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Forecasting National Health Expenditures in a CDHC Environment
Presentation to Consumer Driven Healthcare Summit, Washington, DC
Charles RoehrigPaul Hughes-Cromwick
Stephen ParenteSeptember 14, 2006
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Outline
Background Modeling Framework Potential Impacts Current Evidence Forecasts
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Background
What do we mean by consumer driven healthcare? High deductibles with savings accounts Increasing amounts of consumer information
•Prices•Quality•Enhanced e-tools•Shared decision-making
Incentives for healthy behavior (sometimes)
Is there a way to make this work for those with low incomes?
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Background
CDHC impact on national health expenditures Near term vs. long term Direct vs. indirect
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Modeling Framework
Healthcare expenditures are determined by:
Need --- which leads to Use --- which leads to Payments
This includes the impact of technology which affects all three factors
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Modeling Framework
Population Needs
34%
19% 6% 8%
33%
36%
18% 7% 5%
35%
Use Payments
PrivatelyInsured
Under65
MedicaidMedicare
Uninsured65 and Over
59%
11% 2% 16%
12%
40%
15%
7% 3%
35%
100% 100% 100% 100%
Source: Altarum Health Sector Model (AHSM-US 2004)
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Potential Impacts
Why CDHC might reduce need:
Risky behavior since own health care $ at stake Preventive services if exempt from deductible HSA contributions tied to healthy behaviors Cultural shift driven by:
•Better information•Constant media attention to health issues
Depends upon benefit design
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Potential Impacts
Why CDHC might increase need:
Preventive services if not exempt from deductible
Reduced adherence to prescribed medications Postponement of necessary care / delayed Dx
Depends upon benefit design
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Potential Impacts
Why CDHC might reduce utilization:
Higher deductible raises price to consumer Information will increase self-care options Shared decision-making tends to reduce use
Depends upon benefit design
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Potential Impacts
Why CDHC might increase utilization:
More preventive services to avoid future costs Care is free after exceeding deductible Better access for previously uninsured
Depends upon benefit design
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Potential Impacts
Why CDHC might reduce prices paid: Individuals will shop for lower prices due to:
•Higher deductible•Better price and quality information•An environment that encourages price consciousness
Prices will fall for products/services due to:•Increased price elasticity of demand•Discounts for cash or HSA debit card payment•Long term: shift toward cost reducing innovations
Depends upon benefit design
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Potential Impacts
CDHC has the potential to affect long term trends primarily through relentless pressure on prices Current system rewards expensive innovations CDHC rewards innovations that improve value
•Lower cost ways of achieving same benefit•Same-cost ways of gaining much greater benefits
Will CDHC bargain hunters drive cost-reducing innovation? Will reduced prices simply lead to increased utilization?
What about high-cost illness?
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Potential Impacts
Population Category
Percent of Population
Percent of Spending
Per Capita Spending
Very Healthy 40% 2% $200
Somewhat Healthy 52% 43% $3,500
Chronically Ill 7% 30% $17,000
Catastrophic 1% 25% $100,000
Illustrative Privately Insured Population
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Potential Impacts
Will CDHC impact spending above the deductible?It could conceivably happen this way:
Step 1: Deductible-driven bargain hunting induces and rewards cost-reducing innovations
Step 2: These innovations are incorporated into management of spending above the deductible (tail wags the dog)
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Potential Impacts
SummaryCDCH has the potential to reduce personal health expenditures through: Reducing need Reducing utilization Reducing prices
Depends upon benefit design
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Current Evidence: Industry
Aetna•Fewer primary care visits•More specialist visits•Fewer ER visits•Fewer hospital admissions•Lower expenditure increases
Humana•Greater use of primary care and prescriptions•Less use of ER and specialists•Better adherence to maintenance medications•Overall reduction in rate of increase in expenditures
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Current Evidence: Industry
Lumenos•Increased preventive care•Reduced outpatient visits•Reduced pharmaceutical costs – more generics•Reduced cost trend•Improvements in diet and exercise
UnitedHealth Group•Increased use of preventive care•Reduced use of hospital and ER•Expenditures actually fell
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Current Evidence: Researchers
Greene•No impact on use of generics•Discontinuation of some “essential” chronic illness medications
Parente•Some reduction in pharmaceutical costs but no decline in brand
name share•Increase in hospital costs – free care after deductible
Note: plan studied was ‘generous’
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Current Evidence: Conclusions
Industry and academia differ•Academia provides details to support conclusions•Industry has not released underlying evidence
Academic research may not be representative•Mostly HRAs•Limited to a few companies and plans•Primarily ‘generous’ plans
Different CDHPs will have different impacts
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Forecasts
CDHP Enrollment Under Bush Proposal•Specifics of proposal•Minnesota enrollment estimation model•Enrollment estimates
Impact on National Health Expenditures•CDHP assumptions• Altarum Health Sector Model (AHSM)•AHSM expenditure estimates
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Bush 2006 Proposal
President’s 2006 State of the Union (SOTU) speech and explained in detail in the 2006 Treasury Blue Book. As we understand that proposal, it has three related parts:
1. Tax treatment of HDHP premiums: Individuals covered by eligible HDHP would be allowed an “above-the-line” deduction in determining their adjusted gross income. In order to further level the playing field between individual health insurance and ESI, individuals covered by eligible HDHP would receive a refundable tax credit equal to the lesser of: (1) 15.3 % of the HDHP premium or (2) 15.3% of their wages subject to employment taxes.
2. Tax treatment of HSA contributions: The amount that could be contributed before taxes to the HSA would be increased to the out-of-pocket limit for the individual’s HDHP (currently, $5,250 for single coverage and $10,500 for family coverage). In effect, this provision would make all out-of-pocket spending under the HDHP eligible for pre-tax status. In addition, individuals making after-tax contributions to the HSA would be allowed an employment tax credit similar to the premium credit described in #1 above.
3. Low-income tax credit: A refundable tax credit would be offered to low-income individuals and families for the purchase of eligible HDHP. The credit would provide a subsidy of up to 90 % of the health insurance premium, up to a maximum dollar amount, and it would be phased down to zero at higher incomes. Full details of the credit are provided in the 2006 Treasury Blue Book.
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Minnesota CDHP Enrollment Model
Estimate plan offerings using linked data
Merge employer data
Estimate hedonic premium regression
Assign plan choices to full MEPS sample
Estimate plan choice regression
Use parameter estimates to predict plan choice probabilities for MEPSRe-scale take-up rates
Define HSA plan design & premium
Simulate impact of proposed policies
Model Estimation
Choice set Assignment/Prediction
Policy Simulation
MEPSData Sources CDHPs eHealthinsurance
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Enrollment Estimates
Simple table by age and by source
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CDHP Assumptions
Assume generous plan as studied by Parente Use of Rx falls by 10% No other effects
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Altarum Health Sector Model
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AHSM Expenditure Estimates