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Conversations with Kellogg

What Health-Care Reform Really Means for Big Business

Health-care reform—long-awaited, oft-attempted, frequently imperiled—has been touted as salvation by the left and apocalyptic by the right. As is usually the case with things seen in such extremes, the truth is somewhere in the middle. David Dranove, Walter McNerney Professor of Health Industry Management at the Kellogg School of Management, recently offered his perspective to Management Editor Patricia O'Connell. Edited excerpts of their conversation follow:

Now that the dust has settled and everyone has gotten used to the idea that health-care reform is really happening, what does it mean for Corporate America?

There's a lot less there than meets the eye.

There has been a lot of concern about the government getting involved in health care, so is that a good thing or a bad thing?

A bad thing. The Business Roundtable released a report in the fall about how health-care reform could save Corporate America $150 billion a year. This was the report that President Obama, Henry Waxman, and other Democrats used to tout the benefits of health-care reform to the private sector. It itemizes nine things that could save Corporate America billions of dollars.

Out of those nine things, the health reform package that Congress passed contained one of them.

So what happened to the other eight?

I think a lot of them were never going to be part of what the government could do to begin with. They are things that the private sector is going to have to push if it is going to save money. One example is health savings accounts (HSAs). There's nothing in the reform legislation to promote health savings accounts. And why would there be? That's a Republican initiative.

But if we already have health savings accounts, did we really need them in the legislation?

We should be experimenting with the rules in order to make HSAs more attractive. The current law limits what business can do.

Do you think Corporate America believed anything good was going to come from health-care reform?

I think the health-care exchange is something a lot of people think could benefit everyone by getting the previously uninsured to contribute at least a portion of their medical bills. But the way the legislation has been written, the contributions from individuals will be rather small, and lots of people will be on Medicaid and lots of people will be on Medicare. The same people who are currently paying the medical bills through insurance bills and taxes will be paying more taxes. There's not enough individual accountability in the law.

There will probably be more cost-shifting rather than less from public sector to private sector.

So who does benefit?

Small business will no longer be at a competitive disadvantage. Entrepreneurs will no longer be worried about losing their health insurance when they leave their jobs. Individuals who are unhappy with their present jobs will no longer have to worry about being locked out because of preexisting conditions or that their new employer won't be able to give them health insurance if it's a small company. There are a lot of benefits in the labor market that will accrue mostly to smaller businesses and entrepreneurs.

Which is not necessarily a bad thing given how important small businesses and entrepreneurs are to the economy overall.

Buying health insurance is not what business is supposed to be doing. But there are things businesses can do to make this work. …

I'm not sure how benefit managers are going to implement this, but they've got to get your employees talking about their health-care purchases as much as they talk about a car purchase. The amount that can be saved is phenomenal [when people make good choices].

So how can companies get employees talking to each other?

Companies certainly know who has signed up for the CDHPs [consumer-directed health plans]. Get them to talk at open enrollment about their experiences with the plan. There are still some negatives. Enrolling in an HSA can be hard. It's another third party involved in your health care. It took me a couple of months to get mine sorted out, but then I realized [it was much easier than I thought].

You're a bright guy, you're teaching at Kellogg.

I share the same inertia as [anyone else].

Was it merely inertia or did you find it confusing?

Confusing. [Everything about picking a plan] is confusing. There are so many different co-payments. So many different deductibles. A friend of mine worked it out and he said, no matter what, you're always better off with a CDHP. And that's something benefit managers have to start doing—helping people figure all of this out.

Whose responsibility is it to make these plans clearer and easier to understand?

That's the benefits manager's responsibility. They used to simply provide the product and stand out of the way. They have to help employees become better customers.

Didn't employers have the chance to do this as far back as 25 years ago with HMOs? The original idea was to promote health maintenance. HMOs weren't successful for a variety of reasons. What makes you think it will be different this time?

The backlash against HMOs was a bit misguided. All of the things that angered people about HMOs—referrals, billing—is now so much easier because of computers. And what employers really need to be thinking about is making the case for HMOs all over again. It was our last great moment of cost-containment.

But HMOs didn't work.

They did work, but they made people angry. When your billing got screwed up, or your doctor couldn't find out easily who was in the network so you didn't get your referrals, it made you think this must be a really bad plan. But this is 15 years later. We have computers. These kinds of things shouldn't happen anymore. These kinds of things don't happen anymore.

So you're optimistic.

I'm very optimistic [about some things]. I actually think we're going to see a rebirth of HMOs and integrated delivery systems [between health-care providers and hospitals], and employers can help by gathering the data and showing employees that the quality is good.

What concerns you?

My biggest hope was that we were going to see integrated health records not just for the doctors' own use but also for use by managers, payers, and individuals. They should be integral to management information systems. And that isn't happening.

So much of what is being done about health-care reform is being left to the people who are in charge of Medicare and Medicaid. Does that make you feel optimistic or pessimistic?

Pessimistic! This shouldn't be left to bureaucrats. I think the government's involvement has made it more important than ever for the private sector [to pay attention and be involved]. I think the government has made it harder for the private sector to succeed with cost-containment.

We've had health-insurance reform. We haven't had health-care reform.

And that's what the next phase needs to be.

And the history is we're not going to see a next phase anytime soon. …

I think [everyone] was so focused on health-insurance reform that they were willing to let this highly flawed plan go through. And I think it's hurt the private sector enormously.

David Dranove is the Walter McNerney Professor of Health Industry Management at Northwestern University's Kellogg School of Management, where he is also a professor of management and strategy and director of the Center for Health Industry Market Economics. His research focuses on problems in industrial organization and business strategy with an emphasis on the health-care industry.

The Kellogg School of Management at Northwestern University is widely recognized as a global leader in management education. A regular feature of the BusinessWeek Online Management Channel is Conversations with Kellogg in which Management Channel Editor Patricia O'Connell talks with a Kellogg School faculty member about the management challenges that lie behind the breaking business news stories of the day. Kellogg's faculty members are known for their research, teaching, and practical connections to the world of business and management through the school's MBA and executive education programs.

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