Direct Primary Care

Direct primary care (DPC) is a cash-based membership model for a more rational delivery model, benefiting both doctors and patients. It reduces care to the fewest number of intermediaries and stodgy layers, while allowing patients to insert insurance for protection against large claims. Mark Twain said “There is no such thing as a new idea. It is impossible. We simply take a lot of old ideas and put them into a sort of mental kaleidoscope.” Paying cash for primary care is not new, but it’s a model that’s resurging after decades of being overly tangled with insurance, to protect against financial ruin.

Ed Winters Ronaldson of HealthDirectly and I wrote a whitepaper on DPC. It takes the novel approach of combing survey data, utilization data from multiple DPC practices, trends in claims data pre- and post-DPC implementation from 19,000 members, and public data on an alternative DPC-leaning model

When Employee Healthcare Costs Move Stocks

Healthcare costs in America are seeping into nonhealthcare companies’ earnings announcements. None of those companies discussed healthcare this time last year.


Healthcare costs in America are seeping into nonhealthcare companies’ earnings announcements. The list from a cursory search of one recent week’s public company earnings transcripts includes firms that sell sneakers and tennis rackets, make the dressing for your Caesar salad, deliver flowers to your sweetheart, and provide services to oil companies.

None of those companies discussed healthcare this time last year. It may be too early to it call a trend but it’s worth noting.

The negative press of outlier expenses, and a renewed focus on what does or doesn’t work, may lead to some improvement. Below is a summary of what the companies reported:

  • Hibbett Sports: In explaining higher expenses management said that “ costs were elevated and with us being self-insured, we do see volatility from time-to-time in expense, so part of it was that.” The stock dropped more than 30% on the earnings announcement, even as same-store and online sales jumped.
  • Footlocker: “And as we have been talking about for a while now, higher minimum wages, selling wages is a big piece of our SG&A [selling, general, and administrative expenses] and medical costs, as well.”
  • 1-800-Flowers: Earnings before interest, taxes, depreciation, and amortization declined 8%. “This primarily reflected Cheryl’s [Cookies’] operational issues and higher transportation and healthcare costs incurred throughout the year.”
  • Lancaster Colony: “And that’s part of our long-term plan, honestly, is to figure out where can we invest in automation to take out unskilled labor, so we’re relying more predominantly on true skilled labor that helps us today, and as we think into the future about things like healthcare costs, worker’s comp costs and everything else, it will help us, as well.”
  • EnservCo Corp: The company “is partially self-insured and, therefore, makes a relatively large upfront payment on each claim. Within our well enhancement segment this accounted for an approximate $283,000 increase in the second quarter compared to last year.” Rounding up, this amounts to 1% of sales—not an insignificant amount.

As a top 3 or 4 expense, nonhealthcare companies rarely discuss healthcare costs with investors. It’s hidden within the SG&A line of the income statement. Brokers, vendors, and consultants have been inconsistent with delivering solutions. Usually their interests are not aligned and it’s a tough battle. Inflation, demographic changes, regulation, and innovation have pressured budgets. Costs of $8000 to $12,000 per employee in the United States is just the price of doing business. Healthcare trend of 2 to 3 times the consumer price index is the benchmark and is set in budgets. Breaking that has not been something companies have consistently reported or reliably bragged about.

Many in the healthcare industry lament the lack of attention the C-suite places on healthcare purchasing decisions. Some say it as if companies don’t like saving money. In reality, they’re focused on capital allocation, strategy, debt structure, and whether to open a new plant in Poland, and they are fatigued by the failed promises of big savings from vendors and consultants. What’s more, for technology companies with young employees, the low employee cost share, higher dollar benefits, and low hassle are the best decision since they keep employees happy and focused.

Chief Financial Officers will start caring about healthcare, viewing it as something more than a commodity, when it becomes something they can consistently impact, is something employees want, and delivers a meaningful return on investment. One-off case studies don’t help. They want unbiased results. Ironically, this is not likely to happen by following “best practices” surveys. As British economist John Maynard Keynes said: “Worldly wisdom teaches that it is better for reputation to fail conventionally than to succeed unconventionally.”

