Consumer-Driven Health Plans Evidence, Experience & Implications The Delaware Health Care Commission March 3, 2005 A

1. Consumer-Driven Health Plans Evidence, Experience & Implications The Delaware Health Care Commission March 3, 2005 Anne K. Gauthier Vice President, AcademyHealth Program Director, RWJF’s HCFO program Senior Consultant, RWJF’s State Coverage Initiatives

2. Presentation Overview • Overview • Different types of CDHPs • Benefits • Drawbacks • Evidence from the field • Employer and insurer interest • Profile of early enrollees • Early consumer experiences • Utilization and cost effects • Implications

3. Consumer-Driven Health PlansA New Paradigm? • Health care costs continue to rise • Premiums up 13.9 in 2003 over 2002* • Pharmaceutical costs rose 8.8% first half 2004** • Rate of uninsured continues to rise • 45 million in 2003 • Past approaches have not worked • Traditional health insurance (until early 80’s) • Regulated prices for government programs (until early 90’s) • Managed care and purchaser power (until early 00’s) • New solution- CDHPs? • Shift of power to cost-conscious, educated consumers • Where does evidence based medicine fit in? * Claxton, G. et al. “Employer Health Benefits 2004, Annual Survey,” Kaiser Family Foundation and Health Research and Educational Trust, 2004 http://www.kff.org/insurance/7148/index.cfm **Strunk B. and P. Ginsberg. “Tracking Health Care Costs: Spending Growth Slowdown Stalls in First Half of 2004” Center for Studying Health Systems Change, Issue Brief 91, December 2004, http://www.hschange.org/CONTENT/721/

4. What areCDHPs? While definitions vary, the most common characteristics are: • High deductible insurance plan • Personal account funded in various ways to pay for care • Gap between the annual amount in account and deductible • Internet-based decision support

5. Different Types of CDHPs • Health Savings Accounts (HSAs) • Portable accounts owned by individuals • High deductible health plan required • Health Reimbursement Arrangement (HRAs) • Employer funded accounts that stay with employer • High deductible health plan not required • Archer Medical Savings Accounts (MSAs) • Portable accounts for small firms (<50) and self-employed • High deductible health plan required • Flexible Spending Accounts (FSAs) • Employee funded with pre-tax dollars • Use it or lose it at year’s end

6. Potential Benefits of CDHPs • Enhanced consumer involvement • Greater control over dollars • Personalized decision-making • Greater choice of providers • Greater cost control / potential for savings • Incentives to control utilization • Cost transparency • HSAs as a tax-free investment opportunity • Quality of care promoted • Internet tools to educate consumers • Better quality measures/reporting promoted • Preventive care encouraged in HSA design

7. Potential Drawbacks of CDHPs • Only for the healthy & wealthy • Greater out-of-pocket costs for sicker • Greater out-of-pocket expense burden for poor • Market risk segmentation • If sicker and poorer remain in other models, those premiums could rise • Unintended consequences • Induced demand for non-portable models • Coverage of elective services • Delay in needed care leading to increased costs later

8. HRAs versus HSAs • HRAs • Available only through employers, who must contribute • No HRA payout until an employee makes a claim • Flexibility in design • Tax-favored distributions for medical expenses only • Can be combined with an FSA • HSAs • Employees AND employers CAN contribute (voluntary) • Must be offered with a high-deductible health plan • Tax-favored distributions for medical expenses; distributions for non-medical expenses allowed, with penalties • Cannot be combined with an FSA • Contribution fully vested and portable

9. Incentives to Control Spending? • Incentives concentrated below deductible • Chronically ill cannot effectively change utilization patterns • Incentives to compare cost and quality, but good information lacking • Employer savings may be offset by education costs • HSAs: account portability = incentive to save • HRAs: employees gain more value when spending the account, especially when leaving employer

10. Employer/Employee Interest • Strong trend toward greater cost sharing • In 2004, 51% of workers in health plans requiring deductible before most plan benefits are provided* • Employer interest in CDHPs growing • Overall, 10% offered a high-deductible health plan in 2004; 3.5% offered a personal/health savings account* • Large firms (> 5,000 employees) lead the way; in 2004, 20% offered high-deductible health plans • 81% of large and 78% of small employers plan to • implement HSAs by 2006** • Employee takeup slow but growing • 500,000 consumers enrolled in HSA*** * Claxton, G. et al. “Employer Health Benefits 2004, Annual Survey,” Kaiser Family Foundation and Health Research and Educational Trust, 2004 http://www.kff.org/insurance/7148/index.cfm **Mercer Human Resources Consulting. National Survey of Employer-Sponsored Health Plans: 2003 Survey Report. New York, NY, 2004 ***America’s Health Insurance Plans. “Health Savings Accounts Off to a Fast New Start” http://www.ahip.org/content/pressrelease.aspx?docid=7303

