Rising Health Care Costs and Private Market Options

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Rising Health Care Costs
and
Private Market Options
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Coletta C. Barrett Moderator

• RN, MHA
• Vice President, Mission
• Our Lady of the Lake RMC

Kenneth E. Thorpe, Ph.D. Panelist

• Professor and Chair of Health Policy and
  Management
• Emory University

Mila Kofman, J.D. Panelist

• Assistant Research Professor
• Georgetown University Health Policy Institute

Stephen T. Parente, Ph.D. Panelist

• Asst. Professor, Dept. of Finance
• Deputy Director
• Medical Leadership Institute
• Carlson School of Management
• University of Minnesota

Rising Health Care Costs and Private Market
Options
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Health Care Spending

• Role of prevention

G R O W T H
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Overview

• Crafting effective health reform solutions
  requires a clear understanding of what accounts
  for the growth in spending

G R O W T H

• Key facts from the US context

• 80 of total health care spending linked to
  chronically ill patients

• Chronically ill receive approximately 55 of all
  clinically recommended medical care

• Rise in prevalence of treated disease accounts
  for nearly two thirds of the growth in health
  care spending

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Overview

• Rise in obesity prevalence in U.S. accounted for
  27 of the growth in health spending over the
  past 20 years

G R O W T H

• Substantial dollar volume rise in spending linked
  to modifiable individual risk factors
• Current cost containment initiations and debate
  largely ignore the central role of prevention
• We will not solve the spending growth through a
  singular focus on health insurance redesign

HSAs
Higher co-pays
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Implications

• Most policy discussion on reform has focused on
  insurance benefit design and reforms

• This ignores the underlying issues

Rising population prevalence of disease
Clinically effective treatment of chronically ill
patients
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Health Care Spending
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Number of Chronic Conditions
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Why Does Real Per Capita Health Spending Rise
Over Time?

• Rise in treated disease prevalence

• Rise in spending per treated case

Both
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Key Single Largest Driver of Health Care
Spending Over Time

• Rise in Treated Disease Prevalence
  Linked to the Rise in Obesity
• Accounts for 62 of Rise in Per Capita Spending

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Percent Privately Insured Population TreatedBy
Medical Condition 1987 - 2002
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Similar Results for MedicaidMost Growth
Enrollment Driven
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What Accounts For The Rise In Treated Disease
Prevalence?

• Rise in Population Disease Prevalence fueled by
  obesity and other risk factors

• Changes in threshold for treating asymptomatic
  patients (hypertension, hyperlipidemia, metabolic
  syndrome)
• Innovation (SSRI, statins, medical devices)

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Changes In Obesity Prevalence1978 - 2000
Total
Black Females
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Changes In Obesity Prevalence1978 - 2000
Children
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Key Single Largest Driver of Health Care
Spending Over Time
Rise in Treated Disease Prevalence
Linked to the Rise in Obesity
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Rapid Rise In Treated Disease Prevalence Among
Obese!
6 or More Medical Treated Conditions During Year
1987
2002
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ImplicationsSlowing The Growth In Spending

• Key Issues slow rise in treated disease
  prevalence through
• Slowing the rise in obesity prevalence among
  children and adults
• Need to broaden discussion of reform to include
  primary care, primary prevention
• Should be a center piece of any
  reform proposal

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ImplicationsSlowing The Growth In Spending

• Policy Tools
• School-based interventions (both calories
  and intervention)
• New and effective health promotion, wellness,
  disease prevention programs available for all
  adults perhaps a universal wellness and health
  promotion benefit for all
• Financial incentives to participate

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Summary

• Changes outlined herein require fundamental
  restructuring of U.S. health care system

• Attacking key drivers of rising spending
• How to treat chronically ill patients
• Develop national strategy for addressing rise in
  treated disease prevalence
• Devote resources to developing effective health
  promotion, wellness programs for use in schools,
  and the worksite

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Coletta C. Barrett Moderator

• RN, MHA
• Vice President, Mission
• Our Lady of the Lake RMC

Kenneth E. Thorpe, Ph.D. Panelist

• Professor and Chair of Health Policy and
  Management
• Emory University

Mila Kofman, J.D. Panelist

• Associate Research Professor
• Georgetown University Health Policy Institute

Stephen T. Parente, Ph.D. Panelist

• Asst. Professor, Dept. of Finance
• Deputy Director
• Medical Leadership Institute
• Carlson School of Management
• University of Minnesota

Rising Health Care Costs and Private Market
Options
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Discount Medical CardsWhat They Are

• Promise a discount
• From all types of providers, including
  specialists and hospitals
• On all types of services
• Doctor Visits
• Lab Work
• Surgical Procedures

