CONSUMERDIRECTED HEALTH PLANS

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CONSUMER-DIRECTED HEALTH PLANS

• What Are Consumer-Directed Health Plans?
• What Are the Attractions of Consumer-Directed
  Health Plans? Concerns About Consumer-Directed
  Plans?
• What Does Research Tell Us About
  Consumer-Directed Health Plans?
• What Does Consumer-Directed Health Care Imply for
  Integrated Delivery Systems?

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WHAT ARE CONSUMER-DIRECTED HEALTH PLANS?

• HRA plans
• Spending account funded by the employer with
  spending decisions made by employee and unspent
  funds rolled-over to next year
• 100 preventive care coverage
• Annual deductible (larger than spending account)
  and coinsurance
• Nationwide provider access without referral
• Care management programs
• Decision support, typically through Internet

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WHAT ARE CONSUMER-DIRECTED HEALTH PLANS?

• Features of HRA vs. HSA Plan Designs
• Contributions
• HRA employer contributes to account
• HSA
• Employer or employee contributes with employee
  contribution being tax deductible
• Maximum contribution is 2000 for individual and
  5,150 for family, but cannot exceed the plan
  deductible
• To establish an HSA, individuals must have a
  health plan with an annual deductible not less
  than 1000 for individual coverage and 2000 for
  family, with maximum out-of-pocket of
  5,000/10,000
• Certain preventive services are covered in full
  and not subject to the deductible

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WHAT ARE CONSUMER-DIRECTED HEALTH PLANS?

• Withdrawals
• HRA
• Unspent account dollars can be rolled over to
  the next year to be spent only on medical
  expenses. Enrollee typically loses unspent
  balances if she/he switches plans or employers
• HSA
• Enrollee owns the account dollars, and balance
  remains under enrollee control if she/he switches
  plans or employers
• Funds can be withdrawn and spent for non-medical
  care items subject to a 10 penalty and income
  tax
• Withdrawals for medical care are not taxed

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WHAT ARE CONSUMER-DIRECTED HEALTH PLANS?

• Contrasting Features
• Portability and tax treatment makes HSAs the most
  tax-favored investment vehicle now available
  taxes are not paid on dollars going in or coming
  out
• HRAs are notional accounts in that employers do
  not transfer money to the accounts until needed.
  This is a major advantage of HRAs over HSAs for
  employers
• HSAs may be seen as attractive vehicles for
  saving for post-retirement medical care expenses,
  although present limits on contributions will
  limit usefulness for this purpose
• Because employers do not have to contribute to
  HSA accounts, HSA plans may appeal to small
  employers and individuals

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HOW DO CONSUMER-DIRECTED HEALTH PLANS WORK?

• CDHPs are marketed by virtually all major
  insurers many are acquiring start-up companies
• Definity (Twin Cities) purchased by United
  Health Group (12/04)
• Destiny Health (Chicago) owned by South African
  firm
• Lumenos (Virginia) purchased by Wellpoint
  (5/05)

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• Definity is current market leader among CDHPs
• Founded in 1998 based in Minneapolis
• Initial (23 million) and subsequent rounds (64
  million) of venture capital funding
• Offered to many high profile groups, including
  FEHBP
• Total enrollment exceeded 500,000 in 2004
• Reported financial break even 4th Q 2003

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WHAT ARE THE ATTRACTIONS OF CONSUMER-DIRECTED
HEALTH PLANS?

• CDHP attractions for employers
• Alternative for employees dissatisfied with
  managed care
• Flexibility in benefit design (for HRAs)
• Consistent with employer philosophy of putting
  more decision-making responsibility in hands of
  employees, along with more information about
  choices
• For some employers, facilitates transition to a
  defined contribution towards health benefits

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WHAT ARE THE ATTRACTIONS OF CONSUMER-DIRECTED
HEALTH PLANS?

