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Interview

INTERVIEW

Business Opportunities In Transforming Health Care: A Conversation With William W. McGuire

Abstract

 
After a spate of high-profile acquisitions including Oxford Health Plans, UnitedHealth Group (UHG) covers twenty-two million Americans in insured and self-insured health plans and tens of millions more through specialty products. Bill McGuire describes his strategy of growth through acquisition and through diversification into Medicaid managed care, the individual insurance market, and services for the elderly under the Medicare Modernization Act of 2003. He sees business and public policy opportunities in the unjustifiable variation in cost and quality across the health care system and proposes a framework of basic insurance benefits for all Americans, with options for people to purchase additional benefits with their own money.

Top Consolidation And... Price Competition Business Opportunities In... The Medicare Modernization Act Health Savings Accounts Variability In Cost And... Essential Insurance Benefits Insurance For The Uninsured Editor's Notes

Bill McGuire: As you know, we’re a large, robust company. We generate cash from our operations. Our responsibility, on the shareholder side, is to put that money to work. Those acquisitions happen to be high-profile cases, but they’re far from our only acquisitions. We’ve also bought in the information technology area, for instance.

We don’t look at those acquisitions as buying members. We reject the idea that when buying an insurance firm, the value is from the insured member. We are trying to combine new assets with existing assets in ways that will make new services available to constituents. This is not meant to sound like double-talk; it is a fundamental issue. We are trying to improve capabilities in an area to serve the end customer. If we can’t serve the customer—if we can’t do a better job for the people that interface with the customer, including the physicians and hospitals—we will not be successful in continuing to attract customers.

Robinson: Take specifically the MAMSI or Oxford acquisitions. What do you offer to their customer base, or what do they offer to yours? These were strong plans in their local areas, relatively well-run plans and relatively expensive to acquire. You had a chance to buy them, but where’s the plus, for both the company and the customers?

McGuire: Let’s put cost second and look at what we got first. In both cases, you appropriately described them as local health plans that were focused in their markets and run fairly well. But both plans also were limited. On the one hand, they had very broad network products and good relationships, we think, with the care providers. On the other hand, they could not provide services to large customers in their markets who had a lot of their employees living out of the area. We are able to bring some of our assets so they can now serve a more expanded population with a better and more complete set of tools and services. They keep their core business going the way they’ve always run it, but they are able to expand it. In effect, they, in their own area, become a mimic of us.

Robinson: Do you have a need to be number one, two, or three in each of your markets? Is there a minimum market share you seek everywhere you go?

McGuire: I think market share is important, but it is not the be-all, end-all. UnitedHealth Group was almost nonexistent a decade and a half ago in terms of market share. And a lot of firms that were very large then aren’t around anymore. Size is important to establish presence and be legitimate in an area, and it clearly helps with obtaining lower rates when purchasing. Ultimately, however, our ability to make the system work better, and to get the results for the customer, is not predicated on getting unit cost discounts.

Relative to the purchase price, they [Oxford, MAMSI, AmeriChoice] were not expensive. They may seem expensive, if people use some simplified analytic method that says, well, gee whiz, how much per member did you pay? But we’re not paying for a member. We’re paying for a business and an asset base that happens to have people who use it. We hope that we can expand on that asset base. To pay twelve times earnings or ten times earnings is not expensive to establish a better business, to create a better set of assets in major growth markets in our country.

Price Competition

Top Consolidation And... Price Competition Business Opportunities In... The Medicare Modernization Act Health Savings Accounts Variability In Cost And... Essential Insurance Benefits Insurance For The Uninsured Editor's Notes

 
Robinson: In the past four or five years, a lot of your cash flow has come from the fact that the premiums have been rising, both absolutely and relative to the underlying growth in medical care costs. We’ve been in the strong phase of the insurance underwriting cycle. There’s a lot of discussion now in the industry as to whether we are moving into a period of increased price competition. Some health plans may start to fight for market share by reducing their premiums, relative to their costs, and by taking thinner profit margins. What do you see going on out there?

