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Stephen T. Parente , Ph.D., University of Minnesota Funded by the Robert Wood Johnson Foundation

What is the Impact of the Internet on Medical Care Use and Cost? Implications of Value Based Benefit Design from a Consumer Driven Health Plan. Stephen T. Parente , Ph.D., University of Minnesota Funded by the Robert Wood Johnson Foundation Health Care Financing and Organization Initiative.

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Stephen T. Parente , Ph.D., University of Minnesota Funded by the Robert Wood Johnson Foundation

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  1. What is the Impact of the Internet on Medical Care Use and Cost? Implications of Value Based Benefit Design from a Consumer Driven Health Plan Stephen T. Parente, Ph.D., University of Minnesota Funded by the Robert Wood Johnson Foundation Health Care Financing and Organization Initiative. March, 2007

  2. Presentation Overview • A Conceptual Model for Effect of Internet Use on Medical Care Demand within a Consumer Driven Health Plan for Value Based Purchasing • Descriptive Statistics from one Large CDHP • Empirical Study • Results • Implications • SOTU 2007 Bush Proposal Simulation – NEW!

  3. A Conceptual Model of the Impact of CDHP Internet Search on Medical Care Demand Medical Care Demand Get CDHP Knowledge No Demand Health plan-related Internet Search Medical Care Demand Don’t get CDHP Knowledge No Demand 1st Stage 2nd Stage 3rd Stage

  4. How Has the Internet Been Used in a CDHP? Descriptive Statistics from a CDHP • How many CDHP members go online? • Who uses the health plan web site? • What are members looking at the web site?

  5. What is the Impact of the CDHP Web Portal Use on Total Expenditure?

  6. Do members use their health plan website for health information?

  7. Who uses the health plan web site? Family is the unit of analysis

  8. What are members looking at? 2004 data; Family is the unit of analysis

  9. Research Questions • What is the Impact of the CDHP Web Portal Use on Total Expenditure? • What is the Impact of Pharmacy Web Information on Rx Expenditure? • What is the Impact of Active Monitoring of Personal Care Account (PCA) on Spending?

  10. What is the Impact of the CDHP Web Portal Use on Total Expenditure? More Internet Users Have Higher Costs, Controlling for Illness!

  11. What is the Impact of Pharmacy Web Information on Rx Expenditure?

  12. What is the Impact of Pharmacy Web Information on Rx Expenditure? More Internet Users Have Lower Rx Costs, Controlling for Illness!

  13. What is the Impact of Active Monitoring of PCA on Spending?

  14. What is the Impact of Active Monitoring of PCA on Spending? $$ Activation MAY lead to Higher Costs, Controlling for Illness!

  15. Implications • Use of the Internet by CDHP subscribers may be associated with moral hazard in all cases examined, except pharmacy. • The value of the Internet transparency as the enabler of a lower-cost ‘Consumer-driven’ health plan is not clear. • Value-based benefit design could have significant unintended consequences. • Incentives need to developed better before there is unmitigated transparency.

  16. “But what do you have that is really current?”To be presented:President Bush’s 2007 State of the Union Health Insurance Proposal Impact from ARCOLA model

  17. 2004 State of the Union Estimates

  18. 2007 State of the Union Estimates $???,???,???,???.00

  19. SOTU 2007 • A tax deduction of $7,500/$15,000 – but you have to have health insurance to get the deduction • Health insurance premiums will be taxable (equal tax treatment of individual and ESI (employer sponsored, a.k.a. group, premiums) • Complicated incentives created by SOTU cannot be modeled by existing economics studies

  20. Simulations • Using a micro-simulation model, we predicted the effect of 2007 SOTU on health insurance take-up and costs • Background: Our model predicted the take-up of HSA plans in the individual market quite accurately (Parente, Feldman et al, 2005) • Population: adults aged 19-64 who are not students, not covered by public insurance, and not eligible for coverage under someone else’s ESI policy • Baseline uninsurance: 27.3 million people • Hold onto your hats…

  21. Results • Uninsurance is reduced from 27.3 million to 7.1 million (a reduction of 20.2 million) • Annual cost of $204 billion: • $104 billion subsidy to the individual market • $265 billion subsidy to the ESI market with offsetting tax recovery of $165 billion Source: Steve Parente and Roger Feldman, ‘ARCOLA’ simulation model, SParente@csom.umn.edu and feldm002@umn.edu

  22. Impact of Current Proposal

  23. Why? • Tax subsidy is quite large, even for low-income workers • Individuals are sensitive to the prices of different types of health insurance: • Individual HSA policies will increase from 3.1 to 10 million and low-option PPOs from 6 to 19.4 million • The subsidy covers the full cost of these policies for many people • The ESI market is not hollowed out, but expensive PPO plans will disappear

  24. Summary of 2007 SOTU Effect • Could be the most comprehensive US health insurance market proposal ever on both the tax treatment of insurance AND reducing the uninsured by 82% to less than 10 million.

  25. For more information on our researchPlease visit:www.ehealthplan.orgThank You!

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