11. Insurer Response • 75 major insurers now offer an HSA; nine out of ten insurers expect to offer an account-based CDHP within one year * • Recent examples • United Healthcarepurchases Definity Health; own employees in high-deductible plans for 2005 • Kaiser Permanente offers a deductible health plan with HSA Option in CO, GA and the Northwest in 2005 • Blue Cross and Blue Shield expects to have HSA-compatible policies nationwide by 2006 • Aetna makes HSA product available for small employers and individuals in May 2005; new Aetna-specific VISAs to simplify spending *Milliman Consultants and Actuaries. “Milliman 2004 Group Health Insurance Survey Sees Surge in Consumer Driven Products,” Press Release, October 18, 2004, http://www.milliman.com/press_releases/2004%20CDH%20Press%20Release.pdf

12. Profile of Early Enrollees • Early choices of Whirlpool employees* • CDHP enrollees have more education (41% versus 20% have college degree) • CDHP enrollees have higher incomes (34% versus 21% with income over $75,000) • CDHP enrollees healthier(61% versus 47% with very good health status; 46% versus 69% with chronic disease) • Early choices of U Minnesota employees** • CDHP enrollees neither younger or healthier but are wealthier • Ability to fund a deductible in the case of an emergency associated with choice of CDHP • Provider choice/flexibility dominating factor of plan choice * Hibbard, Judith. “Will Consumers Become More Informed & Cost-Effective Users of Care Under Consumer Driven Health Plans? Preliminary Findings,” Cyber Seminar Presentation, September 2004 http://www.hcfo.net/cyberseminar/0904/hibbard.ppt ** Parente, S. et al. “Employee Choice of Consumer-Driven Health Insurance in a Multiplan, Multiproduct Setting,” Health Services Research, Vol. 39, No. 4, August 2004, pp. 1091-1111

13. Early Consumer Experiences • CDHP enrollees appear satisfied* • 8% of CDHP enrollees switched plans, compared with 5% in traditional plan • 46% of CDHP enrollees reported a particularly positive experience and 24% reported a particularly negative experience, similar to traditional plans • CDHP enrollees use decision-making tools, some • Provider directory most used decision-support tool • Disease management and pharmacy pricing tools less used • BUT -- more likely to use a website to find health information and prescription costs than PPO enrollees** * Christianson et al. “Consumer Experiences in a Consumer-Driven Health Plan,” Health Services Research, Vol. 39, No. 4, August 2004, pp. 1123-1139 ** Hibbard, Judith. “Will Consumers Become More Informed & Cost-Effective Users of Care Under Consumer Driven Health Plans? Preliminary Findings,” Cyber Seminar Presentation, September 2004 http://www.hcfo.net/cyberseminar/0904/hibbard.ppt

14. CDHP Utilization Over 2 Years • Hospital use higher than PPO or POS* • CDHP had the highest use of elective admissions • CDHP had the highest emergency admission rate • CDHP hospital admission rates grew 220% compared with 57% for PPO and 29% for POS • Doctor visits less than POS but growing* • In 2002, CDHP enrollees had fewer visits per capita (7.15) than HMO enrollees (7.29), possibly using more nurse help lines • Between 2000-2002, CDHP physician visits grew 24.5% compared with 20% for PPO and 8% for POS * Parente, S. et al. “Evaluation of the Effect of a Consumer-Driven Health Plan on Medical Care Expenditures and Utilization,” Health Services Research, Vol. 29, No 4, August 2004, pp. 1189- 1209

15. CDHP Utilization (cont.) • Prescriptions filled grew more slowly than POS* • Between 2000-2002, CDHP prescriptions filled per capita grew 33.6% compared with 19% for PPO and 39% for POS • CDHP decision-making tools encourage cost saving in pharmacy utilization • In 2002, CDHP prescriptions filled per capita (25.3) were lower than POS (30.9) but higher than PPO (24.5) • Brand name drug use higher in CDHP, but cost is lower** • Parente, S. et al. “Evaluation of the Effect of a Consumer-Driven Health Plan on Medical Care Expenditures and Utilization,” Health Services Research, Vol. 29, No 4, August 2004, pp. 1189- 1209 • **Parente, Stephen. “Consumer-Driven Health Plans: Early Cost & Use Evidence with a Focus on Pharmaceuticals & Hospital Admissions,” Cyber Seminar Presentation, September 2004 http://www.hcfo.net/cyberseminar/0904/parente.ppt