McGuire: There’s been a lot of attention paid to health plans that have significant financial reserves they don’t need and cannot use, because they’re not using their money the same way we might (in investments for further growth). And so they push some of that money back into the market, in terms of rebates to their clients or premium reductions. That may cause some higher competitive pressures. What is important is the discipline—that we price our products above our costs. And we’re doing that. The problem comes when people fail to do that.

Robinson: The not-for-profit Blue Cross and Blue Shield plans, in particular, are under pressure from state insurance regulators to roll back their premium growth because their reserves have grown so far above mandated levels. Do you see that as a major issue in the markets you compete in?

McGuire: No, I consider that to be something that happens every now and then. Maybe it’s a little more intense now for a variety of reasons, including state budget shortfalls, the kind of things that would make regulators and state officials look around and say, where can I get some help?

Robinson: Let’s continue to talk about the Blues for a moment. United has led the market for the large, multistate employer health benefit business. Now the BlueCard program seems to be taking off. Blue plans are better able than before to stitch together state plans and compete for multistate corporate business. How do you view BlueCard competition affecting you, given that it aims at the heart of Uniprise [UHG subsidiary that focuses on multistate corporate purchasers]?

McGuire: One major advantage that we bring is the ability to have all of the employer’s services handled on one database, one information system. That’s particularly important when you think about transportability of health care benefits, of reliability of information flows to pay claims and to secure eligibility. We’re unique with that capability and all the tools that go with it, ranging from how you use ID cards and how you pay for things, to how you recognize and evaluate claims. But I don’t think any of us are naïve enough to think that we will be the only ones out there in a marketplace.

Robinson: Let’s talk about consolidation in the industry. Data I’ve been looking at suggest that about two-thirds of regional markets have three dominant health plans, when you include both insured and self-insured accounts. It’s always the local Blue Cross/Blue Shield plan, then one or two of the national plans, such as United, and then often a provider-sponsored plan. How much more consolidation do you see in this industry?

McGuire: If you measure market share in yesterday’s currency—in the number of HMOs in any market, for instance—you can certainly see consolidation. But what’s going to emerge in the future may not always look the same way. There will be new kinds of services coming up.

About a decade ago we bought Metra-Health and used it as a vehicle to build new businesses. That company was itself the progeny of two health benefit companies that had not been as successful as they wanted to be. The whole talk at the time, particularly on Wall Street, was, well, you’re going to convert all of these acquired health plans into insured HMO business, right? We said, no, not at all. From that acquisition emerged Uniprise, focusing on the large employer, taking the place of local HMOs. From that emerged other business, including Ovations [a UHG subsidiary that focuses on supplementary insurance, HMO products, and other services for senior citizens]. You’re going to continue to see that kind of innovation occurring around the organization of health care resources and the tools that support them.

Business Opportunities In Medicaid

Top Consolidation And... Price Competition Business Opportunities In... The Medicare Modernization Act Health Savings Accounts Variability In Cost And... Essential Insurance Benefits Insurance For The Uninsured Editor's Notes

 
Robinson: Some of your acquisitions have been outside of the commercial insurance area. You’ve put a lot of initiative into Medicaid, through the acquisition of AmeriChoice and other, smaller acquisitions. What do you see as the potential in Medicaid managed care for a company like United that traditionally was not involved in that program?

McGuire: I see great potential. When we bought AmeriChoice, a lot of people on Wall Street were flabbergasted. Our investor relations person got all these calls that said, You guys must be the stupidest people we ever heard of. Now, today, as you and I talk, there’s people running around Wall Street saying, Oh, this [Medicaid managed care] is the hottest thing in existence.

Our logic in acquiring AmeriChoice was that we had a significant presence in Medicaid, not as large as we do now, but we did not manage it as well as we could on behalf of that constituency. It wasn’t focused enough. We didn’t feel that we had the top level of human resources there, nor were the investments being used as well as they could to serve the needs. We bought AmeriChoice and put our existing Medicaid enrollment into it and said, OK, now you run this as a dedicated company [UHG subsidiary] to serve the enrollees and the states that you do business with. That’s your life. The program has been hugely successful, on behalf of those constituents, as well as better for our company.