What can be done? Game theory could call for less and with a delicate balance on employee impact. Tenure is dropping in many industries, and investments in health programs may see results accrue to the next company. I suggest you Google “Al Lewis Quizzify.” All the poking and prodding and forced wellness is not helping, and it costs hundreds of dollars per employee per year when you add incentives (bribes). There’s also a bias to buy more. If brokers or consultants don’t ask you to buy something shiny and new they’re not “doing their jobs,” but it’s debatable how much value they’re adding.

Ideas need deeper consideration of second and third order consequences. Increased access tends to lead to increased use. For example, 90% of companies now offer telemedicine, only about 1 in 20 use it per year, yet it costs as much per visit as primary care and is silent on the evidence of the total emergency room reduction needed to justify published savings. Reducing friction to drive care to cheaper and higher quality settings helps, too. Walmart contracts with proven Centers of Excellence for certain procedures related to joints, spines, cardiovascular, cancer, and more. Improved healthcare and financial literacy are also things we all need in regular doses.

Does it move a stock or warrant mentioning to investors? That will be a benchmark. That’s when companies will consistently care. Cutting wasteful programs and doing the opposite of what many helpers say are great starts. A famous Seinfeld episode finds George Costanza questioning his purpose and instincts. He soon realizes that if he does the opposite, he’ll get out of his funk. More companies need to follow that wisdom. Perhaps that will lead to consistently higher earnings.

It’s Time We Rethink Health Insurance

Being overinsured means you’re financial divorced from both the short-term cost and the impact of long-term health decisions.


In the healthcare debate, many people are calling for lower deductibles and richer coverage. You need to spend more to save more, they say. However, that’s not likely to reduce the healthcare slice of the gross domestic product pie. The same group tends to deride high-deductible plans, even as their enrollments top 21 million and use of health savings accounts grow. Their intentions stem partly from the lofty goal of protecting consumers from themselves. The oft-cited statistic from the Federal Reserve Board is that 40% of people can’t afford a $400 emergency with cash on hand. Yet, somehow everyone has iPhones.


The same report also found that “74% of adults said they were either doing okay or living comfortably in 2017.” The 40% statistic includes a portion of the 83 million people who are either on Medicaid or receive subsidies through the Affordable Care Act; that’s 25% of the total US population. Their out-of-pocket costs for healthcare will almost always be lower than those with employer-sponsored insurance. I don’t mean to be insensitive about personal finances or Pollyannish about what higher deductibles can do, but much of the critical $400 emergency fund can be lost to too much insurance. Low cost-sharing coverage offers no free lunch. Peace of mind aside, money spent on premiums is gone, and richer plans cost more than higher deductible plans.


What Is Insurance For?

Insurance compensates for a specific loss in exchange for a premium paid. It’s meant to protect against ruin. That’s why there is no oil change insurance or insurance for an overcooked steak. Great insurance is a backstop for risk, but it does not equal great health. In fact, social determinants of health (genetics, behavior, social, and environmental factors) account for an estimated 90% of the risk factors for a premature death.


Unfortunately, the high-deductible health plans (HDHPs) took on the ugly euphemism of consumer direct health plans (CDHPs) and, understandably, brought suspicion. Despite branding issues, places like Harvard are setting up the high-deductible option to be the best choice for the 90% of people, even assuming one reaches his or her out-of-pocket maximum. The below chart shows the total employee spend (premiums plus copays) for 4 different healthcare claims scenarios.



HMO stands for health maintenance organization and POS for point of service


Too Much of a Good Thing

Being overinsured means you’re financial divorced from both the short-term cost and the impact of long-term health decisions. If I pay nothing for my blood pressure medicine, I’m less likely to control my blood pressure through diet and exercise. I’m also less likely to shop for medical care and more likely to have wasteful care. Past experience with a navigation and transparency company taught me that those with higher deductible plans were twice as likely to shop for coverage than those with lower deductible plans.


There are other angles worth considering. I recently wrote how over 30 years it can conservatively cost $45,000 to be overinsured. The very protection we buy can hurt our finances. Those with few or no assets are the most exposed to inflation since they have no hedge against rising prices. Those with the most delicate of finances, are also the ones who need to realize how much they could often save by having the right kind of insurance. Improved healthcare literacy and help with framing plan selection can bridge the gap, even if the impact is modest.


Insurance should be to protect against ruin. Like eating carbs, too much is not good.

