Amit Gupta’s crusade to reform the health insurance system is fueled by terrible experiences as both a consumer and a healthcare provider. On the consumer side, his little brother’s leukemia could have been helped by a bone marrow transplant, and a donor had been found. But because it was a condition that existed before the family came to the United States from India, no insurance was available. The family promised to pay the thousands of dollars needed for the operation, but the boy died when he was just eight years old.

"I was 14 or 15 then," says Gupta. "My love had been in technology, but that made me go into medicine to find ways to make health care better. I went into medicine hoping to make a difference."

Then, as a physician with a radiology specialty, Gupta came up against the frustrating, endless bureaucracy for which the medical insurance industry is known. "I really enjoyed the patient aspect but not the day-to-day paperwork and the necessity to document, redundantly, every aspect, so that we could get reimbursed on time. Sometimes I had to repeat the same study on a patient because the code was not what the insurance company wanted to see. And you had no way to know what the insurance company wanted without spending 30 minutes on the phone."

Gupta left the practice of medicine to design an innovative kind of consumer-driven health insurance that would be more efficient and cost less. He wants to set up "healthcare IRAs," private accounts that are established by the employer and owned by the employee. If you don’t use up the money in your account one year, you can keep it to use the next year, and the next.

Gupta’s new company, CareGain Inc., targets the employer-sponsored health benefits and insurance market, even the small to medium-sized businesses. Located in Lawrenceville, it has just four employees and is still in building mode but has high hopes. "Like traditional IRAs changed the retirement scene," Gupta says, "our private health insurance investment funds could ultimately change the way benefits are administered." These healthcare IRAs could be available as soon as 2003.

To found this new kind of firm, a health care asset management company, Gupta teamed with seasoned banker David J. Lenihan. They have been joined by Edward J. Proctor, the former vice president of information systems at Visa International, and Sami Saydjani, formerly with the National Security Agency (NSA) and now on the anti-cybercrime team at Stanford Research Institute. The board includes John M. Atalla, co-founder of Hewlett Packard Laboratories and the father of the "PIN," the security device for automatic teller machines, and Robert Kramer, a 2002 candidate for U.S. Surgeon General. Lattice Financial, chaired by John Mulvey, a financial optimization expert from Princeton University, is providing CareGain’s risk assessment software (see story below).

Everybody knows that healthcare insurance needs reforming. In the movie, "JohnQ," Denzel Washington demonstrates a frantic father’s struggle against the restrictions that HMOs levied on care for his dying son. When an unlikely topic like health insurance becomes the topic of a Hollywood movie, you know the system is under pressure to change.

The Robert Wood Johnson Foundation on College Road has just launched a $10 million advertising campaign to publicize the vulnerability of the 40 million people (15 percent of the population of the United States) who can’t afford the health insurance.

The problem is sufficiently severe in Princeton that a coalition of agencies will hold a forum on Sunday, March 10, at 4:30 p.m., at 369 Witherspoon Street. Margaret Lancefield, medical director of the Medical Center at Princeton Outpatient Clinics, and her husband, U.S. Congressman Rush Holt, representative from the 12th Congressional District, will speak (609-688-2055). Lancefield says that visits to the "charity" clinic have doubled over the last five years to more than 11,000 visits a year: "These are not down-and-out people on the streets. These are families where two members of the family have low-income jobs or jobs without benefits and are trying to make a go of it."

Health insurance costs rose by 7.2 percent in 2001, resulting in increased premiums — double digit increases for the first time in more than a decade, says Alwin Cassil, spokesperson for the Center for Studying Health System Change. "Employers probably got whacked this year, and it doesn’t look better for next year."

Reasons for rising costs: an aging population, increased technology, more expensive drugs, and even the cost of the paperwork. When a doctor visit costs $50, processing the paperwork costs another $50. Incredibly, 25 percent of the healthcare spending dollar, $320 billion, goes for administration, says Gupta, and this represents 4.5 percent of the gross domestic product. Of that amount, employers foot the bill for $21 billion for their HR departments to administer the benefits.

Earlier efforts to control costs resulted in managed care, starting with the health maintenance organizations or HMOs, which restricted choice. Then when hiring got tight, employers who wanted to lure workers with health benefits switched to the more flexible — and more expensive — Preferred Provider Organizations, PPOs. The latest great cost-cutting idea is to provide new incentives to the consumer to be thrifty about visiting the doctor.

One way to motivate consumers is to require a significant co-payment, a hefty percentage of the bill. If taking $50 out of your wallet would make you stop and think, you might treat your cold with chicken soup rather than visit your doctor.

CareGain’s plan is different. Gupta says that a CareGain HealthcareIRA will provide, on average, a 25 percent cost savings for healthcare benefits while still providing funding to employees for future healthcare needs. He also says the transition is not difficult. "The HealthcareIRA uses existing insurance infrastructure and processes to deliver savings, maintains provider relationships for employees, and does not require employees to change their insurer," says Gupta.