16. CDHP Costs Over 2 Years • Lower total expenditures than PPO* • In 2002, CDHP had lower total expenditures per capita ($8,149) than PPO ($8,377), but higher than HMO ($7,198) • CDHP enrollees had lower out-of-pocket expenditures than PPO and POS • Hospital expenditures a big cost driver* • Substantial increase in hospital expenditures for CDHP enrollees between 2000 ($1,370) and 2002 ($3,469) • In 2002, CDHP hospital expenditures ($3,469) were higher than POS ($1,957) and PPO ($2,367) * Parente, S. et al. “Evaluation of the Effect of a Consumer-Driven Health Plan on Medical Care Expenditures and Utilization,” Health Services Research, Vol. 29, No 4, August 2004, pp. 1189- 1209

17. Solving the Problem of the Uninsured? • Results from initial take-up* • 1/3 of individual purchasers previously uninsured • 16% of small firms previously did not offer insurance • Industry reports indicate not only wealthy & young, but more national data needed** • One report cites half of purchasers at least 40 • 41% of purchasers report incomes <$50,000 • Likely impact of the Administration’s proposed subsidies for HSAs*** • Without subsidies, the 2003 MMA HSAs could have a take-up of ~10 million • Hypothetical tax subsidies for HSAs could increase coverage among the uninsured from 4 to 14 million *America’s Health Insurance Plans. “Health Savings Accounts Off to a Fast New Start” http://www.ahip.org/content/pressrelease.aspx?docid=7303 **”Most HDHP Plans Cost Less Than $100 per Month, Survey Says” Inside Consumer-Direce3d Care. August 6, 2004 ***Parente, S. et al. “Consumer Driven Health Plans: Early evidence of take-up, cost and utilization and HSA policy implications” NHPC Presentation, February 2, 2005http://www.academyhealth.org/nhpc/2005/parente.pdf

18. Implications for States • Impact on state budgets • HSAs projected to cost the federal government $7 billion to implement over 10 years* • Market impact • HSAs could contribute to risk segmentation in the private market • High-risk pools vary from state to state • Regulatory questions • Do state laws allow HMOs to offer coverage with high deductibles? • States require insurers to cover certain services regardless of whether an annual deductible has been met • State as employers • State employees tend to be older than average, more unionized and used to comprehensive benefits packages** * Kofman, Mila. “Health Savings Accounts: Issues and Implementation Decisions for States,” State Coverage Initiative Issue Brief, Vol. 5, No. 3, September 2004 ** Leitz, Scott. “Consumer-Driven Health Plans: Policy Interactions and Implications for States,” Cyber Seminar Presentation, September 2004

19. Outlook for the Future • CDHPs are a new market approach • Cost transparency, quality reporting and consumer education may be lasting by-products regardless of the future of CDHPs • Selection bias real but can be managed • Large self-insured companies can anticipate selection and alter premium sharing • Need for risk spreading mechanism in small group and individual markets? • Time will tell • Research underway will provide continuing insights • Early adopters may not be representative of future enrollees • Cost savings may not yet be realized • Are vulnerable populations better or worse off?

20. Concluding Thoughts • CDHPs- neither a panacea nor a poison • Unknown whether CDHPs can help in solving uninsured problem • Current public policy strongly promoting CDHP products and the market is responding • Challenge will be to incorporate evidence-based medicine into CDHP structure • More research is needed to inform policy • The jury is still out

21. Additional Resources • www.hcfo.net • www.statecoverage.net • Consumer-Driven Health Care – Beyond Rhetoric with Research and Experience • Much of the work presented was featured in the August 2004 Health Services Research special issue • Cyber Seminar: Disseminating Research Results for Policymakers • Consumer-Driven Health Plans: Potential, Pitfalls, and Policy Issues http://www.hcfo.net/meetings.htm , September 2004

22. Additional Resources cont… • Health Savings Accounts: Issues and Implementation Decisions for States • Mila Kofman, Issue Brief, September, 2004 http://www.statecoverage.net/pdf/issuebrief904.pdf • High Deductible Health Plans and Health Savings Accounts: For Better or Worse? • Karen Davis presentation January 27, 2005 http://www.nasi.org/publications2763/publications_show.htm?doc_id=261078&name=Medicare • Consumer Driven Health Plans: Early Evidence of Take-up, Cost and Utilization and HSA Policy Implications • Stephen T Parente Presentation February 2, 2005 http://www.academyhealth.org/nhpc/2005/parente.pdf