Risk Selection, Risk Adjustment and Choice: Concepts and Lessons from the Americas

1. Presentation prepared for the V CongresoEconomia de la Salud de America Latina y el Caribe November 15-16, 2012, Montevideo, Uruguay Risk Selection, Risk Adjustment and Choice: Concepts and Lessons from the Americas Randall P. Ellis1 Juan Gabriel Fernandez2 1Boston University 2University of Chile and Chile Ministry of Health

2. Key Policy Paradigm Competition? •  Choice • Choice of what? • Providers – provide services • Health plans – pay providers • Sponsors – collect from consumers, pay health plans • Choice + heterogeneity  Incentive to select • Regulations + payment policy reduce selection

3. Four questions examinedfor Canada, Chile, Colombia and United States • How are payments and contracting arranged in the health care system? • What choices are allowed? • What are the perceived selection problems? • Efficiency problems • Equity/fairness problems • What selection tools are used that worsen or reduce selection? • Goal is to understand how to better use of risk adjustment, risk sharing, and regulations

4. Four agents and five primary contracting relationships Sponsor Health plans B C A D E Consumers Providers

5. Four agents and six primary contracting relationships Sponsor Health plans B C A D E Consumers Providers

6. Consumer choice of providers Sponsor Health plans B C A D E Consumers Providers

7. Consumer choice of providers YES: Canada Chile public* Chile private Colombia* US private* US Medicare* Sponsor Health plans B C A D E NO: Consumers Providers

8. Provider choice of consumers? YES: Chile private Colombia US NO: Canada Chile public US Medicare pre 1985 Sponsor Health plans B Selection problems Risk solidarity problem Patient sorting problem Overpaying/underpaying problem C A D E Consumers Providers

9. Health plan choice of provider(Selective contracting) YES: US private US Medicare Chile Colombia NO: Canada US Medicare pre 1985 Sponsor Health plans B Selection problems Service distortion problem Wasted administration costs C A D E Consumers Providers

10. Provider choice of health plan YES: US private US Medicare HMOS Chile private Colombia NO: Canada US Medicare pre 1985 Sponsor Health plans B Selection problems Wasted administration costs Balance billing problems Patient sorting problem C A D E Consumers Providers

11. Consumer choice of health plans? YES: US private US Medicare Chile private Colombia NO: Canada Chile public US Medicare before 1985 Sponsor Health plans B Selection problems Wasted administration costs problem Plan turnover problem Risk solidarity problem C A D E Consumers Providers

12. Health plan choice of consumers? YES: USA private Chile Colombia NO: Canada US Medicare US private after 2014 Sponsor Health plans B Selection problems Wasted administration costs problem Plan turnover problem Risk solidarity problem C A D E Consumers Providers

13. Selection problems Incomplete insurance Wasted administration costs problem Labor market problems Plan turnover problem Risk solidarity problem Income solidarity problem Free rider problem Consumer Choice of SponsorSponsor Choice of Health Plans YES: US Private Colombia Chile NO: Canada US Medicare US private after 2020? Sponsor Health Plans B C A D E Consumers Providers

14. Strategies to reduce selection problems • Regulations • Risk Adjustment • Risk Sharing

15. USA Medicare, 1985:very little choice Sponsor=Insurer Health plans Selection problems? Hospital dumping due to DRGs Hospital service distortion due to DRGs Risk solidarity problem due to MEDIGAP Income solidarity problem due to MEDIGAP MEDI- Traditional GAP Indemnity Plans Government Medicare Hospitals Doctors Enrollees Ellis and van de Ven, 2003 Consumers Providers

16. USA Medicare, 2004 Sponsor Health plans Selection problems Wasted administration costs Plan turnover Service distortions Dumping Risk solidarity problem Income solidarity problem Traditional MEDI- Indemnity Government GAP Plans M+C HMOs Private FFS Medicare Hospitals Doctors Drugs Enrollees Ellis and van de Ven, 2003 Consumers Providers