Robinson: Do you see major enrollment expansion in Medicaid coming, if small employers continue to drop out of the commercial insurance market?

McGuire: I don’t know. I hope the small employer will not be dropping out of the market. I think there are solutions for small employers. We can help, and the government can help. But, I think, Medicaid is clearly going to be a need. Each state has its own unique situation in that regard. Not all states are necessarily enlightened on how to address the problem of the uninsured. But yes, there’s going to be ample room for growth and expansion for us in Medicaid.

The Medicare Modernization Act

Top Consolidation And... Price Competition Business Opportunities In... The Medicare Modernization Act Health Savings Accounts Variability In Cost And... Essential Insurance Benefits Insurance For The Uninsured Editor's Notes

 
Robinson: What about the remodeled Medicare Advantage [formerly Medicare+Choice] program? You pulled out much of your Medicare HMO enrollment after the Balanced Budget Act. But you’re the major player in Medicare supplemental insurance through your AARP relationship. Do you see the Medicare population as an opportunity?

McGuire: We have always looked at the opportunity as one of serving older Americans rather than serving Medicare per se. Our business isn’t Medicare Advantage or the historical Medicare+Choice. It is serving older Americans. We believe we have to have a variety of approaches for their particular needs. We have had what has proven to be a very good program [Medicare supplemental insurance] with AARP that’s had very low premium rate increases for years and that now has been expanded through chronic disease management and other programs. We are a meaningful participant in Medicare Advantage, but serving elderly people is not predicated just on that product.

Robinson: Some of your competitor health plans have been putting major effort into expanding Medicare HMO products or developing Medicare PPO demonstration products. Are you putting a short-term push into this, or do you take a wait-and-see attitude toward the Medicare Modernization Act and its consequences?

McGuire: We’re a little of both. We have been very involved with the CMS [Centers for Medicare and Medicaid Services] and the Bush administration in trying to respond to their interests and give them input. We are participating in PPO demonstration projects and have a number of drug discount card programs. We separately have had a very large discount card program anyway, which was put in place before all the legislation. But, at the same time, we are not going headlong into the fire, until we see a little more. These are tough areas. What we don’t want to do is participate in programs that, for whatever set of reasons, we can’t feel comfortable with, sustain, and provide value.

Robinson: The worst thing for the industry was the HMOs getting in and then pulling back out of Medicare.

McGuire: Sure. And, you know, I don’t think anybody wanted to do that. We had a history, well over fifteen years ago, of some large health plans in Medicare collapsing, and beneficiaries having to come back in [to the fee-for-service Medicare program]. I don’t think anybody wants that. Our attitude is, Let’s evaluate it, let’s make investments across a range of areas, let’s create tools that we can combine into products to meet needs under whichever legislation.

Health Savings Accounts

Top Consolidation And... Price Competition Business Opportunities In... The Medicare Modernization Act Health Savings Accounts Variability In Cost And... Essential Insurance Benefits Insurance For The Uninsured Editor's Notes

 
Robinson: Let’s switch to the individual insurance market. Through your purchase of Golden Rule, you’ve made a major step into that market, which was not an area of focus for you before. How much potential do you see in the individual market? Do you see products built around health savings accounts or health reimbursement accounts as a major phenomenon in the future?

McGuire: We want to understand the individual market because we think that serving individuals [outside of employment-based insurance] is an important capability for the future. Golden Rule was interesting for a host of reasons, one of which was its understanding of health savings accounts and how they could play into product designs. Just as I say we did not acquire Oxford just to acquire more members, the combination with Golden Rule was not about getting more insured lives. It was about the tools in health savings accounts and the company’s understanding of the individual market.

We do think that health savings accounts and what goes on around them will be a fair bit of health insurance in the future. There will be a confluence of health and financial activities as better ways to pay and plan for health expenditures. I don’t think it will be a replacement for other product designs, and not everybody will want this product. Its growth will never be as extreme as Wall Street might try to paint it. It’s not as if everything else is going away and this is the new deal. That is a uniquely Wall Street view of things. We see that kind of hyperbole all the time.

