there isn't a powerful status quo that squashes down the innovations.

Vitality started in South Africa by this brilliant, consumer-driven actuary entrepreneur, and he had a couple of good ideas about how to make health insurance more consumer-driven. One fantastic idea is, if you're sick, he's going to pay you to take care of yourself, and he's not going to give you a ticket to the movie theater. He's going give you a lot of money if you take care of yourself. If you're chronically ill, and you know, most of the money in health care is spent on people who have chronic diseases, and most of their cure relies on self-care, and it's very daunting. If you're a diabetic, and you have to prick yourself a couple of times a day, every day of your life, how awful is that?

His insight was, you do it, you control your diabetes, you control your heart disease, you control the things you can control. You stop smoking if you have asthma or COPD, and he'll give you a lot of money for doing that. [This] was an enormously successful insurance plan in South Africa. Who wouldn't want it? I would sign up for it. I don't even have a chronic disease. I'd like to be paid to go to the gym, for the torture I put myself through.

Kenny: How did you find this company? I mean, they're one the other side of the world.

Herzlinger: They found me. I had written a book called Market Driven Healthcare, and he got in touch with me, and essentially said, "We're soulmates. Let me tell you about what I do." I said, "You bet.”

Kenny: One of the things I found intriguing in the case was the notion of a vitality age. I'm a little worried about what my vitality age might be, I'm afraid I'm probably 20 years older than I should be, but you can talk a little bit about how they approach this topic, and help people to understand that they can take control of their own care.

Herzlinger: If you have not seen your toes for about 20 years because your stomach's in your way, if you smoke three packs a day, two six-packs of beer go down your gullet, your vitality age is going to be way, way older than your actual age. That's kind of scary. You think, "I'm 35 years old." Your vitality age shows up, says you're 49. But because this is a consumer-driven system, and Adrian Gore, the CEO, is thinking like a consumer; his mind is not punitive, his mind is helpful. And he employs 14 behavioral economists to frame communication with the consumer, to make sure that it's not a nagging schoolteacher saying, "You're too fat, you smoke too much, you drink too much." But instead saying, "If you tried the following things, here's how they might affect your vitality age, and I'm going pay you to do that."

Kenny: How are people responding?

Herzlinger: Well, some people don't respond at all. Not surprising. But the ones who do respond, respond very strongly, and what is important is, it is people who have chronic diseases. If you have a diabetic who keeps his glycosylated hemoglobin under control, keeps what they eat under control, somebody with heart disease who gets appropriate exercise and takes their meds regularly, these has huge cost effects on the health care system, so they find tremendous return on investment from their efforts.

They're mostly used by employers, and employers find that the money that's spent on vitality, on paying employees to take care of themselves, is more than returned financially … and in terms of productivity. One thing you didn't mention is a major loss of productivity comes from aches and pains. Bad backs, bad feet. You go to the gym, those things go away. Vitality will motivate you to do that.

Kenny: You've done a lot of looking at the correlation between socioeconomics and people managing their health care. What if I can't afford to go to a gym? Do I find myself at a disadvantage, or how has Vitality helped people work through those issues?

Herzlinger: It's used by employers, it's not available to individuals. However, I wrote an editorial published in the Wall Street Journal in January, advocating Medicaid HSAs. So this is a scary-sounding title, it sounds lobotomizing, but essentially it means rather than say, you have a choice of one insurance policy, say to people on Medicaid, "Here's a bunch of money. You have to buy insurance. We're going penalize you if you don't buy insurance, but if you have some money left over, put it in an HSA." That's a Health Savings Account. Health Savings Accounts have terrific tax advantages that even people who are poor can benefit from, and they can save that money to go to a gym. We don't have that kind of system, we don't have gym benefits. Why not? Why shouldn't somebody on Medicaid choose to use that money to go to a gym?

Kenny: You’ve looked at other countries with programs similar to this. What have you seen in other places? Could something like Vitality work in the US, given our current ... confusing, to use a kind word, system?