17. Selection problems Incomplete insurance Wasted administration costs Labor market problems Plan turnover Free rider problem Service distortions Dumping Risk solidarity problem Income solidarity problem USA Privately Employed, 2010 Sponsor Health Plans Indemnity Plans Phar- B Employer macy HMOs Plans No Insurance Employees Hospitals Doctors and Drugs Ellis and van de Ven, 2003 families Consumers Providers

18. Canada (Alberta) 2003 Sponsor = Insurer = Health plan Supple- Provincial Regional Health FFS Coverage Budget mentary Government Authorities Plans Selection problems Risk solidarity problem across regions All Hospitals Doctors Drugs Individuals Source: Ellis and Van de Ven, 2003 Consumers Providers

19. FIGURE 2: ALBERTA (CANADA): SPONSOR = INSURER = HEALTH PLAN = PROVIDER (HOSPITALS) PROVINCIAL GOVERMENT ALBERTA HEALTH SERVICES (AHS) A D Fee for Service DRUGS DOCTORS HOSPITALS E CONSUMERS PROVIDERS

20. FIGURE 3: US MEDICARE (for Aged and Disabled) 1985 SPONSOR HEALTH PLAN GOVERNMENT TRADITIONAL INDEMNITY B A D C Medicare Enrollees HOSPITALS DOCTORS DRUGS E CONSUMERS PRIVATE PROVIDERS

21. FIGURE 4: US MEDICARE (2009) SPONSOR HEALTH PLAN TRADITIONAL INDEMNITY GOVERNMENT PART D (Drugs) Medicare Advantage B Private FFS A D C Medicare Enrollees HOSPITALS DOCTORS DRUGS E CONSUMERS PRIVATE PROVIDERS

22. FIGURE 5: US - PRIVATELY INSURED (LARGE FIRMS) SPONSOR HEALTH PLAN INDEMNITY EMPLOYER Pharmacy Plans HMOs B PPOs A D C HOSPITALS DOCTORS DRUGS E CONSUMERS PRIVATE PROVIDERS

23. FIGURE 5: US - PRIVATELY INSURED (LARGE FIRMS) 2010 SPONSOR HEALTH PLAN INDEMNITY EMPLOYER Pharmacy Plans HMOs B PPOs No Insurance A D C HOSPITALS DOCTORS DRUGS E CONSUMERS PRIVATE PROVIDERS

24. FIGURE 5: US - PRIVATELY INSURED after ObamaCare SPONSOR HEALTH PLAN INDEMNITY EMPLOYER Pharmacy Plans HMOs B PPOs X X No Insurance A D C X X HOSPITALS DOCTORS DRUGS E CONSUMERS PRIVATE PROVIDERS

25. FIGURE 6: COLOMBIA SPONSOR HEALTH PLAN GOVERNMENT Private EPSs FOSYGA + CRES + Superintendency B Public EPSs A D C HOSPITALS DOCTORS DRUGS E CONSUMERS PRIVATE PROVIDERS

26. FIGURE 7: CHILE, PUBLIC INSURANCE (LOW INCOME) SPONSOR = INSURER = HEALTH PLAN = INSTITUTIONAL PROVIDER General GOVT (Ministry of Health) FONASA (National Health Fund) Regional Health Services* A DOCTORS HOSPITALS DRUGS CONSUMERS E PROVIDERS * Primary care is provided through the regional governments, called municipalities

27. FIGURE 8: CHILE, PUBLIC INSURANCE (CONTRIBUTORS) SPONSOR = INSURER = HEALTH PLAN = INSTITUTIONAL PROVIDER General GOVT (Ministry of Health) FONASA (National Health Fund) Regional Health Services* A INST. DOCTORS INST. HOSPITALS DRUGS LOW/NO COST FFS DRG PRIVATE DOCTORS PRIVATE HOSPITALS DRUGS E CONSUMERS HIGHER COST PROVIDERS * Primary care is provided through the regional governments, called municipalities

