Vital signs: Karen Ignagni of America's Health Insurance Plans looks at how health plans can mend what's broken in the health-care system and create affordable options for the uninsured.

Health plans will experience a very important year in 2005 as employers talk about not only how employees can pay more for insurance but also what tools they should deploy to improve value, reduce costs and improve transparency. This is just one of several trends Karen Ignagni, president and chief executive officer of America's Health Insurance Plans, foresees for health insurers. She believes the conversations will spark a number of opportunities for health plans to demonstrate "just what they can do."

In a recent interview with Best's Review, Ignagni shared insight into trends and challenges health plans may face in the next several years, along with ways they and the association are working to provide affordable health insurance for the millions of uninsured and steps that need to be taken to improve what many believe is a broken health-care system.

What are the growing trends you see in health insurance today, and what are health plans doing to address these issues?

One of the biggest trends is growing interest among purchasers and consumers in disease management and care coordination for multiple chronic diseases that individuals confront. They're interested in various tools and techniques that our members have developed to improve their care, improve their understanding of what they can do and improve their outcomes.

Secondly, there's strong interest on the part of employers and consumers to have a portfolio of products available to them so they can make choices among traditional insurance products, preferred provider organizations, health maintenance organizations, point-of-service plans and now health savings accounts. I believe we'll see more opportunity for our members to provide the innovative products and services that small employers and uninsured individuals want, particularly as the president launches his discussion around tax credits.

Also, there's interest on the part of smaller health plans, as they explore various facets of the Medicare prescription drug program, to make provisions for what could be high outlays. A number of health plans not previously in the Medicare arena are looking at the opportunity to offer products to seniors, and they're in discussions with reinsurers to add a back-end safety net.

What steps need to be taken in the next one to three years to begin trying to fix what many call a broken healthcare system?

First, there's been a great deal of attention in the health-care policy literature to the issue of rising health-care costs, but almost no attention has been paid to what value purchasers are getting for their investment. Two statistics make that point: With health-care costs going up nationally between 8% and 9%, and the gross national product going up 4%, there's a disconnect that cannot be sustained. Second, roughly 45% of what is done in health care is not best practice. That means it doesn't square with what the science suggests is the best way to treat a patient.

Both of these statistics raise the issue of how can we create dynamic public-private partnerships to improve the effectiveness of the health-care system. A fundamental principle needs to be that consumers have a right-to-know about what kind of care they're getting and how they can evaluate it. These go hand-in-hand, but having a debate about value begins to turn attention to how we align payment with performance and quality. Currently, we pay the same for good, mediocre and bad care. But consumers will soon become the biggest proponents for aligning payment with quality performance, giving providers a strong incentive to hit quality goals.

On private-public partnerships, tax credits are a good example of how the government could provide a helping hand to employers, particularly small businesses who would like to provide health insurance but can't afford to. Our industry can rise to the challenge of creating affordable products that hit that mark. For some time, there's been a major barrier to offering lower cost products. In many states, there are regulatory barriers and we simply can't offer lower-option health-care plans that we know certain employers and individuals want to buy. The government can help jump-start these new opportunities with tax credits, and our members are ready to come forward with affordable products, such as the continued development of health savings accounts, basic care proposals and other alternatives.

What do you think President Bush's second term will bring to help mitigate rising health-care costs and decrease the number of uninsured Americans?

The president has a number of important items on his agenda, such as shining a spotlight on medical malpractice reform. We spend $1.6 trillion in health care and about $100 billion in medical liability cost--including both direct and indirect costs. If we could rechannel the $100 billion, we could provide services to people who are uninsured, help states that have high Medicaid costs and begin to stimulate the conversion from paper to electronic medical records.

The president also will be addressing how to improve safety. Legislation that would encourage physicians and hospitals to report medical errors--but protect them from becoming the targets of lawyers as a result--has been languishing on Capitol Hill, primarily due to opposition by trial lawyers.

