Consumer Driven Health Plans: Early Findings from the Field and Future Directions

1. Consumer Driven Health Plans:Early Findings from the Field and Future Directions Stephen T. Parente, Roger Feldman, Jon B. Christianson University of Minnesota December, 2003 Funded by the Robert Wood Johnson Foundation Health Care Organization and Financing Initiative For more information: sparente@csom.umn.edu

2. Presentation Objectives • Describe the CDHP business model. • Illustrate the mechanics of a CDHP using Definity Health as an example. • Provide an Overview of our RWJ evaluation of Definity. • Present current analysis results. • Opportunities and conundrums of CDHPs.

3. Patients Dissatisfaction with provider access Patient incentives are to consume Limited choices of benefits and providers Combative relationship with managed care companies Providers Loss of autonomy Erosion of physician/patient relationship Misalignment of physician reimbursement and incentives Employers Plan costs are increasing Employees are not happy Increase of employer administration burdens Issues Driving CDHP Creation

4. CDHP Business Enablers • ‘Ready to Lease’ Components of Health Insurance: • Electronic claims processing • National panel of physicians • National pharmaceutical benefits management firms • Consumer-friendly health data web portals • Disease management vendors • Internet • Transaction medium for claims processing • 2-way communication with members • ERISA-exemption • Lack of state oversight • Half the US commercial health insurance market is self-insured.

5. Early CDHPs in Operation • Definity • Concept developed in 1998, Funded in April, 2000 • Minnesota based • Clear first mover & dot-bomb survivor • Lumenos • Started in 2000 • Based in Virgina • Havard B-School inspired (Regina Herzlinger) • Destinty • Operating as Medical Savings Account model • In operation for 10 years in South Africa

6. Health Toolsand Resources Health Coverage $$ Annual Deductible Definity HealthCareAdvantage Web- and Phone-Based Tools Preventive Care 100% Annual Deductible Definity Health Component Details • Personal Care Account (PCA) • Employer allocates PCA1 • Member directs PCA • Section 213(d) “scope” • Roll over at year-end • Apply toward deductible2 • Health Coverage • Preventive care covered 100% • Annual deductible • Expenses beyond the PCA • Nationwide provider access • No referrals required PCA • Health Tools and Resources • Care management program • Extensive easy-to-use information and services 1 Employer selects which expense apply toward the Health Coverage annual deductible. 2 Paid out of employer’s general assets.

8. New RWJ-Funded ResearchKey Research Questions 1. Is there an ‘adverse selection’ problem? Traditionally, adverse selection is defined as the situation when healthy individuals choose Definity leaving the sick in a traditional plan that will soon implode its premiums because of disproportionate share of sick individuals in the insurance pool. 2. What is the impact on cost and utilization? Definity has been chosen as a response to rising premium prices in an attempt to make the consumer ‘drive the market’ be examining price variations and constraining their personal consumption, if possible.

9. Research Design • 2 Year study (11/1/2002 - 10/31/2004) • Six employers examined: • University of Minnesota, MN • Medtronic, National • Ridgeview Medical Center, MN • Hannaford Bros, New England • Welch-Allyn, Upstate NY (tentative) • To be Named (New England or South Atlantic firm) • Data collected • Claims data of all utilization for all health plan choices, pre (2001) and post (2002-2003) Definity. • Employer info on flexible spending accounts and employee income • Survey information on Definity choices in 2002 & 2003 from U of M.

10. Early Results #1:Employee Choice of a Consumer Driven Health Plan in a Multi-Plan, Multi-Product Setting

11. Health Plan Choices • Health Partners: Staff model HMO with direct capitation contracting at a limited number of group practices. • Patient Choice: A ‘Tiered-direct contracting’ descendent of Minnesota’s Buyers Health Care Action Group health benefit design experiment. • Definity Health: Consumer-driven Health Plan • Preferred One: Preferred Provider Organization

12. UPlan Options/Enrollment

13. Early UM Definity ExperienceYear 2002

14. Definity Age/Gender Distribution2002 University of Minnesota

15. All RespondentsSatisfaction with Plan

16. Health Plan Features Most Preferred

17. Results: Premium Sensitivity • Employees are sensitive to out-of-pocket premiums, and surprisingly, employees with chronic conditions are more premium-sensitive • If Definity raised its premium by 1% it would lose 4.6 % of healthy single enrollees and 5.4% of healthy families • 1% premium boost would cause 6.9% of singles and 10.7% of families with chronic condition to leave Definity • The results depend on 100% of the premium hike being passed along to the employee (i.e, defined contribution), as is the case for the UM

18. Results: Health Status and Other Employee Characteristics • Employees and families with chronic conditions prefer the PPO, but otherwise, there is no evidence of adverse selection • Having a chronic condition is associated with a 3.2% increase in the probability of choosing PreferredOne vs. HealthPartners • Note that PreferredOne had the highest premiums ($189.51 for single coverage and $448.40 for family coverage per pay period), suggesting that the plan is experiencing adverse selection • Higher income employees chose Definity or Choice Plus, suggesting these plans may evolve as favorites of the ‘well-to-do’ • Older employees chose PreferredOne or Choice Plus

19. Early Results #2:Consumer-Driven Health Plans:Early Evidence about Utilization, Spending and Cost

20. What was the gross impact on provider and patient payment? NOTE: These are results from a restricted continuously enrolled sample of 50% to 60% of the total employee population and are not a reflection of the plans’ full PMPM expenditures. Also note: 1) Patient expenditures from the Personal Care Account (PCA) are included in the employer payment category. 2) Consumer payment reflects deductibles, copayments, and coinsurance expenses.