Here’s one example of how CareGain’s plan might work:

Your employer would buy a policy that costs less than his current policy, one with a high deductible, say $2,500. The company would set aside that amount in a debit account and give you a debit card. During the first year, you would use the "in-network" providers who have agreed to let you pay the bills on the spot with your debit card. No communication with the insurance company, no expensive red tape. CareGain’s third party administrator, America’s Choice Healthplans, would manage these transactions.

If you need lots of medical help and spend more than the deductible, the "regular" insurance policy kicks in; you get uninterrupted care. Different policies would have different co-payments and deductibles, but Gupta says that the employee would bear no more expense than before. "The financial burden would not be shifted to the employee just because the employer wants to save money."

But if you don’t have a serious problem, your company could issue a dividend at the end of the year to your healthcare IRA. You could "spend" it the following year on any healthcare of your choice, tax free. You could use it for an out-of network specialist or for a procedure that your insurance doesn’t otherwise cover, like cosmetic surgery, braces, or alternative medicine. You could save it in case you lost your job and use it for healthcare expenses or to pay for temporary insurance.

If you suffer from the "lockbox" syndrome — you have a preexisting condition and are afraid to change jobs for fear of losing your insurance — the healthcare IRA might give you the security you need.

To encourage you to stay well, your "disease prevention" costs would not count as withdrawals from your debit account. These wellness visits might include check-ups, chest X-rays, smoking cessation programs, or glucose checks for those with diabetes.

You would monitor your healthcare IRA with a personal Internet account. Each year you would get a healthcare IRA account statement showing the interest you are receiving and how you can use those tax-free funds for healthcare. The funds are also transferable to other healthcare IRA accounts, such as those of your dependents or relatives, and would be inheritable. You could keep on accumulating these monies until retirement, but if you used them for other purposes than healthcare, they would be taxed. CareGain would manage the accounts.

"Our vision is, if you have health care IRA accounts funded, and they continue to grow, the longer consumers keep them, the more funds they have," says Gupta. "This will help the nation move to greater security for financial and health care needs for retirement or when you need the funds."

For an employer to self-insure is not a new concept. Many large employers, such as the major pharmaceutical companies, now self-insure, though the employees have an insurance card from the company providing the administration. But until recently small to medium size employers did not want to take this risk: They don’t have the capital base and they don’t have risk management departments. Now premiums are so high that some 100-worker companies have decided to take the chance.

Sounds good, but how will this bring costs down? "The jury is still out on whether consumer driven health plans will save any money," says Alwin Cassil of the healthcare think tank.

Gupta gives these reasons why his policies will bring cost down:

1. Thriftier consumer choices, known as "consumer driven controlled utilization." Says Gupta: "There has never been an economic incentive for people to use health care appropriately. Co-payments have represented only a small amount of the bill."

2. Employer control of the self-insured pool. Not all the monies that the employer sets aside will get funneled into the healthcare IRAs. The employer gets to decide what percent of the unused funds to give. If you used only $1,000 and had $1,500 left, your company could decide to put $500 in your account — or $1,000 in your account — and keep the rest.

"It’s the employer’s money. If most of the overall group account was used, there would be very little dividend," says Gupta. CareGain differs from its competitors in this respect. The largest competitor — Definity — requires the employer to part with all the deductible money at the beginning of the year, so the employer won’t benefit from any utilization savings.

Gupta’s statistics show that 80 percent of workers will not use up more than $1,000 of the deductible, and 94 percent will not exceed $2,500. "Those who do exceed it will not exhaust the funds for other employees in the group," he says, "because they tap into the insurance."

3. Reduced paperwork. Hospitals and doctors are accumulating expensive debt because insurance plans are slow to pay, but CareGain’s debit card will spur fast payments. "Outpatient visits account for 70 percent of healthcare dollar volume and 90 percent of transaction volume. If claims were cleared faster because more cash is available it would unclog the system," says Gupta.

"It is just a question of who pays and administers the first money," he says. "When the insurance companies administer the first money, that is where the inefficiency comes from," he says.

"It affects not only the providers but also the families. It frustrates people who have sick people in their home to have to go through all this stuff. We want to streamline that, and make it easier to access."

4. Lower cost policies. To make this work, the employer needs to select a policy with a high deductible. "We analyze the policies to determine which will save them the most premium dollars, so they can offshift and put cash into an account to pay the deductibles," says Gupta. The company providing the financial software for this analysis is Lattice Financial LLC on Princeton-Hightstown Road. The company’s president, Adam Berger, signed Lattice up as one of CareGain’s first clients.