President Bush has pledged to bring electronic health records to nearly every American in the next 10 years. What strides are being made in this area thus far, and what will these records do in terms of reducing medical errors and overall healthcare costs?

The movement to electronic exchange of information is integral to improving quality and repairing the fragmentation of the health-care system in order to deliver high-quality, safe and effective health care and avoid costly mistakes. The association recently filed a very comprehensive response to Dr. David Brailer's Request for Information. In our view, to create an effective electronic system, the country should do several things: aim for a consumer-centric system that's portable; create a framework that uses existing data and information channels, such as the Internet, and doesn't require the entire effort to be put on hold until we can construct an electronic super highway; and establish uniform standards across the country recognizing that where consumers might want to seek care transcends where they live. If we are building centers of excellence, let's not create a platform for electronic exchange that varies region by region.

What are health plans doing to address affordability in fighting the uninsured crisis in America today?

We've disaggregated the population without health insurance, explored why they are uninsured and matched policy solutions to the specific categories, because it can't be a one-size-fits-all approach. For instance, we know how many uninsured are between the ages of 18 and 29, and that they're interested in affordable premiums. Members are now tailoring products to meet the needs of this segment. We've focused on the number of people eligible for public programs but aren't yet on the rolls, and we're working with states on a number of strategies to identify these individuals. We're also zeroed in on the growing number of people who are temporarily without coverage and have recommended specific solutions to meet the needs of those who are unemployed and those who are transitioning off public programs.

Is the push by health plans over the past several years for generics and over-the-counter pharmaceuticals now starting to pay off?

There's been a significant impact on the rate of increase in pharmaceutical expenditures. Members of Congress looked carefully at this and are making decisions in the Medicare legislation to employ the tools and techniques that are working in the private sector. Previously, we had pharmaceutical expenditures rising more than 20%: now it's less than half of that. We pioneered the concept of generic substitution when appropriate; developed tiering so individuals have incentives to use the drugs that work for them but are less expensive; and at the same time, made it possible for consumers to use pharmaceuticals that aren't on a formulary but have some coverage.

Are consumer-driven health plans an answer to mitigate rising healthcare costs, and will health savings accounts, in particular, become the predominant force in these consumer-centric plans? What do health plans predict will be the take-up rate on health savings accounts, and how will they convince people to use them and to use them judiciously?

Health savings accounts will take their place as part of a portfolio of products our members offer. The advantage is that they are portable, are owned by individuals and allow for accumulation of funds. Many employers now are offering a range of choices, but they need options, particularly smaller employers, to reduce premiums and prevent individuals from catastrophic risks. At the same time, we'll see continued development of products available.

As of September 2004, 438,000 individuals purchased health savings accounts. One-third of those purchases were by individuals who didn't have coverage, which indicates that people are interested in their costs and the ability to prepare for a rainy day and at the same time make sure premiums are affordable.

We hear from our members and large employers that the regulations that were passed last year came out too late for purchasers to work health savings accounts into their 2005 offerings, but I believe we will see more in 2006. Currently, 86 of our plan members now offer health savings account coverage, compared to only 29 plans in September 2004.

One of the association's issues is long-term-care insurance. What should the government do to ensure effective public education concerning this coverage and long-term-care financing? Is the association lobbying for tax deductions for premiums and what's the likelihood of tax deductions happening?

Long-term care is an issue that's going to come into its own for a number of different reasons. With the focus on Medicare and the health-care needs of those over 65 and the public discussion beginning around Social Security, the whole issue of retirement security is being teed up. Also, the biggest challenge lot state Medicaid programs is that long-term care expenditures are sending budgets through the roof. This presents an opportunity for our industry to provide solutions to public sector programs.

Our recent survey on disability shows that people think they are far better prepared for disability than they really are. Legislators need to take action and think about a continuity of care and break down silos. For example, we're working with members of Congress to try to achieve the ability to use flexible benefits programs and dollars for long-term care and disability.