Herzlinger: Okay, so Vitality has gone to the UK. It's gone to commonwealth countries springing out of South Africa. It's also in China and very successful. Tried to come to the US and they found it very hard going. That is the purpose of the case. It is a tough MBA case because our health care system is so convoluted, it is so non-systematic, that even people as brilliant as these–they account now for about 5 percent of the GDP in South Africa, so they're hardly amateurs–found it exceedingly difficult to wend their way through.

Now, how could you and I get Vitality? We work for the world's greatest employer, Harvard University, but do we have Vitality? We do not. I'd like to use it. I really would like to use it. They pay for a lot of things I do, so for the New York Times, I wrote an editorial in November, which said, "Cash me out." I predicted that the attempts to repeal and replace the ACA would fail. They're trying it again. It's like a ghost rising out of the vapor, it won't go away. But fundamentally when 20 million people are given insurance, there's no way that that's going to be taken away from them.

So people will have to buy insurance, that will remain the law of the land, and what my co-authors and I suggest in this New York Times editorial is, give the people the money that their employers now spend on their behalf for health insurance. Permit them to get it in a tax-neutral way, that's how we get our health insurance right now. Require them to buy health insurance, but have them buy it. Would I buy a policy that featured Vitality as part of it? Sign me up. I want it.

Kenny: But not everybody would, so it's not a one-size-fits-all.

Herzlinger: It's not, exactly. It's a market. You know, we have 64,000 or so SKUs in the average supermarket. We publish over 100,000 books a year. How many are read? I don't know, but we do publish them. We have hundreds of models of cars. Why not have big choice in health insurance? But that kind of system, consumer-driven, where I control what I buy, will guarantee that policies like Vitality and perhaps even better competitors are available to me.

Kenny: What are the limitations that we're up against here? Based on your expertise in the space, why can't we make this happen?

Herzlinger: We're going to make it happen, I believe. “It” being that we will transfer money to consumers, and the reason is, the 800-pound elephant in the health care room is the cost of this system. We pay 17 percent of our GDP for health care, and our health care is nowhere near as good as in many other countries that spend substantially less. We have to lower these costs. We've tried a lot of ways. We've tried managed care, we've tried to change the delivery system. There were all wonderful ideas, but let's face facts, they haven't worked. So what's left? Two things are left. One is, let the government take it over, go to a single-payer system. I don't believe that that's going to be a choice many of the American people will favor, unless the other choice fails. The other choice is give it to the consumers, create a consumer-driven market and let's see how that works.

Kenny: It's a very good case, I think people will find it very interesting. I personally would sign up for Vitality too if it was available, but we'll have to wait and see. Regi, thank you so much for joining us.

Herzlinger: My great pleasure, as always.

Kenny: You can find the Vitality case along with thousands of others in the HBR case collection at hbr.org. I'm Brian Kenny, your host, and you've been listening to Cold Call, the official podcast of Harvard Business School.

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Transcript edited for brevity and clarity

Brian Kenny: : Health care. Those words can cause blood pressure to rise. It's one of the most perplexing and contentious issues of our time, but one thing we can all agree on is that it's better to have a healthy workforce than a sick one.

The CDC reported that in 2015, productivity losses linked to absenteeism cost employers nearly $226 billion. Four of the ten most expensive health conditions for US employers are related to heart disease, and all are highly preventable with proper diet and exercise. Even so, it's hard to motivate people to drop the pizza and hit the gym when the payoff is months or even years down the line. So just what would it take to motivate us to take better care of ourselves?

Today, we'll hear from Professor Regina Herzlinger about her case study entitled, The Vitality Group: Paying for Self-Care. I'm your host, Brian Kenny, and you're listening to Cold Call.

Professor Herzlinger is an expert on consumer-driven health care and innovation in health care. She researches, teaches, and writes extensively on these topics and has even been called the “godmother of consumer-driven health care” by Money Magazine. Wow, that is high praise, Regi. Thank you for joining me today.

Regina Herzlinger: My pleasure.

Kenny: This is obviously a case that's ripped from the headlines. This is a very current topic. We are within weeks of the repeal of the failed effort to repeal and replace the Affordable Care Act. The company that we're going to talk about actually opens the door to a lot of discussion around the ideas that are front and center.