The Value of Health Insurance Brokers

In healthcare, brokers help most companies buy, manage, and choose healthcare plans. But, judging by rates of change, spending trends, and objectivity, it’s debatable where they’re adding value and how keen their eye is for innovation.


The word broker is derived from Old French. Some sources say its meaning has roots in wine retailing. The Spanish word for some uses of the term is corredor, or runner. Some brokers are running and hustling for you, and others are selling you wine, hoping you come back with an empty bottle.


In healthcare, brokers help most companies buy, manage, and choose healthcare plans. Judging by rates of change, spending trends, and objectivity, it’s debatable where they’re adding value and how keen their eye is for innovation. The raw data from the 2017 Kaiser Employer Health Benefits Survey provides an unbiased view of how companies that use a broker and those that don’t fare. Of course, selection bias may be at work since those who don’t use a broker may be more sophisticated, have more Ivy League degrees, or listen to more healthcare podcasts.


Many brokers seem to be ok with the way things are. The current industry has a great business model. Commissions go up with healthcare inflation. They make plenty of money and even if you sit still, you collect 6%. That’s a business Warren Buffett would love. They also have a captive market. Kaiser data show 88% of companies use a broker to buy healthcare benefits.


Risk and Innovation

What’s good for a company is not necessarily good for a broker; so, the definition of risk depends on who you are. For instance, flat fees may be better for the employer, but not the broker. One broker’s 2017 annual report highlights: “Our ability to generate premium-based commission revenue may also be challenged by the growing desire of some clients to compensate brokers based upon flat fees rather than variable commission rates. This could negatively impact us because fees are generally not indexed for inflation and do not automatically increase with premiums as commissions do.”


As I have written elsewhere, it appears 1 of the best ways to save money in the short-term is to discourage employees from signing up for benefits. Savings from a 1% decrease in take-up rates can give firms a 7-fold return on investment (ROI) compared with telemedicine (the take-up rate is the % of eligible employees who enroll in health benefits). But who knows what leaps to reduce take-up rates will do to turnover and productivity? The 2018 Willis Towers Watson Best Practices Survey lists the spousal penalty (or surcharge) as a “best practice” for reducing spend. In fact, it’s listed first and averages $1200 per year. A subtle approach charges much higher contributions for spouses to push them off the fence. In healthcare, this is innovation.


The Survey Says

Where is the value? As entrepreneur Jim Rohn said: “Success leaves clues.” There are statistically significant clues (P <.01) from the 1200 firms with 200-plus employees represented in the survey data studied.


Companies that use brokers:

  • Have 5% lower take-up rates. Again, a 1% drop in the take-up rate has 7 times the ROI of telemedicine.
  • Are 22% less likely to use penalties and rewards for doing a health risk assessment (HRA). That’s refreshing since most HRAs are worthless or less than worthless. Google “Al Lewis HRA” for proof, or read his latest blog post.
  • Contribute 5% less to employee healthcare, or more than $200 less per year (employers who use a broker contribute 80% of annual premiums for single employees versus 85% for those who don’t use a broker).
  • Tend to be slightly younger, based on the percentage of employees over 50 (33% vs 36%).


  • There is no statistically significant difference in annual plan premiums (even after adjustments for plan designs and age) between the broker and nonbroker groups.
  • Companies who go it alone are no less likely to have a high-deductible plan, a plan with narrow networks, or 1 that eliminates hospitals to control costs or use coinsurance for specialty prescriptions.
  • The out-of-pocket maximum under preferred provider organization plans in the 2 groups are virtually identical, as are the wellness rewards offered, the percentage of employees who complete HRAs or biometric screenings, and the percentage who earn more than $60,000.


The value of a broker appears to be in helping companies reduce plan enrollments, “right-sizing” contributions, and in getting some of the wellness penalties and rewards right. Of course, this will vary since not all brokers are equal. Companies need to demand data. If you use a consultant or broker to buy benefits, ask yourself: is my broker running for me, or getting me drunk?


With all the screened case studies, broker-commission-paying ancillary vendors, flashy presentations, and best practices surveys, it’s getting harder to tell the difference.

Kaiser Survey Data Offer More Reasons to Rethink Health Risk Assessments

While incentives and penalties are effective at getting people to complete health risk assessments, the assessments do not lower costs or increase wellness.