• Companies offering discount medical cards do not
  pay medical claims of enrollees (unlike health
  insurance)

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Discount Medical Cards
How They Work

• Consumer pays monthly fee ranging from
  12.99/month to 99.95/month for a single person
• Plus a non-refundable administrative fee as high
  as several hundred dollars

• Company typically requires consumer to
  pre-pay for care and services prior to or
  at the time of visit
• Credit card payments
• Auto debits from bank account
• Escrow account

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Marketing

• Discount card companies use marketers to sell
  (few are licensed insurance agents)
• Sales mostly done through multi-level network
  marketingsimilar to pyramid marketing
• Significant price differences for same program

• Promoters are not licensed or regulated
• Few if any standards
• High-pressure sales tactics
• Misleading or false information
• Use TV, radio, internet, fax, email,
  telemarketing to sell

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Marketing

• Associations
• Retailers
• Credit card

Have affiliated with discount card programs

• Even churches are not immune
• Pastor in Illinois sold discount medical cards to
  his parishoners

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Marketing Insurance Buzz Words

• Every one is accepted regardless of past medical
  history
• No underwriting
• 100 approval
• No one can turn you down because youre too sick
  or too old
• No exclusions for preexisting conditions
• No medical forms to fill out

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Discount Medical Cards Growing
Why?

• High prices and limited access to private health
  insurance coverage

• Small businesses individuals have enrolled
  (dropping their health insurance due to price
  hikes)
• Consumers who are
  uninsurable enroll

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Demographics and Data

• No data on number of medical discount card
  enrollees or demographic data on enrollees
• One large company reports
• 680,000 enrolled in physician discount program
• Another large company reports re discount
  medical card program
• 81,000 enrollees
• 39.3 million in revenue
• Uninsured
• Underinsured
• People with high deductible or limited benefit
  medical insurance policies

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Our Research (Funded by Commonwealth
Fund)Testing Out Medical Discount Cards Sold
Nationally

• Identified nearly 30 cards
• Most were excluded from research because
• Disconnected phone number
• No discounts in Washington DC area
• Not open for new enrollment
• Turned out to be an ad for health insurance
• Enrolled and tested 5 cards
• General findings
• High pressure sales tactics
• Promoters making misleading or inaccurate
  statements about nature of product
• Exaggerated claims of savings
• Problems finding participating doctors
• Doctors failing to give card holders a discount

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Our ResearchTesting Out Medical Discount Cards
Sold Nationally

• Medical events used in research process

• Standard annual physical with Physician
• Standard annual gynecological visit with
  Gynecologist
• Initial visit to an allergist with testing for
  allergies

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28 did not accept or did not recognize
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Our ResearchTesting Out Medical Discount Cards
Sold Nationally

• Discounts varied4 to 36
• No provider gave 80 discount as 2 of 5 cards
  promised
• Discounts available to cash patients without card
• In one case, provider gave patients w/o insurance
  bigger discount than for cardholders

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Our ResearchTesting Out Medical Discount Cards
Sold Nationally
In SummaryValue?

• 4 of 5 cards offered little value
• High cost and low / no discounts
• Price for some was as high as for health
  insurance policies
• Significant time spent finding a participating
  provider

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Medical Discount Cards Future of Health Care
Financing?

• Even with a discount, 20 off 100,000 hospital
  bill is 80,000
• Can consumers afford to be without health
  insurance coverage?

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Public Policy Questions
Is product suitable for low and moderate-income
people? Can medical discount cards give people
both access to medical care and financial
security?
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Other ProblemsFraud and Scams

• Regulatory loopholes have
  created an opportunity for
  criminal behavior
• Earlier research on proliferation
  of phony insurance companies
• Affected over 200,000 policyholders
• Left over 252 million in unpaid medical bills
• shows evidence that some of the same promoters
  and operators of health insurance scams were
  getting into the business of selling discount
  cards

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Other ProblemsFraud and Scams

• They use discount cards as subterfuge
  in one of two ways
• Establish a product they call a discount
  plan that actually pays medical claims
• Subject to state insurance law
• Operates without a license
• Promoters collect monthly fees but do not
  negotiate discounts with providers

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Other ProblemsFraud and Scams

• Opportunities for marketing
  scams
• Telemarketers purport to sell discount medical
  cards get personal info from unsuspecting
  consumers then inappropriately bill credit
  cards or make bank account withdrawals
• Discount card companies bill consumers credit
  card or make bank account withdrawals after
  consumer has cancelled

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Recommendations

• Regulate companies that provide medical discount
  programs and regulate promoters
• Regulate discount cards

