Six months into his job as CIO at Humana, one of the nation\u2019s largest health insurers, Bruce Goodman was called into a meeting with the company\u2019s top executives. It was at this meeting that Goodman realized he had struck gold with his new job. Humana, whichinsures about 6.4 million people in 18 states, was forming a committee to "envision a new business model" for health care. Managed care had failed, and it was time to replace it. In Hollywood, such an overhaul requires Denzel Washington to hold a hospital hostage. In real life, fixing health care requires something else entirely?the CIO. Goodman had not been invited to the meeting to play a supporting role. And neither had IT. In the bid to cure health care\u2019s woes, IT is the new business model.At its heart, the new approach relies on CRM technology to customize health plans for consumers. Insurers use Web-enabled software to profile individuals\u2019 medical spending needs and then put them into different plans. Under the new plans, instead of having money taken out of their paychecks, employees accept a high deductible or allowance, say, $2,000 or $3,000 per year, out of which they pay for their own health care. If expenses are incurred after the allowance is burned, the insured will have to pay for the additional care but only up to a certain cap, say $5,000. After that point, health care is covered under the old managed care model. Consumers can choose what kind of plan they want and how much they intend to spend for it. For instance, someone who is healthy and doesn\u2019t need expensive medications would be steered to a less expensive plan with a lower allowance, while an individual with a chronic condition who requires specialized care and medicine would need a more expensive plan. Theoretically, this health-care model will make employees better consumers. They\u2019ll try to get the best care for their dollar. At the same time it will reduce cost for the employers and insurers, as many healthy people are overinsured. Because of the potential to contain cost, most of the nation\u2019s largest health insurers, including Aetna, Cigna, Humana and the UnitedHealth Group have either rolled out a version of this new model or expect to do so this year. A number of startup companies are also competing in this space. "We\u2019re changing, revolutionizing health care, and technology will get us there," says Goodman, who came to the Louisville, Ky.-based insurer in June 1999. "Managed care is not doing what it needs to. These [new types of health insurance] will make it go away."But while the IT-driven model does offer a way out of the health-care swamp, it also introduces profound ethical issues. Critics of the new approach raise the specter of rationing, saying it will shift the high cost of medical care to the sick and the poor. "Whenever you substitute savings for insurance, a question of rationing comes up," says Deborah Chollet, a health-care policy expert at think tank Mathematica Policy Research in Washington, D.C. "We\u2019re going toward a system where the wealthy and healthy can opt out of the problems."If CIOs such as Goodman are using CRM to empower this revolution, as they will tell you they are, then they had better be prepared to understand and respond to its social implications. And what they learn in the process?about implementing the technology and managing its use?goes well beyond health care. Other industries, from financial services to retail, are also exploiting CRM to profile customers and develop customized products. The best practices developed in health care will be of value to CIOs in those sectors as well. "The role of the CIO is much more critical now," says Ken Linde, the CEO of Destiny Health in Bethesda, Md., a subsidiary of South Africa\u2019s Discovery Health company that offers health insurance under the new model. "This consumer-driven area relies so heavily on information that the CIO becomes one of the most critical positions in the company."HMO RIP Health insurance started in the United States as a simple fee-for-service business. You received care and the doctor charged a fee that the insurance company paid. By the mid-1980s, that approach was generating annual double-digit cost increases. Managed care was meant to straighten out the mess. Insurers kept cost down by organizing exclusive networks and deciding how much to reimburse doctors and hospitals for procedures. If the provider didn\u2019t agree to the new rates, the insurer denied access to its insurance network and the patients who used that network. In a reasonably short time, the health maintenance organization was king.But not for long. Patients rebelled against being limited in their choice of physicians and hospitals. And doctors and hospitals banded together to demand better reimbursement rates. The HMOs had to listen because their patient population insisted on having those doctors in their network. Patients also insisted on access to expensive new drugs and treatments. By 2000, health-care costs had exploded again. Trying to control cost seemed like pressing on a balloon. Push down in one spot and cost bulged out in another. To stabilize cost, health insurers have now latched on to the customized health plan approach with CRM technology as its linchpin.Though each insurance company has its own way of architecting the system, all of them follow a similar pattern. There are four basic pieces of