• CDHP attractions for employees
• No restriction on access in most designs
• Lower monthly premiums (depending on benefit
  design)
• Broad provider choice
• Roll-over feature of PCAs
• Easy access to information about care alternatives

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WHAT CONCERNS ARE THERE ABOUT CONSUMER-DIRECTED
HEALTH PLANS?

• CDHPs may attract mainly the young and healthy
• CDHP consumer support tools may not be adequate
  for informed decision-making
• Consumers may not understand and appropriately
  use PCAs
• If PCA balances accumulate, consumers will have
  first dollar coverage and few incentives to
  shop for the best price (bigger issue for HRAs)
• CDHPs simply are vehicles for use by employers in
  shifting more health care costs to employees

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The Savvy Consumer?

• Financially savvy consumer calculates expected
  values for competing plan choices, and selects
  CDHP, adequately informed about its features and
  limitations
• Accesses CDHP website to compare provider price
  and quality information when seeking care
• Accesses website for disease management advice
  and pharmaceutical price data when treating
  illness

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The Savvy Consumer? (continued)

• Regularly tracks expenditures and status of
  personal care account on the internet, making
  wise trade-offs, on margin
• Coordinates spending from flexible spending
  account and personal care account
• Happily rolls forward unused dollars to reduce
  potential out-of-pocket liability in next year

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The Naïve Consumer?

• Lacking understanding of financial structure of
  CDHP relative to more traditional plans, makes
  uninformed selection of CDHP
• Lacking internet access at home, or having strong
  existing provider relationship, doesnt use
  price/quality date in selecting provider
• Is Internet illiterate, so disease management
  advice and information on pharmaceutical prices
  on CDHP website is not accessed

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The Naïve Consumer? (continued)

• Unwittingly spends money for services not
  reimbursable under personal care account
• Exhausts care account without utilizing on-line
  account manager to track expenditures
• Fails to establish flexible spending account for
  uncovered expenses
• No funds are left in personal care account at end
  of the year unhappily, total out-of-pocket
  expenditures are higher than in the past with
  less care management or coordination

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WHAT ARE THE BARRIERS TO MARKET PENETRATION BY
CONSUMER-DIRECTED HEALTH PLANS?

• Employer decisions about which health plans to
  offer occur once a year, or less frequently,
  depending on union contracts
• Most employers are hesitant to engage in total
  replacement of their health plans options with
  unproven CDHPs
• Unions typically view CDHPs as benefit
  takeaways and oppose them
• In their early stages, CDHPs may appeal to a
  limited number of adventuresome employees
• There is limited empirical evidence regarding
  consumer understanding of CDHPs or CDHP
  effectiveness

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WHAT DOES RESEARCH TELL US ABOUT
CONSUMER-DIRECTED HEALTH PLANS?

• Number of research studies is very limited given
  the early stages of CDHP development
• Who chooses CDHPs?
• Our analysis of University of Minnesota employees
  found that
• Employees were sensitive to out-of-pocket
  premiums
• The most important factor affecting choice of
  CDHP was income. Other important plan features
  were
• Access to a panel that included a desired
  provider
• Availability of a national panel of physicians
  and hospitals
• The personal spending account
• The CDHP was not disproportionately chosen by the
  young and the healthy in the first year of CDHP
  availability at the University of Minnesota
• Analysis of second year enrollment data again
  suggests higher income employees are more likely
  to choose CDHP plans, but people in poorer health
  are less likely
• Others have found that CDHPs attract a
  disproportionate share of healthy employees
• Simulations suggests young and healthy are
  potential winners in HSAs (Glied) and HRAs
  (McNeill)

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SPENDING AND SERIVCE UTILIZATION IN YEAR PRIOR TO
CDHP OFFERING

• Data from single large employer located in Twin
  Cities mean values adjusted for age, gender,
  case mix, income, number of lives in contract,
  use of flexible spending account
• Total Expenditures Per Person (unadjusted in
  parentheses)
• CDHP 4,396 (3921)
• HMO 5285 (4745)
• PPO 5228 (4671)
• Expenditures Adjusted By Service Type (hospital,
  physician, pharmacy)
• CDHP 1370, 2094, 935
• HMO 1843, 2381, 1108
• PPO 1779, 2245, 1007
• Note Employees had CDHP choice in 2001. HMO and
  PPO enrollees were continuously enrolled in these
  options from 2000-2002. CDHP enrollees were
  enrolled in CDHP from 2001-2002. Data pertain to
  2000.