28. FIGURE 9: CHILE PRIVATELY INSURED SPONSOR HEALTH PLAN EMPLOYER CLOSED ISAPRES (Integrated HMO ) OPEN ISAPRES B A D C PRIORITIZED (AUGE) DOCTORS HOSPITAL DRUGS REGULAR COVERAGE E CONSUMERS PRIVATE PROVIDERS

29. Table 1: Summary of perceived selection problems in different health care systems US US private Alberta US Chile Chile Medicare employers Canada Medicare Public Colombia Private a a 2010 1985 2010 2010 2010 2010 2010 Efficiency Problems X X (X) X (X) Incomplete insurance – consumer bear too much financial risk (X) Individual access? Can individuals always find a "fair" plan? X (X) Group access? Can employers always find a "fair" plan? X X X X X Service distortion problem - too much or too little of some services X X (X) Wasted resources – too much advertising or administration X Labor market problems – job frictions X X X X X Patient sorting problem – providers sort patients and offer different qualities X X Waiting time problems - plans use waiting time to ration care X X X Plan turnover problem – consumers forced to change plans too often Equity Problems X (X) Risk solidarity problem – High risks pay too much for health insurance X X X (X) Income solidarity problem – No subsidy from high to low income consumers b (X) Free rider problem – some people choosing not to be insured X X X X X Plan over/underpayment problem – plans paid too much or too little X X X X X X (X) Provider over/underpayment problem – providers paid too much or too little 2 3 4 6 7 10 14 Simple count of X's Notes: Ratings reflect subjective valuations by the authors. a Items appearing in parentheses are addressed by the 2010 Health Reform, although not necessarily eliminated. b Choosing not to be insured is illegal, but there is an enforcement problem

30. Table 2: Summary of choices available in various health care systems US US private Alberta US Chile Chile Medicare employers Canada Medicare Public Colombia Private a a 2010 1985 2010 2010 2010 2010 2010 Which choices are available to each agent? Sponsor (X) Choice not to offer insurance? (X) X X Choice of health plans? X X X X X Choice of benefit features? X X X X X Choice of premium cost sharing? X Financial reward for reduced coverage? X X X Choice of premiums varying by income? X X Choice of premiums for family versus individual coverage? X X X X Choice of pay-for-performance incentives? X X X X X Use of risk adjustment? X X X (X) Choice of benefits to offer? X X X X X Choice of demand side cost sharing to consumers? X X X X X Choice of providers with whom to selectively contract? X X X X X Choice of provider payment? X X X X Choice of geographic area to serve? X X X X X Choice of performance measures to providers? X X (X) Is exclusion of preexisting conditions allowed? X X (X) Is underwriting allowed (denying coverage)? X X X X Is direct advertising allowed? X X Tie-in sales of alternative insurance policies allowed? Health Plan

31. Table 2 (continued): Summary of choices available in various health care systems US US private Alberta US Chile Chile Medicare employers Canada Medicare Public Colombia Private 2010 1985 2010 2010 2010 2010 2010 Which choices are available to each agent? Provider X X X X X Choice of patients when at less than full capacity? c X X X X Choice of balance billing? X X X X X X X Is there a primary care gatekeeper? X X X X Choice of specialists without a referral? X X X X X X Choice of different patient waiting times? X Can a hospital refuse to treat if no coverage? X X X X X Patient sorting across hospitals and doctors? Consumers X Choice of sponsor? b X (X) Choice of whether to be insured? X X X X X Choice of health plan? X (X) Choice of which family members to insure? X X X Choice of different benefit feature? X X X X X X X Choice of primary care provider? X X X X X X X Choice of specialist? 5 3 16 21 26 25 32 Simple count of X's Notes: Ratings reflect subjective valuations by the authors. a Items appearing in parentheses are addressed by the 2010 Health Reform, although not necessarily eliminated. b Choosing not to be insured is illegal, but there is an enforcement problem c Limited by fee schedule