Last summer, the association joined forces with the Christopher Reeve Foundation and recently held a briefing on Capitol Hill on the importance of people being aware of what they can do to protect themselves in the area of long-term care and disability.

Although President Bush is pushing to overhaul Social Security, many observers say that Medicare is in much more trouble than Social Security and will run out of money long before Social Security. Do you agree with that assessment, and if so, what do you think the administration ought to be doing about Medicare? What will it mean to health plans if nothing is done?

There are challenges in both Medicare and Social Security; but one of the things they did right was to preserve options for beneficiaries to move into private sector plans. What we've done in Medicaid is demonstrate the efficacy of private sector Medicaid plans, reduced cost and improved quality. In Medicare, we've done a great deal in terms of developing innovative programs and strategies that the government program doesn't have so we can achieve better results. We offer beneficiaries better care for diseases such as diabetes and cancer because they have a medical home, an integrated care system and continuity of care--important factors that don't exist in the public program.

If you look at what private sector plans can do for Medicare, a number of beneficiaries will vote with their feet into a variety of private sector organizations where their dollars go farther. In the long term, that's the way for Medicare to begin to think like large purchasers who have achieved better results than they would have had they stayed 10 years ago just with their fee-for-service systems.

In general, what do you foresee for health insurance in the next several years, and what will be the greatest challenges health plans will face at that time?

There will be a lot of activity around product development, customer support and patient information for individuals, small businesses and large employers. We're most proud of our industry developing alliances between our members and providers, particularly the specialty community, and they're now working together to improve care management.

One of the biggest challenges, however, is the differential between the growth in the gross national product and the growth in health-care costs. The longer the gap continues, the more difficult it is for employers and consumers to maintain their protections and coverage. We as an industry are taking this very seriously. The association's board has spent the last year looking at the drivers of health-care costs and various solutions we can offer private purchasers, consumers and the public to improve value to the system, create a more transparent system and improve private-public partnerships--all of which are the recipe for reforming the health-care system for the 21st century. We have 21st century consumers, but in many cases, particularly when you think about state and federal regulation, we have a 19th century regulatory structure. That's far too big a gap.

Key Points

* 2005 will be a very important year for health plans as employers discuss what tools they should deploy to improve value, reduce costs and improve transparency.

* One of the biggest trends in health insurance is the growing interest by purchasers and consumers in disease management and care coordination for multiple chronic diseases.

* Health insurers will focus on product development, customer support and patient information for individuals, small businesses and large employers.

Karen Ignagni

President and Chief Executive Officer of America's Health Insurance Plans

Early Career: Worked for the Committee for National Health Insurance and the U.S. Department of Health and Human Services. In the 1980s, she was a professional staff member of the U.S. Senate Labor and Human Resources Committee. Prior to her current position, she directed the AFL-CIO's Department of Employee Benefits.

Accolades: In 2001, George magazine ranked her 21st among the "50 Most Powerful People in Politics." She also was named one of the 100 most powerful women by Washingtonian Online and No. 30 on the list of the "100 Most Powerful" by Modernhealthcare.com.

What Health Insurance Leaders Say About Ignagni: "She has a rare ability to bring together many different companies and viewpoints to tackle the issues."

Tom Snead, CEO and president of WellPoint's Southeast Region and an AHP board member

"Her ability to synthesize what to the layman would be an impenetrable web of issues into meaningful recommendations is one of the reasons the industry was able to help pass the Medicare Reform bill.

Howard Phanstiel, chairman and CEO for PacifiCare Health Systems 

"She's shown a real grasp of the entire market, in addition to understanding the issues of the unique individual and small business market segments."

Donald Hamm, president and CEO of Assurant Health

America's Health Insurance Plans

No. of Members: 1,300 health-care companies

Headquarters: Washington, D.C.

Founded: 2003 after the merger of the American Association of Health Plans and the Health Insurance Association of America