Robinson: You have been investing in technologies that permit different forms of payment. Do you see yourself in a joint venture or in an acquisition of a banking entity?

McGuire: We have a bank. We chartered a bank about eighteen months ago in anticipation of this trend toward health savings accounts. It’s not a bank to make loans but a way to facilitate transactions through the technology emerging in the future where people have to pay for services, be paid for services, and keep track of these payments. The bank will facilitate that. That doesn’t preclude us from doing joint ventures with other companies. But, like most things over the last decade and a half, we realized that the chance to get things out there with some speed is increased if we keep it inside and build it, because there are fewer conflicts of where we’re trying to go [compared to joint ventures]. Once our capabilities are established, we can go to other firms and say, now we’ve seen proof of concept, and we can work with you.

Robinson: Ironically, a number of the former multiline insurers have pulled back from pension management, from 401k plan management and from property and casualty coverage, to focus on health insurance. Do you see us at the edge of an era where diversification across financial and retirement services as well as health services will emerge for the major health insurance players?

McGuire: That’s a hard one. I think you can be too diverse for your own good, particularly if that diversity doesn’t go along with highly focused business execution. Just being a multiline company, historically, has not proven very successful. I don’t see us in the investment business, for instance. There are plenty of companies out there that do a great job at that. I am not saying we might not participate with one of them to allow their investment products or services to be available to our enrollees. But I don’t think we’ll be going very far from the central concept that our job is to make health care work better.

Variability In Cost And Quality

Top Consolidation And... Price Competition Business Opportunities In... The Medicare Modernization Act Health Savings Accounts Variability In Cost And... Essential Insurance Benefits Insurance For The Uninsured Editor's Notes

 
Robinson: When you look at your own claims data and the other data that you get in the normal course of business, I’m sure that what you see, first and foremost, is variability in both the cost and the quality of care in the health system. Yet most of the network designs that customers have been asking for have been all-inclusive in terms of physicians and hospitals, despite the variability in performance. How do you see this going forward? Do you see a way of giving incentives for the enrollee to use the more effective and cost-effective providers while still accommodating the consumer’s strong desire for choice?

McGuire: We’ve worked on the belief that choice is important, and, hence, broad access is important. But there has been a process ongoing for a long time, perhaps subtle to some but not so to others, of efforts on our part to help people realize that there are differences in cost and quality across providers. An example would be the United Resource Network, which we created more than a decade ago around transplant services. Today it is available to some fifty million people. We went out and said, Let’s measure outcomes across different kinds of transplants. We found that we can identify the best-performing institutions and associated care provider teams—not just the hospital, but the surgical team as well—as measured, longitudinally, by their patients’ survival rate, complication rates, and access to information before and after the procedure.

Robinson: Did you see the centers of excellence model being able to expand beyond organ transplant?

McGuire: Yes. We now have centers of excellence for congenital heart disease, infertility programs, invasive and noninvasive cardiology, musculoskeletal and other orthopedic procedures, and cancer care. The original focus was on rare, very complex, and expensive procedures. Now we are moving down the spectrum of still complex and certainly costly but more common procedures where there is a lot of variability [in costs and quality]. We’re also seeing some of the same approaches applied to out-patient conditions; diabetes is a good example.

Robinson: Do you encourage the patient to use the centers you identify? Is it through the benefit design, through differential copayments? Is it through not contracting with nonpreferred providers?

McGuire: The benefit design that an employer or a government selects should encourage people to make good financial decisions through cost sharing. But we can’t just shift costs to people without providing them information tools to make their decisions. That’s inappropriate. It’s a tough, complex situation, and it’s very emotional. Just because it’s my money as a patient, does that make me make better decisions?

In addition to benefit designs with cost sharing, there might be network restrictions. You can say, OK, for these kinds of procedures, here is where you get them. It could be that restricted. Some people may say that kind of restriction is OK.

Robinson: It’s an employer’s decision?