Will Rogers once said, “The income tax has made more liars out of the American people than golf has.” Health risk assessments (HRAs), and the umbrella of wellness, could give taxes a run for their money. The intrusive and often ineffective HRA questions tend to ask about how you rate your diet, your marriage, how often you drink, and whether you’re self-aware enough to know that seatbelts should be buckled. They often come with incentives or penalties to push employees into completing them. It’s no wonder wellness has a Net Promoter Score of —52.


It’s Not All Bad, Is It?

Interestingly, wellness’ popularity with employers, brokers, and consultants seems unshakeable. The 2017 Kaiser Family Foundation Employer Health Benefits survey data reveal that in 2016, HRAs were offered by over 78% of firms with at least 1000 employees. A full two-thirds of those firms offered an incentive (carrot) or penalty (stick), to participate in wellness. Even so, wellness has an increasingly hard time showing savings. The University of Illinois Wellness study, which is the gold standard as the only randomized controlled trial on wellness that I’m aware of, showed no savings for the year after it was implemented. People didn’t go to the gym more, and they didn’t spend less on healthcare.


Business and Courts

Even so, wellness and its sexier sibling well-being, are increasingly mentioned in business, healthcare, and the courts. Jamie Dimon, CEO, JPMorgan Chase, in his 2018 letter to JPMorgan Chase shareholders, mentions wellness, particularly obesity and smoking, as 1 of the first 6 issues to address as part of the Berkshire—Amazon–JPMorgan Chase healthcare joint venture. Towers Watson’s 2017 high-performance insights employer survey mentions well-being 77 times—an 88% increase compared to the 2015 survey. The case of AARP v the Equal Employment Opportunity Commission highlights the debate of what is considered voluntary wellness, with current fines of 4 figures having serious implications on wellness programs and the use of wellness incentives going forward.


Kaiser Study Data

The Kaiser study adds another voice and is based on a deeper dive into the actual survey data. Sometimes 200-plus pages of survey results are not enough to get a grasp on things. What the data show is that wellness carrots or sticks are effective in 3 ways:

  1. Getting people to fill out HRAs
  2. Helping companies spend money on incentives or penalties for employees (reducing morale)
  3. Improving a company’s own perception of wellness’s effectiveness.

But when you look at premiums, there is no sense that those that offer HRAs show a reduction in premiums for health plans even when controlled for other factors.


The below grid is a summary of HRA completion and premiums. The first row shows the 164 large companies that offer no HRA; the next rows show the quartiles based on the percentage of employees within the companies that completed a HRA, the lowest tier having 0% to 20% completion, and the highest with 70% to 100% completion.


The grid reflects the unweighted averages of the following: the annual yearly premiums for single coverage, a demographic field (percent of employees over 50), and a broad estimate of companies plan benefit values (high-deductible health plan enrollments as a percent of total enrollments). The field “Company Uses Carrot/Stick for HRA” is listed as either a 1 or 2, with 1 indicating that a company uses either an incentive or penalty to encourage HRA completion. The next column is the average measure of the perception of the effectiveness of the wellness incentives offered: 1 = very effective, 2 = somewhat effective, and 3 = not at all effective. The last column is the average of the maximum total wellness reward or penalty for all wellness and health program promotions.


Groups in the Highest Quartile of HRA Completion

As stated, wellness carrots and sticks are effective at getting people to complete HRAs and are associated with a 26% average increase in completion rates (P<.0001). That’s where it ends. The highest quartile group of 70% to 100% completion shows that there are no consistencies in premiums, demographics, or other driving factors and HRA completion doing anything other than costing money through program costs, rewards, and damages to morale through penalties. This group also spends more than $400 more per year than the companies that don’t use HRAs.


The management guru Peter Drucker famously stated: “There is nothing so useless as doing efficiently that which should not be done at all.” Businesses need to wake up and lead with a new approach on employee wellness, healthcare education, and its personal and financial implications. Companies could take wellness dollars and direct them to other things: simpler healthcare education programs, richer plan designs, increased health savings contributions, sports equipment reimbursement programs (people love the idea of getting money for skates or skis), or fancier greens in the cafeteria. That is how you promote a culture of wellness without spending money foolishly, penalizing employees, or encouraging them to lie.