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Contact Information
Mila Kofman, J.D., Associate Professor
Georgetown University Box 571444 3300 Whitehaven
Street, NW Ste 5000 Washington, DC
20057-1485 202-784-4580 direct,
mk262_at_georgetown.edu, hpi.georgetown.edu,
www.healthinsuranceinfo.net
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Coletta C. Barrett Moderator

• RN, MHA
• Vice President, Mission
• Our Lady of the Lake RMC

Kenneth E. Thorpe, Ph.D. Panelist

• Professor and Chair of Health Policy and
  Management
• Emory University

Mila Kofman, J.D. Panelist

• Associate Research Professor
• Georgetown University Health Policy Institute

Stephen T. Parente, Ph.D. Panelist

• Asst. Professor, Dept. of Finance
• Deputy Director
• Medical Leadership Institute
• Carlson School of Management
• University of Minnesota

Rising Health Care Costs and Private Market
Options
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Early estimations on national take-up from 2003
MMA and future policy proposals
Funded by the Robert Wood Johnson Foundation
Health Care Financing and Organization
Initiative (HCFO) and the Department of Health
and Human Services
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Overview

• Consumer Driven Health Plan Overview
• Policy Questions
• Data Analytic Approach
• Policy Simulation Results
• Implications

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E-Commerce 1999s Vision of 2006

• 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) picking
  hospitals and physicians based on quality

• Internet versions of Medical Savings Accounts

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Reality of 2006

• 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 date on web
• Information access as seamless as credit card
  transactions

• Informed health care shoppers (patients) picking
  hospitals and physicians based on quality

• Internet versions of medical savings accounts

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Consumer Driven Health Plan (CDHP)Storyline to
Date

• Version 1.0 - Dot-com ehealth insurance
• Definity Health
• Vivius
• Lumenos

• Health market
• Destiny Health

• Version 1.5 - Me-too HRA responses
• Aetna
• Cigna

• Humana
• Blue Cross Blue Shield

• Version 2.0 - HSAs drive up demand
• 2003 MMA
• Dot-com venture capitals get their return on
  investment
• Ownership society proposals
• United Healths Golden Rule/Exante/UHC Trifecta
• The Health Partners HSA
• Fidelity, Vanguard, Merrill Lynch jumping in

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Classic CDHP ModelDefinity Health
Health Tools Resources

• 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

Definity HealthCareAdvantage
Web- and Phone-Based Tools

• Health Tools and Resources
• Care management program
• Internet enabled

1 Employer selects which expense apply toward the
Health Coverage annual deductible 2 Paid out of
employers general assets
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The Health Savings Account (HSA) Model

• HSAs legislated in MMA 2003
• Similar to Definity Health HRA design except
  consumers own the account

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Nearly National Appeal
States where the study employers 1st year CDHP
take-up was gt 5
Take-Up
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Policy Questions

• What is the expected take-up rate of HSAs in the
  individual market from the 2003 MMA?

• What is the impact of the Administrations
  proposed HSA subsidies?
• Take-up rate of HSAs
• Impact on the uninsured
• Cost of the subsidy
• What is the impact of other possible
  subsidy designs?

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Data Sources
Coinsurance

• 2002 health plan choice data from 3 large
  employers participating in a Robert Wood Johnson
  Foundation funded study on CDHPs

Employee premium
Single/Family Coverage
Income
Age
Gender
Deductible

• 2001 Medical Expenditure Panel Survey (MEPS)
• Household component
• Linked insurance component
• eHealthinsurance.com
• Individual HSA plan information

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Simulation ResultsCost Per Newly Insured
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Price Responsiveness (aka Elasticity) Estimates
Associated With CDHP Design
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Policy Implications

• People are more price responsive to more
  coinsurance than a larger deductible

More Coinsurance
Larger Deductible

• Probability of HSA take-up is positively
  correlated to income (as opposed to an HMO, which
  is usually negatively correlated)

• Implication is that lower income population need
  more inducement to take-up an HSA
• Plan design matters
• Greater take-up from a reduction in the donut
  hole than an increase in the account size

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Summary

• Untouched, the 2003 MMA HSAs will have take-up of
  3.2 million

• The 2004 Administration plan would double HSA
  take-up and reduce the uninsured by 2.9 million
  at a cost of 8 billion, an average of 2,761
  per person
• Full subsidy of premium yields best case
  reduction of uninsured 86, (23.5 million person
  reduction) at a cost of 210 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

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Questions Answers
For More Information www.ehealthplan.org or Email
sparente_at_csom.umn.edu
Rising Health Care Costs and Private Market
Options