Consumer-Driven Health Plans: Early Cost & Use Evidence with a Focus on Pharmaceuticals

1. Consumer-Driven Health Plans:Early Cost & Use Evidence with a Focus on Pharmaceuticals Stephen T Parente Jon B ChristiansonRoger Feldman August, 2004

2. Questions to be Addressed • What is the impact of CDHP on total cost? • What is the impact of CDHP on pharmacy cost? • Is there a general pharmacy utilization effect? • Is there a specific pharmacy utilization effect? • Therapeutic groups • Brand vs. generic • Chronic patients • Is there a CDHP pharmacy consumer price effect?

3. 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

4. 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

5. 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.

6. Health Coverage $3,000 Annual Deductible $1,500 Preventive Care 100% Annual Deductible CDHP Pharmacy Expenditure Model:Chuck’s Story THREE: 7/5/04: After Chuck Jr.’s fall and $500 of Rx and medical care, Rx is now paid with a 10% co-insurance until 1/1/2005. TWO 4/18/04: 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 1/1/04 to 4/17/04: 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.

7. Study Hypotheses • Greater price sensitivity in a CDHP than 3-tier plan • Incentive to conserve $$ if healthy • Incentive to seek best price for Rx if chronically ill to use all PCA $$ ‘cost-effectively’ • More generic use in CDHP than 3-tier • No change in price elasticity for specific drugs between CDHP and 3-tier

8. Study Setting • Large employer that offered HMO and PPO in 2000-2002 and introduced CDHP in 2001 • Variation in cost sharing by contract • Take-up of CDHP approximately 15% • General caveat: Employer’s experience can be quite different due to: • Alternatives offered • Plan design • Communications with employees • Sponsor’s objectives for the plan

9. Presentation of Results • Results are limited to three groups of employees who worked for the firm continuously for three years (2000-2002) where: • Employee chose the CDHP in 2001 and 2002 • Employee chose another health plan in 2001 and 2002. • This limitation removed 40% to 50% 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: CDHP ‘maturation’ year

10. Impact of CDHP on pharmacy cost 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’ expenditures.

11. Is CDHP general pharmacy use different? 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 experience.

12. Is CDHP general pharmacy use different? • CDHP cohort has lower pharmacy use over time than PPO, but higher than HMO. • CDHP cohort has lowest pharmaceutical expenditure over time. • Consumer-driven component could work for pharmacy.

13. Is pharmacy use different by the ‘Top 10’ therapeutic drug groups? 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 prescription drug experience.

14. Is brand name pharmacy use different for CDHP enrollees? 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 prescription drug experience.

15. Is there a difference in pharmacy use for CDHP patients with chronic conditions? 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 prescription drug experience.

16. Are there more specific differences in CDHP pharmacy use? • CDHP population has no major difference in the distribution of therapeutic groups. • The CDHP & HMO had consistent increases in both generic and brand name drugs; whereas the PPO had across-the-board decrease in 2002. • The CDHP chronic condition cohort had initial higher drug use in 2001, but a decrease in 2002. • The biggest decrease in chronically ill patient drug use occurred in the PPO.

17. CDHP Specific Drug Case Studies:Lipitor & Viagra 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 prescription drug experience.

18. Does CDHP affect use and patient expenditure for popular Rx? • Lipitor • HMO and PPO: Use goes up as price goes up • CDHP: Decrease in patient price accompanied by a small increase in Lipitor use • Viagra • HMO and PPO: Use also increases with price • CDHP: Viagra use increases, but the out of pocket expense is nil, suggesting that it may be purchased explicitly from the PCA or after the deductible is met.

19. Summary • Early evidence suggests overall costs in CDHP are less than a PPO by the second year, but greater than an HMO. • CDHP pharmacy expenditures are less than HMO and PPO. • CDHP pharmacy use largely similar to other health plan types. • CDHP chronic condition cohort drug use is a mixed story – initial increase followed by decrease in 2nd year. • Brand name drug use higher in CDHP, but overall cost is lower. Suggests 3-tier model may not be very effective in comparison if pharmaceutical expenditures are less and brand consumption is higher. • Demand for specific drugs may not respond to price in PPO and HMO

20. Next Steps • Examine other employers’ data for comparison. • Examine employers willing to provide more than two years of data to see longer-term CDHP effects. • Get other CDHPs for comparison data (e.g., Lumenos, Aetna, United Healthcare’s iPlan). • Examine specific chronic illnesses where drug consumption is critical to treatment (e.g., depression, heart disease, epilepsy).