George Halvorson criticizes deductibles

An Interview With George Halvorson: The Kaiser Permanente Renaissance, And Health Reform’s Unfinished Business

By Jeff Goldsmith
Health Affairs Blog, September 30, 2014

Kaiser (Permanente) surprised the health plan community by announcing in March 2002 the selection of a non-physician, George Halvorson, as its new CEO. 

During his twelve year tenure as CEO, Halvorson not only guided the plan to solid profitability, but added a million members in California, its largest market, despite a devastating recession and a national retreat of commercial HMO membership.

The Growth Of High-Deductible Health Plans

Jeff Goldsmith: If you look at the Kaiser/HRET survey, which focuses on the employer segment, the HMO wedge shrinks while the high deductible health plan wedge seem to grow in proportion. In 2013, High Deductible Health Plans (HDHPs) represented around 30 million lives.  Are HDHPs “managed care” in your view?

George Halvorson: Yes. I think they are a form of managed care.  HDHPs get involved to some degree in delivery of care.  They require care/data reporting.  They have some care protocols or some care-related elements they don’t allow. So I would classify all those plans and products under the broad category of managed care. If employers buy a $500 dollar deductible plan from Kaiser Permanente — and about 10 percent of Kaiser members are now in plans that have deductibles that are high or higher — the employees still get their care at KP.  When they pay the fee for the office visit, they pay KP as opposed to paying it outside, so that the cash flow for KP is basically the same.  It just comes down two separate channels, copays and premiums, instead of coming down one prepaid premium channel.

Goldsmith: How hard was it for your colleagues, particularly the Permanente physicians, to accept the philosophical change that required?  In the legacy Kaiser model, there was no cost to the patient.

Halvorson: Everyone at KP, including myself, strongly preferred the model where there was no cost for the patient.  However if 10 percent of our employer customers want to buy a high deductible product and we don’t sell it to them, then they leave. Kaiser has hospitals, clinics, pharmacies, lots of care-related infrastructure that would not do as well if 10 percent of the patients were gone.  It is important to point out that we made a very conscious decision to not change care in any way for those patients. That was a critical issue. It is easier to maintain the old approach for all patients because 90 percent of the KP’s members are still in the older benefit model.

Goldsmith: Of the million people that were added to Kaiser in California during your time as CEO in California, how many of them came because of this change in your benefits strategy?

Halvorson: Now about 10 percent of Kaiser’s members are in plans with deductibles of some kind. I personally went to California’s managed care regulators and worked to persuade them to allow us to offer the product.  I had to give them assurances that we would not be changing the delivery of care for those members in any way. Those members would not be there if we had not offered a product with personal financial exposure in it.

Goldsmith: Did the high deductibles make your job as a care system easier or harder?

Halvorson: Harder.

Goldsmith: Why?

Halvorson: Because we had to bill the patient.

Goldsmith: What else besides the billing?

Halvorson: The billing was the major issue.

Goldsmith: It didn’t make it more difficult for you to get them to do things that were in their own health interest, even if it cost them money?

Halvorson: Because we are who we are and because we ask people to do what we ask them to do in a very consistent and reasonable way, members tend to follow. We didn’t see a lot of people refusing to get needed care based on the fact that they had deductibles. That was largely because we are so committed to a particular set of care concepts and protocols that the credibility of the individual caregiver for the patient triumphed over the financial exposure.



By Don McCanne, MD

Former Kaiser Permanente CEO George Halvorson said, “Everyone at KP, including myself, strongly preferred the model where there was no cost for the patient.” So why did they start selling plans with deductibles?

Simply stated, it was because many employers demanded deductibles and other forms of cost sharing. Deductibles have become a standard throughout the insurance industry, and most employers like them because the premiums paid are lower since up front costs of health care are being shifted to their employees’ pockets.

Yet Halvorson said that deductibles made their job as a health care system harder, mainly because of the administrative inefficiencies of having to bill each patient for these charges. Kaiser received the same total amount but they had to establish “two separate channels, copays and premiums, instead of coming down one prepaid premium channel.”

Either way, the employees were paying the costs - through forgone wage increases that paid the premiums, or through direct out-of-pocket payment of the deductibles. The only reason for making this change was the pigheadedness of the employers who insisted, based primarily on misguided ideology, that they wanted to join the high deductible, consumer-directed bandwagon.

It is well known that deductibles frequently cause individuals to forgo appropriate care which can then result in adverse health outcomes. Halvorson said that they “didn’t see a lot of people refusing to get needed care.” Without the data it is hard to know, but since most of Kaiser’s patients have decent jobs with employer-sponsored plans, these are patients from a relatively healthy sector of the population, mostly with reasonable incomes, so they may be less likely to forgo appropriate care. But even amongst Kaiser’s patient population, there will be some who will find deductibles to be significant barriers to care.

There is nothing good about Kaiser’s deductibles, but there are several things that are bad. And this is in the best of circumstances.

With a single payer system there would be no deductibles, just as there were not in Kaiser’s legacy system. Perhaps the most revealing comment Halvorson made is that before and after instituting deductibles, “the cash flow for KP is basically the same.” It didn’t make a difference; it just mucked things up!