Stephen T Parente, Roger Feldman, Jon B Christianson

1. Consumer Driven Health Plans:Empirical evidence of take-up, cost and utilization and HSA policy implications. Stephen T Parente, Roger Feldman, Jon B Christianson Presentation to the National Academy of State Health Policy, Nashville, TN, USA, August 7, 2005. Sponsored by the Robert Wood Johnson Foundation’s Health Care Financing & Organization Initiative (HCFO) and the U.S. Department of Health and Human Services

2. Presentation Overview • Employer-based Analysis Overview • Policy Questions • National CDHP Take-up • Cost & Utilization Comparisons Over Time • National HSA Simulation • Policy Implications

3. Not so Long Ago:1999 Vision of E-Commerce in 2005 • $250 billion of the New Health Economy would be e-commerce (e.g., mostly e-prescribing). • Ubiquitous electronic health records • Providers access/enter data on web • Patients access/enter data on web • Information access as seamless as credit card transactions • Informed health care shoppers (patients) pick hospitals and physicians based on quality. • Internet-enabled medical savings accounts.

4. Reality of 2005 • $250 billion of the New Health Economy would be e-commerce (e.g., mostly e-prescribing). • Ubiquitous electronic health records • Providers access/enter data on web • Patients access/enter data on web • Information access as seamless as credit card transactions • Informed health care shoppers (patients) pick hospitals and physicians based on quality. • Internet-enabled medical savings accounts.

5. Employer-based Analysis Overview • Analysis started in 2002 with six employers • Combined population drawn from 50 states • Total covered lives represented: ~250,000 • Collect primarily employer HR data and insurance claims data for all plans. • New HCFO grant will create a study panel with six total years of CDHP experience 2001-2006.

6. Policy Questions • Do CDHPs (in the form of HRAs) have national appeal? • What are the longer-run cost & use consequences of CDHPs? • Where do they save money? • Where are they more expensive? • What is the impact on utilization of key services? • Do HSAs have potential national appeal? • Are HSAs a viable approach to addressing the problem of the uninsured? FYI: We are just approaching the half-way point of our research.

7. Nearly National Appeal: States where the study employers’ 1st year CDHP take-up was >5% Take-up >5% 0.1 - 5% 0%

8. Take-up Summary from the Study Employers • All states have take-up above 5% with the exception of New York, New England States, Indiana, California and Arizona. • Differences may by driven by: • Dominance of managed care in CA, AZ • Insurer/provider choices in Northeast • Not enough data from only six employers • Grand experiment in 2005: FEHBP

9. What is the impact of CDHPs on cost & use? • Study Design: • First results reported in 2004, August, Health Services Research. • Look at CDHP/PPO/POS cohorts within one large employer for employees over time to see ‘longer run’ impact of CDHP in 2001 - 2003. • Control for several factors to ADJUST cost & use estimates: • Health status/illness burden/health shocks (cancer, catastrophic accident) • Income • Family size and dependents • Age, gender

10. Study Setting • Large employer that offered HMO and PPO in 2000-2003 and introduced CDHP in 2001 • Variation in cost sharing by contract • Take-up of CDHP approximately 15% • Smaller account/deductible gap, 0% co-insurance on catastrophic • General caveat: ANY Employer’s experience can be quite different due to: • Alternatives offered • Plan design • Communications with employees • Sponsor’s objectives for the plan

11. Health Toolsand Resources Health Coverage $$ Annual Deductible Definity HealthCareAdvantage Web- and Phone-Based Tools Preventive Care 100% Annual Deductible Definity Health as CDHP Model • Personal Care Account (PCA) • Employer allocates PCA1 • Member directs PCA • Roll over at year-end • Apply toward deductible2 • Health Coverage • Preventive care covered 100% • Annual deductible • Expenses beyond the PCA PCA • Health Tools and Resources • Care management program • Internet enables 1 Employer selects which expense apply toward the Health Coverage annual deductible. 2 Paid out of employer’s general assets.

12. Presentation of Results • Results are limited to three groups of employees who worked for the firm continuously for three years (2000-2003) where: • Employee chose the CDHP in 2001-2003 • Employee chose another health plan in 2001-2003. • This limitation removed 27% of all employees from the analysis • We want to see both adoption and maturing impact of CDHP while controlling for prior spending • 2000: Pre-CDHP experience controls for prior spending • 2001: CDHP adoption year • 2002-3: CDHP ‘maturation’ years

13. Original Results - What was the ADJUSTED impact on provider and patient payment? One employer’s results reported in: ST Parente, R Feldman, JB Christianson. Evaluation of the Effect of a Consumer Driven Health Plan on Medical Care Expenditures and Utilization, Health Services Research, Vol. 39, No. 4, Part II, pp. 1189-1209, August 2004. 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.