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WHAT DOES RESEARCH TELL US ABOUT
CONSUMER-DIRECTED HEALTH PLANS?

• How Do Enrollees Experience CDHPs?
• Survey Data from University of Minnesota
• Telephone interviews conducted by University of
  Minnesota Human Resources employees in 2003, 2004
• Asked about experience in CDHP and in other plans
  in 2002, 2003
• 2002 Survey Highlights
• Chronically ill employees had similar experiences
  in the CDHP as did other CDHP enrollees
• CDHP enrollee ratings of the plan were similar to
  plan ratings of enrollees in other plans
• Relatively few (8) CDHP enrollees left the plan
  after one year (5 left other plans)

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Study Design (continued)

• 2003 Survey
• Response rates for 1156 sample members
• Definity respondents 563 of 633 (89)
• Other plan respondents 474 of 523 (90)
• Response rate analysis indicates no relation to
  demographic characteristics

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2003 plan options

• Health Partners HMO with direct capitation
  contracting at a limited number of group
  practices.
• Patient Choice A tiered-direct contracting
  descendent of Minnesotas Buyers Health Care
  Action Group health benefit design experiment.
• Definity Health Consumer-Driven Health Plan
• Option 1 1500 ind/3000 family deductible
  2500/5000 max
• Option 2 2250 ind/5000 family deductible
  3000/6000 max
• Both options PCA is 750 ind/1500 family
• Preferred One Preferred Provider Organization

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UPlan Options/Enrollment (2003)

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Consumer Knowledge Regarding Plan Features
(Definity Enrollees)

• Logit Analysis of Two Self-Reported Measures
• In Definity, at the start of the year
  prescription drugs are covered 100 - true/false
• In Definity, preventive care is covered 100 -
  true/false
• Both answers correct, coded 1 (291) otherwise,
  coded 0 (269)
• Descriptive Characteristics, Prior Definity
  Enrollee
• Findings No Significant Variables at 95 level
• age, age squared, female, salary/wages, contract
  type (family), number of dependents, prior health
  plan, self-reported chronic illness, self-rated
  health (excellent ? poor)

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Definity Enrollee Expectations and Experience
Regarding PCA Account Dollars

• Self-Reported Measures
• Expectations At the beginning of 2003, did you
  expect to have dollars left in your personal care
  account?
• Experience At the end of 2003, did you have any
  dollars left in your personal care account?

Experience no yes no 298 31 Expectation ye
s 89 142
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Consumer Expectations About PCA Account Dollars

• Logit Analysis of Expectation
• Descriptive characteristics, past Definity
  enrollee
• Findings
• Positively related to expected account balance
• Age (non-linear)
• Health Status (better health associated with
  expectation of positive account balance)
• Negatively related
• Family contract
• Presence of chronic disease
• Statistically significant at the 95 confidence
  level

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Consumer Experience With PCA Account Dollars

• Logit Analysis of Experience
• Descriptive characteristics, past Definity
  enrollee
• Findings
• Positively related to having account balance
• Age (non-linear)
• Health status
• Negatively related
• Presence of chronic illness
• statistically significant at the 95 confidence
  level

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HRA Population Expenditure PCA, Donut, and
Catastrophic Patterns
2003 University of Minnesota, RWJ-HCFO Study
Results Preliminary. Do not distribute.
Prevention and distribute throughout, thus
totals will not add.
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Effect of Experience with PCAs on Satisfaction
with CDHP(Definity Enrollees)