There is competition, particularly from the more established Definity plan. With this plan, Gupta says, those who are sicker will suddenly face high deductibles and are likely to select themselves into a different plan. Definity’s plan would have the employer pay the first $1,000 and the employee pay the next $2,000. After that all expenses would be covered 100 percent. "It creates adverse selection," says Gupta. "It will create a big divide."

5. Web-based tools will let consumers check their balance, their utilization, or their dividends. Working with Internet vendors of medical information, CareGain’s website will deliver personalized information to holders of healthcare IRAs. With privacy protected, you could choose to get daily updates on a particular disease, or calculate the odds on what care you will need in the future.

6. Better information for the employer. Currently the employer has no way of knowing the health liabilities of the workers. In fact, employers do not want this legal burden. If an employer does have access to this information, and the worker gets laid off, the worker could sue, saying "You laid me off because you had access to records showing I had diabetes." CareGain’s policies prevent individual identification of an employee’s conditions.

Yet such information would be helpful, and the healthcare IRAs can provide it. "Knowing the aggregated statistics of the entire employee base will allow the employer to make decisions on what to offer — for instance whether to offer diabetes programs or smoking cessation programs," says Gupta.

7. Protection against future government requirements — portability, accountability, and privacy. The Health Insurance Portability and Accountability Act (HIPAA) passed in 1996 — and the whole idea of Healthcare IRAs — were firmly supported by President George W. Bush in a speech on February 11. "We are well positioned," says Gupta. "The government has said that if the insurance industry doesn’t become efficient, it will mandate efficiency."

8. Sponsorship opportunities for the website. "Pharmaceuticals are very interested in this," says Gupta.

CareGain got a big boost this month from a human resources trade magazine article, "Health Care Costs: HR Costs has Real Solutions" (www.workforce.com). "Within five days of the article, we prospected 18 employers in 19 states and more than 6,000 individuals," says Gupta. "We come in in the morning and our fax machine is filled with quote sheets that have been filled out from our website."

The company is building partnerships. When brokers relay census information on their clients, CareGain runs the numbers to come up with a financial statement, showing how the CareGain policy will save them money. CareGain also refers business to brokers.

CareGain is looking for banks to manage the money, and for financial services companies, such as Vanguard, to manage the longterm assets of the employees. The employers’ funds will be handled for CareGain by a third party administrator, America’s Choice Healthplans. CareGain’s cash flow will be derived from its job as account manager.

Gupta met Lenihan, now the CEO of CareGain, at Neuvis, a third-generation application development tool company that had a new vision for Internet applications. "I brought my healthcare background and David his financing background," says Gupta.

Lenihan was born in Nova Scotia and was raised there and in Montreal and Garden City, New York. After majoring in economics and political science at Hobart & William Smith, Class of 1972, he started a bank in Saudi Arabia for Chase Manhattan, did investment banking in Canada, ran a healthcare holding company in the United States, and owned a controlling share of Republic Health Corporation, a hospital management company, among other interests. He was the Canadian consul for investments in New York in 1989 during the free trade negotiations. In 1999 he helped fund NeuVis and was vice president of business development. Lenihan and his wife, JoAnn, live in Princeton and have, between them, six children, ranging in age from 12 to 25.

Gupta was born in New Delhi, where his parents worked in the computing field, and his wife Uma — who is pursuing an MBA — was born in the Gujarat section of western India. He was 10 when his family moved to Trumbull, Connecticut, to seek treatment for their younger son. Gupta was never formally educated in computers but at the age of 15 he landed a job doing medical record design. In school he worked as a salesperson in a database firm and consulted for software companies on medical accounts.

He graduated from Boston University in 1990, taking a combined undergraduate and medical school program, was an intern at Harvard University Hospital in Framingham, and a resident in radiology and interventional radiology at Mallinckrodt (associated with Washington University Medical Center in St. Louis).

In 1994 — very early in Internet years — he set up the Community Outreach Health Information System, a community and disease management website at Boston University Medical Center.

Over four years the company grew to 150 members and a panel of 20 doctors who provided questions and answers to the community. The site is not operating now — healthcare information is in overabundant supply on the web — but at its peak it had 1 million users a month.

Gupta — who went into medicine to "make a difference" — has high hopes for CareGain, based partly on memories of his family’s struggle with healthcare bills and his own frustration with doctors’ paperwork. "Consumer confusion over complicated healthcare benefits can result in inappropriate use of healthcare services — and multiple bills from healthcare providers who failed to get reimbursed in a timely manner," he says. "This chain of events is significantly impacting the quality of care."

Gupta is so sure that CareGain can save money that he will share the risk with new clients. "If the clients say that they want us to take the risk with them, that they will pay us if we save them money — we will take the risk."

CareGain Inc., 34 Gervin Road, Lawrenceville 08648. David J. Lenihan, chairman and CEO. 609-716-0877; fax, 609-716-6084. Www.caregain.com

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