14. New Results: Impact of CDHP and PPO on Cost Compared to POS All Annual Plan Effects Using POS Plan as baseline. NOTES: These are results from a restricted continuously enrolled sample of 26% of the total employee population and are not a reflection of the plans’ expenditures. Bolded numbers are significant at p<.05.

15. Impact of CDHP and PPO on Physician, Hospital and Pharmacy Cost Compared to POS All Annual Plan Effects Using POS Plan as baseline. NOTE: These are results from a restricted continuously enrolled sample of 26% of the total employee population and are not a reflection of the plans’ expenditures.

16. Impact of CDHP and PPO on Visits, Hospital Admissions & Scripts Compared to POS All Annual Plan Effects Using POS Plan as baseline. NOTES: These are results from a restricted continuously enrolled sample of 26% of the total employee population and are not a reflection of the plans’ expenditures. Bolded numbers are significant at p<.05.

17. Overall Cost & Use Results Summary • CDHP plan did not have the lowest cost and utilization across all plans. • CDHP best (lowest) cost result was for pharmacy. • CDHP worse (highest) cost result was for hospital expenditures (inpatient & outpatient). – partially explained by pent-up demand for elective procedures & provider pricing differences across years. • Utilization results have no dramatic differences across plan types for pharmacy and physician services. Obvious access to care problem not apparent.

18. What About Pharmacy? An Opportunity for a Deeper Analysis of CDHPs versus Tiered Designs Why Focus on Pharmacy? • Fastest rising cost sector of health economy • Recent innovations in both CDHP and non-CDHP marketplace • Non-CDHP: 3-tier consumer payment • CDHP: Consumer prices vary by employee/patient total expenditure level • CDHP ‘shopping’ tools are most advanced for pharmacy market

19. 3-Tier Overview • Three tiers jointly determined and priced by employer/insurer/pharmaceutical benefits management firms (PBMs) • Common in most health plans • Example of structure (price 500mg of X): • Tier 1 ($20): Generic • Tier 2 ($40): Brand-preferred pricing • Tier 3 ($60): Brand-no preferred pricing

20. Health Coverage $3,000 Annual Deductible $1,500 Preventive Care 100% Annual Deductible CDHP Pharmacy Expenditure Model:Chuck’s Story THREE: 7/5/05: After Chuck Jr.’s fall and $500 of Rx and medical care, Rx is now paid with a 10% co-insurance until 1/1/2006. TWO 4/18/05: Chuck’s son breaks his leg playing Bocce Ball. Son’s bills total $1,700. Total expenditure for 2004 are now $2,500. Rx now paid out of pocket. PCA $1,500 ONE 1/1/05 to 4/17/05: Chuck’s Rx $800 expenditures are ‘debited’ from his family’s PCA. For example, his Clarinex prescription with price of $85 for a month supply is charged to the account. His copayment is $0. Drug prices negotiated used a PBM, but no tiered prices are in play.

21. What we already found • CDHP cohort has initial lower probability of pharmacy use as well as volume of use compared to a POS. The trends turns positive in 2003. • CDHP cohort has lowest initial pharmaceutical expenditure, through 2003. • Consumer-driven component might work for pharmacy if long term effects don’t drive up use of unnecessary scripts. What we examine further • Brand versus generic • Rx for chronic patients • Difference across major therapeutic classes

22. Is brand name pharmacy use different for CDHP enrollees? NOTE: These are results from a restricted continuously enrolled sample of 27% of the total employee population and are not a reflection of the plans’ full prescription drug experience.

23. Is there a difference in pharmacy use for CDHP patients with chronic conditions? NOTE: These are results from a restricted continuously enrolled sample of 27% of the total employee population and are not a reflection of the plans’ full prescription drug experience.

24. Is pharmacy use different by the ‘Top 5’ therapeutic drug groups? NOTE: These are results from a restricted continuously enrolled sample of 27% of the total employee population and are not a reflection of the plans’ full prescription drug experience.

25. Are there more specific differences in CDHP pharmacy use? • CDHP population has general and significant trend toward higher use across major therapeutic classes. • The CDHP population made the most use of brand name drugs by 2002 and 2003. • The proportion of brand name drugs to all drugs increases over time in the CDHP. • The PPO is associated with decreased use of drugs among patients with chronic illnesses, but with a general increasing cost trend.