Herzlinger: I hope so.

Kenny: To get people started, can you give a quick definition of consumer-driven health care, because that's one of the central points we're going to talk about.

Herzlinger: Consumer-driven health care just means you, me, our listeners, we control our health care system. After all, it's our money, but we have so little control over how that money is spent.

Kenny: We're all learning more and more about that as we go. It's a crash course. Maybe you could begin just by setting up the case for us. Who are the protagonists and what's on their mind?

Herzlinger: They're so cool. For me, they hit the trifecta. They're consumer-driven. Vitality's an insurance company in South Africa, and the CEO is very consumer-driven. His idea's to make health insurance that consumers like. That might seem almost impossible given that health insurance is the most disliked industry in the US, but he's managed to do it. Second is, he's an entrepreneur and I love entrepreneurs and innovation. I think that's the way health care is going to be cracked. He's actually an actuarial entrepreneur, which might seem like an oxymoron, but he is that. And then the third thing that is so important about Vitality for me is the company is global, and I think that many of the innovations in health care will come not from the United States, other than medical technology in which we excel, but the delivery innovations, the health insurance innovations, they come from a developing country in which there isn't a powerful status quo that squashes down the innovations.

Vitality started in South Africa by this brilliant, consumer-driven actuary entrepreneur, and he had a couple of good ideas about how to make health insurance more consumer-driven. One fantastic idea is, if you're sick, he's going to pay you to take care of yourself, and he's not going to give you a ticket to the movie theater. He's going give you a lot of money if you take care of yourself. If you're chronically ill, and you know, most of the money in health care is spent on people who have chronic diseases, and most of their cure relies on self-care, and it's very daunting. If you're a diabetic, and you have to prick yourself a couple of times a day, every day of your life, how awful is that?

His insight was, you do it, you control your diabetes, you control your heart disease, you control the things you can control. You stop smoking if you have asthma or COPD, and he'll give you a lot of money for doing that. [This] was an enormously successful insurance plan in South Africa. Who wouldn't want it? I would sign up for it. I don't even have a chronic disease. I'd like to be paid to go to the gym, for the torture I put myself through.

Kenny: How did you find this company? I mean, they're one the other side of the world.

Herzlinger: They found me. I had written a book called Market Driven Healthcare, and he got in touch with me, and essentially said, "We're soulmates. Let me tell you about what I do." I said, "You bet.”

Kenny: One of the things I found intriguing in the case was the notion of a vitality age. I'm a little worried about what my vitality age might be, I'm afraid I'm probably 20 years older than I should be, but you can talk a little bit about how they approach this topic, and help people to understand that they can take control of their own care.

Herzlinger: If you have not seen your toes for about 20 years because your stomach's in your way, if you smoke three packs a day, two six-packs of beer go down your gullet, your vitality age is going to be way, way older than your actual age. That's kind of scary. You think, "I'm 35 years old." Your vitality age shows up, says you're 49. But because this is a consumer-driven system, and Adrian Gore, the CEO, is thinking like a consumer; his mind is not punitive, his mind is helpful. And he employs 14 behavioral economists to frame communication with the consumer, to make sure that it's not a nagging schoolteacher saying, "You're too fat, you smoke too much, you drink too much." But instead saying, "If you tried the following things, here's how they might affect your vitality age, and I'm going pay you to do that."

Kenny: How are people responding?

Herzlinger: Well, some people don't respond at all. Not surprising. But the ones who do respond, respond very strongly, and what is important is, it is people who have chronic diseases. If you have a diabetic who keeps his glycosylated hemoglobin under control, keeps what they eat under control, somebody with heart disease who gets appropriate exercise and takes their meds regularly, these has huge cost effects on the health care system, so they find tremendous return on investment from their efforts.

They're mostly used by employers, and employers find that the money that's spent on vitality, on paying employees to take care of themselves, is more than returned financially … and in terms of productivity. One thing you didn't mention is a major loss of productivity comes from aches and pains. Bad backs, bad feet. You go to the gym, those things go away. Vitality will motivate you to do that.