21. What was the impact on provider & patient payment by different services? NOTE: These are results from a restricted continuously enrolled sample of 50% to 60% of the total employee population and are not a reflection of the plans’ full PMPM expenditures.

22. Was service use different for CDHPs?Physician visits *Utilization data presented are per member averages. NOTE: These are results from a restricted continuously enrolled sample of 50% to 60% of the total employee population and are not a reflection of the plans’ full physician visit experience.

23. Was service use different for CDHPs?Admissions and prescriptions *Utilization data presented are per member averages. NOTE: These are results from a restricted continuously enrolled sample of 50% to 60% of the total employee population and are not a reflection of the plans’ full admissions and prescription drug experience.

24. Is illness burden different? *Data presented are per member averages. NOTE: These are results from a restricted continuously enrolled sample of 50% to 60% of the total employee population and are not a reflection of the plans’ full illness burden..

25. CDHP, HMO versus PPO PMPM Differences for Continuously enrolled sample

26. What was the ADJUSTED impact on provider and patient payment? NOTE: These are results from a restricted continuously enrolled sample of 50% to 60% of the total employee population and are not a reflection of the plans’ full PMPM expenditures. Also note: 1) Patient expenditures from the Personal Care Account (PCA) are included in the employer payment category. 2) Consumer payment reflects deductibles, copayments, and coinsurance expenses.

27. What was the ADJUSTED impact on provider & patient payment by different services? NOTE: These are results from a restricted continuously enrolled sample of 50% to 60% of the total employee population and are not a reflection of the plans’ full PMPM expenditures.

28. Was ADJUSTED service use different for CDHPs? NOTE: These are results from a restricted continuously enrolled sample of 50% to 60% of the total employee population and are not a reflection of the plans’ full admissions and prescription drug experience.

29. Distribution of CDHP Population by PCA Usage Levels Continuously enrolled population

30. Conclusions • The most important factor affecting choice is income. • The consumer drive health plan was not disproportionately chosen by the young and the healthy (for this population). • In unadjusted dollars, CDHP cost is lower relative to a PPO, but maybe not a HMO in the long term. • In adjusted dollars, CDHP cost is the lowest of all, but only after favorable expenditure selection. • Year 3 of CDHP experience will reveal if they can stem high cost growth trajectory from years 1 & 2.

31. Policy Conundrums • How does a employer-based personal care account move with an employee? • How should CDHPs be treated in the non-ERISA marketplace? • What if CDHPs accelerate the consumer’s burden of health care spending ‘too’ quickly?

32. Policy Opportunities • Innovative means to bring consumer choice into the medical marketplace as well as consumer awareness of the trade-offs of liberal medical insurance coverage policies. • Creates foundations for infrastructure for personal, portable health care coverage. • Hybrid variants could be crafted to serve low income and part time workers.

33. EpilogueCDHP Health Information Technology Enablement:A Personal, Portable Medical Record How-to Opportunity

34. Health IT Fantasies Goals • Linked medical records – womb to tomb • Access medical results online (patient & provider access) • Universal views • Provider perspective (missing data problem) • Payer perspective (moral hazard problem) • Real time – adjudication, care tracking • Personal medical resource calculator • Customized treatment/care prompts • Personalized new technology opportunity finder

35. A Look Inside the “Health IT Sausage” of one Integrated Delivery System Decision Support Life Support Data Hardware

36. What’s Wrong With Today’s Health IT Picture?TOO MANY SILOES! 10% of Care 25% of Care 15% of Care 15% of Care 35% of Care Data Available to the Average Medical Provider About a Patient’s Care

37. Actual eLinks To Build Congress <90% Income Federal Government Main Street Biotechnology Big Business Physicians 99% Income 91-99% Income Courts Insurers Hospitals

38. Today’s Health IT Realities • +400 IT-siloed insurers • +6000 IT-siloed hospitals • +600,000 IT-siloed practicing physicians • data does not connect by person • cost to transition from one a platform is huge • capital investment is substantial to change • lack of standards • little digital data present • niche firms/vendors with turf not willing to yield

39. One CDHP Future to Accelerate Creating Personal, Portable Medical Records 2004: CDHPs requires links to outpatient laboratory results data at the provider encounter level. 2006: CDHPs requires links to pharmaceutical prescription orders at the provider encounter level. 2008: CDHPs requires data from practices from ‘approved’ EMR/CPOE software applications.

40. Why Should CDHPs Take Initiative • Demonstrates an ability to give patients and providers better data as part of the regular health care system. • Living innovation to meet the challenge of the IOM ‘Quality Chasm/Patient Safety’ Call to Arms. • It fits the evolution, not revolution, mantra of CDHPs. • Gives CDHPs a marketing edge. • Encourages patients to develop a brand taste for information packaging via their CDHP – which could make possible employer ‘cash-out’ of health benefits easier to take.

41. Why Care? How might you gain/lose from this?

42. Health Reform Circa 2005-2006 • Nation Health Opportunity Act Legislation introduced to reform system by: • Mandatory health insurance coverage for all adults and their dependents. Enforced through combination of DMV highway construction pork and IRS tax law rules. • Voucher system provided by employers to employees for 30 hour to full-time employees. • Government voucher system to all others of low option CDHP or price equivalent of a staff model HMO. • Small business and single contract co-ops created regional catastrophic insurance using TriCare bidding model. • All consumers own their electronic medical transactions and have a default agency that manages them as a government program (much like we all have a default DMV).