• Measure of Health Plan Satisfaction 0-10
  response options with 0 worst health plan
  possible and 10 best plan possible
• Ordinary Least Squares Regression
• Descriptive characteristics
• Previous plan
• Expectations/experience regarding dollars in PCA
• Findings Poor predictive power (R2 .05)

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Effect of Experience with PCAs on Satisfaction
with CDHP

• Findings (continued)
• Positively related to high ranking
• Presence of chronic illness
• Expecting and experiencing positive PCA balance
• Prior Definity enrollee or Choice Plus enrollee
  (compared to HP enrollee)
• Self-rated health status
• statistically significant at the 95
  confidence level

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Summary and Implications of Findings

• Consumers regard PCA accounts as a key design
  feature of CDHPs
• Consumers who place a high value on these
  accounts are more likely to choose a CDHP
• Enrollees were reasonably successful in
  predicting if they would exhaust their PCA
  dollars
• Only about half of CDHP enrollees could correctly
  assess key features of plan design relating to
  use of PCA dollars
• Enrollees who predicted, then experienced,
  positive account balances assigned higher ratings
  to the CDHP

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• How Do CDHPs Affect Health Care Expenditures and
  Service Utilization?
• Our research focused on continuously enrolled
  cohorts of employees in an HMO (POS), a PPO, and
  a CDHP for one year prior to CDHP availability
  and two years after
• We found that
• In adjusted dollars, overall CDHP cost is the
  lowest, but only after favorable expenditure
  selection
• Pharmacy expenditures are lower year-by-year for
  CDHP cohort, with difference increasing over time
• Hospital admissions and expenditures increased
  for CDHP enrollees after enrollment at faster
  rate than for other plans

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• Why We Should Be Cautious About Early Research
  Findings
• The factors influencing selection of the CDHP
  will depend importantly on the other options and
  their characteristics
• Consumer assessment of experience in a CDHP may
  depend on previous experience in other health
  plans
• The satisfaction of CDHP enrollees will depend on
  the number of other plan options and their
  ability to sort into an option that serves
  their needs

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• Why We Should Be Cautious About Early Research
  Findings
• Estimates of consumer use and consumer and
  employer costs in a CDHP depend critically on the
  benefit design
• Treatment of pharmaceuticals
• Coverage for preventive visits
• Size of the PCA relative to the deductible
• Level at which out-of-pocket limit is set
• Network restrictiveness and provider fee schedule

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WHAT DOES CONSUMER-DIRECTED HEALTH CARE IMPLY FOR
INTEGRATED DELIVERY SYSTEMS?

• If CDHPs achieve significant enrollment growth,
  what challenges are they likely to pose for IDSs
  in attracting and retaining patients?
• More broadly, if consumer-directed health care is
  the future, how is the environment for IDSs
  likely to change?

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CONTRASTING WORLDS MANAGED HEALTH CARE VS.
CONSUMER-DIRECTED HEALTH CARE

• Role MC CDC
• Plan

Provide information to facilitate provider
choice (wide open networks) Blended ffs and
P4P payment Financial incentives for consumers
to select high performing providers
Network selection (as narrow as possible)
Provider payment (discounts drive cost savings)
Network management (utilization
review, precertification, etc.)
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CONTRASTING WORLDS MANAGED HEALTH CARE VS.
CONSUMER-DIRECTED HEALTH CARE (cont)

• Role MC CDC
• Employer
• Consumer

Structure plan choice (cost drives plan
offerings) Determine contribution (limited
employee cost sharing)
Structure plan choice (fewer plans ability to
support consumerism) Determine
contribution (same contribution across plans
significant consumer cost sharing contribution
increases not tied to medical care cost increases)
Choice of provider Cost-sharing depends on
provider choice Enhanced role in care management
Choice of health plan Submit to system