32. Table 3: Summary of techniques available that influence selection in different health care systems US US private Alberta US Chile Chile Medicare employers Canada Medicare Public Colombia Private 2010 1985 2010 2010 2010 2010 2010 Which techniques are available to increase or reduce selection? Consumers b (X) Choose not to become insured until high health costs X X X (X) Choose low benefit plans until needs become great Providers X X X (X) Undertreatment of high cost patients X X X X X Underprovision of services used by high cost patients X X X Recommendations to patients to change plans or providers X X X X X Delaying visits by high need patients X X X X Selective advertising X X (X) High deductibles and copayments that deter high cost patients X X X Differential enrollment based on consumer survey results X (X) Exclusions for preexisting conditions X X Genetic testing and use of information at enrollment X (X) Charging higher premiums for high health cost enrollees X X X X Shortage of specialists contracted with X ? X X Delayed payments affect high cost enrollees Sponsor X X X Risk adjustment (bundled payment, set up ex ante) X X Risk sharing (ex post) X X X Report cards and consumer information X X Benefit plan feature variation X (X) Premium cost sharing (how premium contributions vary across consumers) X X (X) Premium variation by income X ? X (X) Definition of family for family coverage X X X (X) Premium rate restrictions (rate bands, ceilings, or rates of increase) X X X X X X X Supplementary insurance features. X X Ease of referrals c X (X) X Selective contracting in geographic areas with low cost populations X 1 1 7 12 18 18 23 Simple count of X's Notes: a Items appearing in parentheses are addressed by the 2010 Health Reform, although not necessarily eliminated. b Choosing not to be insured is illegal, but there is an enforcement problem c Urban vs rural, based more on private doctor avalability than low risk charateristics Health plans

33. Table 3 (continued): Summary of techniques available that influence selection in different health care systems US US private Alberta US Chile Chile Medicare employers Canada Medicare Public Colombia Private a a 2010 1985 2010 2010 2010 2010 2010 Which techniques are available to increase or reduce selection? Sponsor Risk adjustment (bundled payment, set up ex ante) X X X Risk sharing (ex post) X X Report cards and consumer information X X X Benefit plan feature variation X X Premium cost sharing (how premium contributions vary across consumers) X (X) X Premium variation by income X (X) X ? X (X) Definition of family for family coverage X X X (X) Premium rate restrictions (rate bands, ceilings, or rates of increase) X X X X X X X Supplementary insurance features. X X Ease of referrals X (X) X X Selective contracting in geographic areas with low cost populations Simple count of X's 1 1 7 12 18 18 23 Notes: c a Items appearing in parentheses are addressed by the 2010 Health Reform, although not necessarily eliminated. b Choosing not to be insured is illegal, but there is an enforcement problem c Urban vs rural, based more on private doctor avalability than low risk charateristics

34. Table 4: Summary of problems, choices, and selection technigues in different health care systems US US private Alberta US Chile Chile Medicare employers Canada Medicare Public Colombia Private a a 2010 1985 2010 2010 2010 2010 2010 Which selection techniques available? 1 1 7 12 18 18 23 c a Items appearing in parentheses are addressed by the 2010 Health Reform, although not necessarily eliminated. b Choosing not to be insured is illegal, but there is an enforcement problem c Urban vs rural, based more on private doctor avalability than low risk charateristics What problems are there? 2 3 4 6 7 10 14 What Choices are available? 5 3 16 21 26 25 32

35. Key findings from comparisons • Countries vary in the choices, problems,and selection tools available • Objectives vary: Canada values income and risk solidarity much more than US; Chile and Colombia are in between • Service selection problems arise where there is a selective contracting or pricing with providers (US, Chile, Colombia) • Sponsorship by employers leads to more selection problems than sponsorship by a government entity • Risk adjustment and risk sharing are relevant at many different levels of the health care system. • Regulations are as important as financial incentives. • Paper says nothing about cost and quality efficiency.