CRM that CIOs are using as a framework for building the new insurance plans.CUSTOMIZATIONMedical allowance plans will fail if health insurers don\u2019t help consumers understand how big their allowance?which is usually stored in an interest-bearing savings account?should be. If the allowances are too high, consumers will set aside more money than they need to. Since the money can\u2019t be used for anything but health care, that\u2019s wasted money. If the account\u2019s too small, consumers will have to pay additional cost out of pocket, and insurers will end up managing the care as they do now. Under Goodman\u2019s direction, Humana launched a limited digital health plan called Emphesys last October. Just last month, the company rolled out SmartSelect, a more advanced customized health plan for its more than 14,000 employees. That product will be sold to other employers this year. With SmartSelect, employees go to a website and are asked a series of questions: How often do you use prescription drugs? How often do you visit a physician? Would you be willing to use generic drugs? Would you want to see a doctor at a teaching hospital? Do you have any chronic conditions? After answering dozens of questions, SmartSelect\u2019s software builds several health plans with 42 possible combinations, each offering differing levels and areas of coverage. The program tells users what their yearly allowance should be so that they won\u2019t put too much or too little aside. The CRM engine presents the employees with several options: They can choose any plan, but the tool is meant to help them understand which is the best fit based on their health-care needs.INTERACTIVE CONSUMER TOOLSUntil now, consumers largely have been kept in the dark about health-care cost. These new plans bring them into the loop. "Ask anyone how much their prescriptions cost, and they\u2019ll tell you $10," says Deborah Casurella, CIO of Definity Health, a St. Louis Park, Minn.-based startup that offers customization tools. "They have no idea the drugs cost hundreds of dollars or that a physical is $350."To inform consumers, the CIOs have created interactive tools. In Casurella\u2019s case, one of the most effective has been a prescription management tool that went live in January. In addition to letting consumers track their prescriptions on a calendar (how many drugs they\u2019re using, when they fill them and so forth), the tool also helps them compare generics with brand-name drugs. "They can slice the data many ways. We\u2019ve found it\u2019s a very quick learning curve," Casurella explains. Goodman created a similar prescription tool now available to all of Humana\u2019s members. At Destiny Health, which offers a savings-account-like plan to almost 300 Illinois-based employers, CFO and Interim CIO David W. Goltz has built a cost calculator to help employees estimate how much to put in their Personal Medical Fund, or PMF. Consumers estimate the number of doctor visits, medical procedures and drug purchases they anticipate in the coming year, and the calculator calculates their expected expenses. It also spits out how much consumers should put in their savings account. Much like financial investors, health-care consumers will be able to manage their entire portfolio online, doing such tasks as checking prescriptions, requesting and receiving reimbursements electronically, changing addresses or adding dependents.WEB CONTENTWeb content is a prerequisite for all these new CRM-based plans. Consumers like accessing health information online. In fact, more Americans go online to do health research than to hunt for stock quotes, check sports news or shop, according to a recent survey from the Pew Internet & American Life Project. Casurella works hard at creating a consistent look and feel to her site\u2019s content, which comes from all over the Web. Goltz says he puts time into translating content from the jargony insurance industry into terms consumers understand. Goodman\u2019s vision for Web content is for customers to be able to access patient reviews of doctors, a concept not that different from what\u2019s done with books on Amazon.com.All of this is secondary in importance to the credibility of content. Many consumer sites fill their pages with content written in marketese by the company itself. In health care, that won\u2019t fly. So the CIOs cull content from sources that consumers already trust, sources such as the American Medical Association and Johns Hopkins University.Aetna Senior Vice President and CIO Wei-Tih Cheng has gone one step further. Staff physicians from Harvard Medical School review all of Aetna\u2019s Web content, which is gathered under the brand InteliHealth, a subsidiary.CORE TECHNOLOGY CIOs can be as innovative as they please on the consumer-facing side of their new insurance plans. But claims still have to get processed. If they don\u2019t, the new model will fail. And if the claims systems, or prescription databases, can\u2019t send their data to the new websites as soon as the data is entered, then the personalized websites for the insured will contain erroneous information. As always, integration is key. When you build new systems, you have to make them serve the legacy systems, not the other way around. Meshing the new with the old is done by using brand-name players, Casurella explains. "We develop based on Java. We make sure it will scale." She says proprietary