Health Savings Accounts: Assessing their impact on Insurance and Coverage Costs

1. Health Savings Accounts:Assessing their impact on Insurance and Coverage Costs Stephen T Parente Roger Feldman Jean Abraham Jon B ChristiansonFunded by the Robert Wood Johnson Foundation Health Care Financing and Organization Initiative (HCFO) and the Department of Health and Human Services

2. Presentation Overview • Consumer Driven Health Plan Overview • Research Questions • Data & Analytic Approach • Plan Choice Estimation Results • Policy Simulation Results • Implications • Next Steps

3. Health Toolsand Resources Health Coverage $$ Annual Deductible Definity HealthCareAdvantage Web- and Phone-Based Tools Preventive Care 100% Annual Deductible ‘Classic’ CDHP Model – Definity Health • Health Reimbursement Account (HRA) • Employer allocates HRA1 • Member directs HRA • Roll over at year-end • Apply toward deductible2 • Health Coverage • Preventive care covered 100% • Annual deductible • Expenses beyond the HRA HRA • 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 employer’s general assets.

4. Health Coverage $$ Annual Deductible Preventive Care 100% Annual Deductible The Health Savings Account (HSA) Model HSAs legislated in MMA 2003. Pretty similar to Definity Health HRA Design except the consumers owns the account. HSA

5. Economic Analysis Motivation • ‘Donut hole’ and savings account are new ‘prices’ to consider in the demand for health insurance with expected negative and positive responses, respectively. • Price sensitivity to different benefit options (i.e., premium, account, donut, coinsurance) could significantly affect take-up of CDHPs. • Builds on existing literature of high deductible health plans (HDHPs) (Keeler, Newhouse, Phelps, 1977). HSAs introduce a new kink in the budget constraint.

6. Money b a CDHP Budget c Coinsurance Plan Budget Medical Care Low Use Medium Use High Use Conceptual Model of CDHP

7. Data Sources • 2002 health plan choice data from 3 large employers participating in a Robert Wood Johnson Foundation funded study on CDHPs • Employee premium, deductible, coinsurance, worker’s age, gender, wage income, single/family coverage • 2001 Medical Expenditure Panel Survey (MEPS) • Household Component • Linked Insurance Component • eHealthinsurance.com • Individual HSA plan information

8. Plan Choice Model Analytic Approach • Plan Choices: HMO, 3 PPOs (low, medium, high), 2 CDHPs with Health Reimbursement Accounts (low and high) • Utility-maximization assumption where Uhj = aj + Zj + Xhj + ehj • Estimate a conditional logit model of plan choice using the pooled, employer data • Explanatory variables • Plan attributes (Z) • Annual tax-adjusted employee premium ($1000s dollars) • Savings/reimbursement account size ($1000s dollars) • Donut hole: difference between annual deductible and account size ($1000s dollars) • Coinsurance rate (i.e., .10 = 10% coinsurance) • Interactions between employee and plan attributes (X) • Age, female, wage income, family contract • Plan-specific constants (aj )

9. Plan Choice – Descriptive Statistics

10. Price elasticity estimates from the plan choice model

11. Policy Simulations • Baseline take-up of HSAs from the Medicare Modernization Act of 2003 • Simulation (1): Bush Administration’s proposal • Refundable tax credit up to 90% of premium; maximum of $1000/adult, $500/child (up to two) • Subsidy for singles with no dependents phased out at $30,000 adjusted gross income and $60,000 for families • Simulation (2): Low income buy-in subsidy • Simulation (3): Full subsidy of HSA premium • Simulation (3a): Full subsidy of HSA premium for “generous” HSA policy • Simulation (4): Full subsidy of HSA premium for the non-working, non-public insurance population

12. Cross price-elasticity* of uninsured take-up with respect to HSA premium subsidy *Calculated as the MEPS survey-weighted average of each person’s: -(pr uninsured|status quo - pr uninsured|Δ HSA premium) * (HSA premium @status quo/pr uninsured|status quo)

13. Cross price-elasticities of uninsured take-up with respect to “donut hole” and account

14. Cost per newly insured

15. Policy Implications • Take-up elasticity comparisons • -.3 to -.4 in the non-offered population (Marquis et al, 2004) – Ours are similar. • Take-up elasticity increases as income increases. This contrasts with the literature. Why? • 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.

16. Summary • Premium, coinsurance and Donut can and ALL should be modeled when looking at CDHPs. • They different effects • Policy proposals will need to consider price effects to develop effective welfare improving social policy.

17. Next Steps Refine the model to account for the following: Individual-level vs. Household-level Premium inflation assumptions Examine impact of other policy proposals and/or HSA plan designs on take-up. Look at HSA take-up versus retirement saving choice.

18. Thank YouFor more information go to:www.ehealthplan.orgor email sparente@csom.umn.edu

19. Backup

20. Price-Sensitivity Estimates from the Literature • Take-Up • Non-offered population [Marquis and Long, 1995; Marquis et al. 2004] • -.3 to -.4 • Offered population [Chernew et al., 1997; Shiels et al., 1999; Blumberg et al., 2001; Gruber and Washington, 2005] • -.01 to -.2

21. Impact of the Simulations by Income

22. SIM Prep3 -Simulation Calibration • Applied CDHP employer plan choice model estimates to predict probabilities of plan choices for MEPS sample respondents • Model Calibrations • % of adults who turn down employer offers by income quartile • % of adults in the individual market who are uninsured by income quartile • Applied national weights to the calibrated model to represent the population 19-64, excluding full-time students, those enrolled in public insurance, and non-offered dependents with employer coverage through their spouse • Approximately 121.5 million adults

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

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

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