26. Using HRA Results to Explore HSA Policy Questions • What is the expected take-up rate of HSAs in the individual market? • What is the likely impact of the Administration’s proposed HSA subsidies? • Take-up rate of HSAs with subsidies • Reduction in the number of uninsured • Cost of the subsidy • What is the impact of other possible subsidy designs?

27. Analysis Design MEPS CDHPs eHealthinsurance Data Sources Estimate plan offerings using insurance data Merge employer data Model Estimation Estimate plan choice regression Estimate hedonic premium regression Assign plan choices to full MEPS sample Choice set Assignment/Prediction Use parameter estimates to predict plan choice probabilities for MEPS Define HSA plan design & premium Calibrate take-up rates Policy Simulation Simulate impact of proposed policies

28. National Simulation Overview • Policy Parameters: • We can add different tax subsidies for purchase of individual HSA plans • We can vary the characteristics of the HSA (e.g. make the ‘donut hole’ larger or smaller) • We could remove the tax subsidy for employee or employer-paid premiums in the employer-offered market • For each simulation, we can calculate the change in plan choices and the cost to Treasury

29. Possible Health Plan Choices from Simulation

30. National Simulations • Status Quo • Administration’s proposal • Low income buy-in subsidy • Full subsidy for HSA premium for entire adult population • Full subsidy for HSA premium for the non-working, non-public insurance population

31. Baseline Impact of MMA 2003 NOTE: Population is 19-64, non public insurance

32. Sim#1: Administration’s* Proposal NOTE: Population is 19-64, non public insurance. *Proposal as interpreted from February, 2004 U.S. Treasury Blue Book.

33. Sim #2: Low-income Buy-in Subsidy Income < 15K, free; 25K to 45K, 50% off; 40K to 60K, 25% off NOTE: Population is 19-64, non public insurance

34. Sim #3: Full Subsidy for HSAs NOTE: Population is 19-64, non public insurance

35. Sim #3A: Full Subsidy for Generous HSA NOTE: Population is 19-64, non public insurance

36. Diminishing Subsidy Returns Sim #3A Sim #3 Sim #2 Sim #4 Sim #1

37. Summary • Untouched, the 2003 MMA HSAs will have take-up of ~3.2 million, many of them previously uninsured. • The Administration’s plan will double HSA take-up and reduce the uninsured by ~2.9 million at a cost of ~$6.9 billion, an average of $2,761 per person. • Full subsidy of premium yields best case reduction of uninsured 86%, (~27.2 million person reduction) at a cost of ~$211 billion annually, an average of $8,981 per person. • Offering a free HSA to the non-working, non-public population reduces the uninsured, but less efficiently than income targeted subsidies.

38. Summary • For study employers, almost all states had some CDHP take-up – many with 5% or more take-up in the first year offered. • Cost results are mixed. Lower costs initially – but rapid rise in expenditures, adjusting for case-mix and demographics. • Utilization results are not extraordinarily different in pharmacy and physician services, but significantly higher for admissions. • HSA take-up, based on HRA experience and actual 2005 HSA premiums, could be quite substantial. • Administration proposals to use HSAs as a mechanism to substantially reduce the number of uninsured may be viable depending on the level of subsidy provided. • All future results will be VERY dependent on benefit design: premiums, account/deductible gap, coinsurance.

39. Next Steps • RWJ study continues to 2008. • Multi-employer comparisons – at least three on the horizon for this year where multiple years of claims data is already in hand. • Looking for HSA/HRA natural experiments. In negotiations with two large firms – looking for more, but no more than 4. • DHHS work set to continue • Examine FEHBP • Revise simulation methods and • More depth into the Rx market • Develop a general economic model for CDHPs for Rx where good are much more discreet than an admission or major surgical event. • HSA work accepted for publication with revision to Health Affairs • Non-published ‘working results’ will be largely under review in peer-reviewed journals by year end.

40. Thank You!For more information on our research, please visit:www.ehealthplan.orgStephen T. Parente, Ph.D., M.P.H., M.S.Assistant Professor, Department of FinanceDeputy Director, Medical Industry Leadership InstituteCarlson School of ManagementUniversity of Minnesota321 19th Ave. South, Room 3-149Minneapolis, MN 55455612-624-1391 (v)sparente@csom.umn.eduhttp://www.tc.um.edu/~paren010