McGuire: Absolutely. You can put out a variety of insurance products, if they meet the state insurance rules, that have various forms of network restrictions. You can have designs that say, If you go to this set of centers, you pay less.

Robinson: With a tiered approach.

McGuire: You could have tiers. Some people have advocated that we base tiering of providers on costs alone—as a proxy to quality. However, we try to get people information about science and outcomes, first and foremost, and then let them put the cost dimension together with that. We fervently believe—although, surprisingly, the data are not always there in the scientific literature—that there is a positive correlation between quality outcomes and low costs.

Robinson: Some health plans in recent years have developed narrow networks as a low-cost product to sell to the very cost-conscious employer. Are you interested in those kinds of product designs?

McGuire: I’m not sure that narrow networks get significant savings. Primary care gatekeepers did not lower costs. If people want narrower networks for some reason, we are in a position to facilitate that. But, philosophically, our desire is to bring the overall level of care, by a broad population of care providers, to a higher standard—not just to cherry-pick the best individual providers. Our primary move right now does not center on narrow networks.

Essential Insurance Benefits

Top Consolidation And... Price Competition Business Opportunities In... The Medicare Modernization Act Health Savings Accounts Variability In Cost And... Essential Insurance Benefits Insurance For The Uninsured Editor's Notes

 
Robinson: In America we see two trends. On the one hand, we see the effort to use evidence-based medicine, based on epidemiological data on what works and what doesn’t. On the other hand, we see the trend toward consumerism, which declares, at its core, that whatever the consumers want to purchase, after they’ve been given any information that is available, is appropriate. These are different concepts, the first being population-based and the second being individual-based. How do you see us reconciling them?

McGuire: My starting point is that it is inappropriate for this country, with its wealth and resources, to fail to have all of its citizens accessing basic, essential care. The failure to follow science and evidence-based medicine produces unjustified variation and high costs. Consumerism—the attitude that I want whatever I want, and I want somebody else to pay for it—creates a situation where we’re spending so much money on health care that we say we can’t afford to cover all of our people, and that’s a major problem. We have to pull back on unabated spending at somebody else’s cost, regardless of science, and promote science to help lower variation. And then we have to use some of those savings to assure that we get that same scientifically based care to all people. On the consumerism side, that means if you want to buy services beyond the essential benefits, go to it. But you buy them with your own money.

Robinson: Your money.

McGuire: And not look to somebody else. Because when we do that [pay for nonessential services through insurance], we are taking resources away from somebody who doesn’t have essential services yet. We have to have the moral fortitude and the leadership to step forward and say, that’s the first step. This is a very successful, wealthy country. We don’t have to tell people they can’t have choices.

Robinson: The continued increase in the health care costs will threaten, over the long term, employers’ willingness to continue covering such a large part of the insurance premiums as they’ve been willing to do over the past four years. What do you see, in your customer base and in the employer community, as the strategies to moderate cost growth, including benefit buy-downs, employer movement from insurance to self-insurance, increased investment in disease management, and other examples?

McGuire: Across the board, employers are trying to bring the health care participant appropriately into the decision-making process concerning the economics of health care. It is felt that consumers and patients have been too immune from the financial impacts of their decision making.

Robinson: How far can that go? Are we going to see more copayments and deductibles, or are they going to level off?

McGuire: I don’t know that it will go a lot farther, because I think there are some important issues as to what we are trying to accomplish. Simply shifting the cost burden to employees indiscriminately, without thinking about the impacts, does not necessarily accomplish what employers want. It may simply cause people not to get any health care or not to seek the appropriate health care. The goal is to get more appropriate utilization of resources, an optimal utilization of resources. This may mean not doing some things, because they’re not essential, or doing them on the individual’s own dollar, rather than through insurance.

Robinson: The benefit design of the future presumably will try to balance consumers’ demand for choice with employers’ desire to channel consumers to the most effective care. How do you balance those in a benefit design? Is there something new that we haven’t seen yet, or are we basically stuck with the PPO and HMO products?