Kenny: You've done a lot of looking at the correlation between socioeconomics and people managing their health care. What if I can't afford to go to a gym? Do I find myself at a disadvantage, or how has Vitality helped people work through those issues?

Herzlinger: It's used by employers, it's not available to individuals. However, I wrote an editorial published in the Wall Street Journal in January, advocating Medicaid HSAs. So this is a scary-sounding title, it sounds lobotomizing, but essentially it means rather than say, you have a choice of one insurance policy, say to people on Medicaid, "Here's a bunch of money. You have to buy insurance. We're going penalize you if you don't buy insurance, but if you have some money left over, put it in an HSA." That's a Health Savings Account. Health Savings Accounts have terrific tax advantages that even people who are poor can benefit from, and they can save that money to go to a gym. We don't have that kind of system, we don't have gym benefits. Why not? Why shouldn't somebody on Medicaid choose to use that money to go to a gym?

Kenny: You’ve looked at other countries with programs similar to this. What have you seen in other places? Could something like Vitality work in the US, given our current ... confusing, to use a kind word, system?

Herzlinger: Okay, so Vitality has gone to the UK. It's gone to commonwealth countries springing out of South Africa. It's also in China and very successful. Tried to come to the US and they found it very hard going. That is the purpose of the case. It is a tough MBA case because our health care system is so convoluted, it is so non-systematic, that even people as brilliant as these–they account now for about 5 percent of the GDP in South Africa, so they're hardly amateurs–found it exceedingly difficult to wend their way through.

Now, how could you and I get Vitality? We work for the world's greatest employer, Harvard University, but do we have Vitality? We do not. I'd like to use it. I really would like to use it. They pay for a lot of things I do, so for the New York Times, I wrote an editorial in November, which said, "Cash me out." I predicted that the attempts to repeal and replace the ACA would fail. They're trying it again. It's like a ghost rising out of the vapor, it won't go away. But fundamentally when 20 million people are given insurance, there's no way that that's going to be taken away from them.

So people will have to buy insurance, that will remain the law of the land, and what my co-authors and I suggest in this New York Times editorial is, give the people the money that their employers now spend on their behalf for health insurance. Permit them to get it in a tax-neutral way, that's how we get our health insurance right now. Require them to buy health insurance, but have them buy it. Would I buy a policy that featured Vitality as part of it? Sign me up. I want it.

Kenny: But not everybody would, so it's not a one-size-fits-all.

Herzlinger: It's not, exactly. It's a market. You know, we have 64,000 or so SKUs in the average supermarket. We publish over 100,000 books a year. How many are read? I don't know, but we do publish them. We have hundreds of models of cars. Why not have big choice in health insurance? But that kind of system, consumer-driven, where I control what I buy, will guarantee that policies like Vitality and perhaps even better competitors are available to me.

Kenny: What are the limitations that we're up against here? Based on your expertise in the space, why can't we make this happen?

Herzlinger: We're going to make it happen, I believe. “It” being that we will transfer money to consumers, and the reason is, the 800-pound elephant in the health care room is the cost of this system. We pay 17 percent of our GDP for health care, and our health care is nowhere near as good as in many other countries that spend substantially less. We have to lower these costs. We've tried a lot of ways. We've tried managed care, we've tried to change the delivery system. There were all wonderful ideas, but let's face facts, they haven't worked. So what's left? Two things are left. One is, let the government take it over, go to a single-payer system. I don't believe that that's going to be a choice many of the American people will favor, unless the other choice fails. The other choice is give it to the consumers, create a consumer-driven market and let's see how that works.

Kenny: It's a very good case, I think people will find it very interesting. I personally would sign up for Vitality too if it was available, but we'll have to wait and see. Regi, thank you so much for joining us.

Herzlinger: My great pleasure, as always.

Kenny: You can find the Vitality case along with thousands of others in the HBR case collection at hbr.org. I'm Brian Kenny, your host, and you've been listening to Cold Call, the official podcast of Harvard Business School.

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