is the enemy here. HEALTH CARE AS A COMMODITYThe benefits of the new approach are significant. The insurance companies can butt out of the doctor-patient relationship until the allowance runs out?which, if the technology is tuned correctly, shouldn\u2019t happen. That should cut into the massive bureaucracy of reimbursement, copays and network referrals. Employers can offer their workers broader coverage since their employees can apply the medical allowance to whatever care they choose. And the employees can choose what drugs to use and what doctor to go to based on cost and need. "It\u2019s the radical free marketization of health insurance," says Goltz of Destiny Health. But that free market aspect of the plan worries many health-care experts.Even the man credited with conjuring up managed care, Uwe Reinhardt, an economist at Princeton University, is concerned. Reinhardt, along with others like Mathematica\u2019s Chollet, say the new model could end up shifting cost to the sick and the poor by making them pay more for their care. In the United States, about 80 percent of health-care expense is incurred by 15 percent of the population, according to Reinhardt. But that\u2019s not how the cost is currently distributed. There\u2019s always been a cross-subsidy whereby the healthy pay more into a pool of risk to help cover those with more health-care needs."Normally we think this is fair. Something that, as a society, we should do," says Dr. Stephanie Woolhandler, a practicing physician who also teaches at Harvard Medical School. "These plans eliminate that."With the new plans, for instance, healthy people can choose less expensive generic drugs. They can choose to go to community hospitals, rather than the more costly teaching hospitals. The CRM systems will automatically generate a plan with lower cost for someone who is healthy. A chronically ill patient who needs brand-name drugs and requires specialists simply won\u2019t be offered the choice of the less expensive plan. And since research shows that the poor are more likely to be chronically ill, the most expensive customized plans may be offered to those who can least afford them.The new plans create a two-tiered system in more ways than one. The technologically literate who have access to the Web are more likely to benefit from the CRM offerings than those not so connected.Already, some doctors have started offering 24-hour "concierge" service whereby a patient can pay for the doctor\u2019s 24-hour availability and other deluxe services. It\u2019s not a stretch to envision IT allowing insurance companies or providers to create Web content for the premium-paying customers only, or set up special e-mail addresses to which a doctor gives priority. After all, if health care is commodified, the more you pay, the more you will get. And vice versa.Chollet believes this is a dangerous, undemocratic trend. "We need to think about health care differently," she says. "It\u2019s not a car, where if you can\u2019t afford the luxury model, you settle for something less. In health care, if you\u2019re sick and you have to take the cut-rate model, that could be a wrenching piece of news."By putting the money in the consumers\u2019 hands, they also might be less inclined to spend it on necessary care. "You\u2019ll have fewer people going to the emergency room for a cold because it will cost them $100. That\u2019s good," Reinhardt says. "But you\u2019ll also have fewer people getting a routine colonoscopy, because it costs $1,000 out of pocket. That\u2019s bad." The worst part of this for Reinhardt and others is the role technology is playing. "IT is making the capacity to discriminate worse," says Chollet. "It\u2019s frustrating."Health-care CIOs are cognizant of these ethical issues. And they say they are trying to address them. Most of the new plans now try to separate "cross" services (hospital visits and emergency care) from "shield" services (doctor\u2019s visits and preventative care). At Destiny, for instance, Goltz\u2019s plan removes necessary outpatient procedures, hospital admissions and medications required for chronic illness from the savings account allowance. "Look," Goltz says, "you break your arm and need surgery, you\u2019re not going to want to negotiate the best price with an anesthesiologist. There\u2019s a certain point where health care shouldn\u2019t be negotiated. But there are plenty of services where it must be."What\u2019s certain is that CIOs will continue to be part of the mix when it comes to health policy. "IT has been and will continue to be the largest part of our organization," says Anthony Miller, CEO of Definity, to whom Casurella reports. One of Definity\u2019s customers is Textron, the parent company of Cessna Aircraft and Bell Helicopter. Miller says the central role IT plays in his company\u2019s product has had an unintended benefit: staff retention. When IT workers feel crucial, they tend to stick around. Definity has lost only two IT staffers in two years. "Having [Casurella] at the table is not a question for us," Miller adds. "It\u2019s a necessity.""Traditionally, the CIO\u2019s role in health care was supportive, reactive," Goodman says. "This is the most exciting opportunity for CIOs I\u2019ve ever seen. We\u2019ve slowly moved out, reaching further and further into the organization. Now, here I am shaping health-care policy. This has to be the culmination for our field."