McGuire: If I were to start with a benefit design, I would start with a very basic design or what we would call a set of "essential benefits." If we could cover what is really essential in day-to-day health care, ranging from well-baby care to appropriate diagnostic screenings and catastrophic care, and set aside some of what may be superfluous or nice and pay for them only after we have covered essential services for all people, that would be a good starting point. To that, you should attach some form of copayment, possibly deductibles or coinsurance, which should vary depending on the circumstances of the individuals and employers and the type of service. The essential-benefits approach could be used by government as well as by employers, if we had a baseline definition of "essential services." Then people could build up on top of it using their own money. There clearly are people that value some things more than others. We’ve got to combine social responsibility with the business aspects.

Robinson: So you see a combination of insured services, which would have various levels of cost sharing, and of noninsured but discounted services that people pay for completely out of pocket?

McGuire: That would be one aspect. What we all look for is the ability to bring economic discipline to the social resources that are consumed for health care. Some of those resources could be covered by insurance paid for by employers, by an employer that self-funds, or by government for government-funded programs. But there’s no reason to say that we shouldn’t access discounts on noninsured services as well. Even when we’re using our own money [on noninsured health services], we want to access the most efficient, highest-quality delivery sites.

Insurance For The Uninsured

Top Consolidation And... Price Competition Business Opportunities In... The Medicare Modernization Act Health Savings Accounts Variability In Cost And... Essential Insurance Benefits Insurance For The Uninsured Editor's Notes

 
Robinson: What do you think, given the limited political appetite for major upheaval, is the way forward on insuring the uninsured?

McGuire: To me, the steps are straightforward. We should have a distinguished set of people identify essential health care services and begin with the principle that all people should have essential health care services. That is the baseline for our society. If you are government-sponsored, you will have that basic level. It would probably be below any benefit levels that are in the market right now, because we still are covering benefits, even in our Medicaid programs, that are of questionable clinical value.

I believe that the problem for small employers in this country is not that they don’t want to cover insurance for their employees. It is simply that what they are asked to buy is too expensive. It is too expensive because it is replete with things that are not essential. The benefit designs for the small employers are driven by state mandates that vary from state to state. The consumerism that you described earlier is nice, but that’s a later level. We have to establish this basic level of essential benefits for all, first. Basic’s not the best word; essential’s the best word. We need to establish a set of essential benefits for all people.

Robinson: What is the locus for this identification of essential benefits?

McGuire: It has to come from the academic community. The rest of the world does it. There is no other society that allows itself to have anything and everything at once, based on the power of media and absent scientific evidence.

Robinson: Can United play a role in helping to define the essential benefit package? You’re not a research institution, but you have claims data and other information.

McGuire: The first thing we do is lend our voice to the call. We have taken a position on this for years now. We can provide data and show people where the trends are. But, ultimately, this is coming from the scientific community, the academic community. As you know from the experience in Oregon [the Oregon Medicaid priority-setting initiative], there’s going to be lots of controversy. I think Oregon did a very good job. It was only after it was implemented that people started chipping away at it and got it into trouble.

Robinson: You view the Oregon experiment as a useful model?

McGuire: I think it is a useful roadmap in terms of trying to get at what is essential. I’m not defining what is essential. I’m saying that we need to have essential benefits for everyone, and then let employers add on top of those essential benefits if they want.

Robinson: Do you think we need some combination of an employer and an individual mandate for an essential benefit? Would that be viable?

McGuire: It would be viable to me. I’m not sure that the politicians would agree, because everyone would come through with something they didn’t like about it. But, you know, we are incurring so much morbidity, mortality, unnecessary suffering, and excessive cost in our country, because we do nothing for so many people.

Editor's Notes

Top Consolidation And... Price Competition Business Opportunities In... The Medicare Modernization Act Health Savings Accounts Variability In Cost And... Essential Insurance Benefits Insurance For The Uninsured Editor's Notes

 
Bill McGuire, board-certified in internal medicine and pulmonary medicine, has been president and chief executive officer of UnitedHealth Group for more than ten years. Jamie Robinson (jamie{at}berkeley.edu) is a professor of health economics, School of Public Health, University of California, Berkeley.

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