Early Experience of Employees with a Consumer-Driven Health Plan

1. Early Experience of Employees with a Consumer-Driven Health Plan Stephen T. Parente, Ph.D., Jon B. Christianson, Ph.D., Roger Feldman, Ph.D. Presented at the Academy Health Annual Research Meeting June 27, 2003 Carlson School of Management,University of Minnesota sparente@csom.umn.edu

2. Presentation Objectives • Describe the CDHP business model. • Illustrate the mechanics of a CDHP using Definity Health as an example. • Provide an Overview of our RWJ evaluation of Definity. • Present preliminary results from our employee survey. • List the policy opportunities and conundrums of CDHPs. • Outline the next steps in our analysis.

3. Patients Dissatisfaction with provider access Patient incentives are to consume Limited choices of benefits and providers Combative relationship with managed care companies Providers Loss of autonomy Erosion of physician/patient relationship Misalignment of physician reimbursement and incentives Employers Plan costs are increasing Employees are not happy Increase of employer administration burdens Issues Driving CDHP Creation

4. CDHP Business Enablers • ‘Ready to Lease’ Components of Health Insurance: • Electronic claims processing • National panel of physicians • National pharmaceutical benefits management firms • Consumer-friendly health data web portals • Disease management vendors • Internet • Transaction medium for claims processing • 2-way communication with members • ERISA-exemption • Lack of state oversight • Half the US commercial health insurance market is self-insured.

5. Early CDHPs in Operation • Definity • Concept developed in 1998, Funded in April, 2000 • Minnesota based • Clear first mover & dot-bomb survivor • Lumenos • Started in 2000 • Based in Virgina • Havard B-School inspired (Regina Herzlinger) • Destinty • Operating as Medical Savings Account model • In operation for 10 years in South Africa

6. Health Toolsand Resources Health Coverage $$ Annual Deductible Definity HealthCareAdvantage Web- and Phone-Based Tools Preventive Care 100% Annual Deductible Definity Health Component Details • Personal Care Account (PCA) • Employer allocates PCA1 • Member directs PCA • Section 213(d) “scope” • Roll over at year-end • Apply toward deductible2 • Health Coverage • Preventive care covered 100% • Annual deductible • Expenses beyond the PCA • Nationwide provider access • No referrals required PCA • Health Tools and Resources • Care management program • Extensive easy-to-use information and services 1 Employer selects which expense apply toward the Health Coverage annual deductible. 2 Paid out of employer’s general assets.

7. Health Toolsand Resources Health Coverage $$ Annual Deductible Definity HealthCareAdvantage Web- and Phone-Based Tools Preventive Care 100% Annual Deductible How Definity Health Works • Members use the PCA—provided by their employer—to pay for healthcare expenses throughout the year • Covers traditional services • May cover non-traditional services • Unused balance rolls over at year-end—motivates saving Member Responsibility Preventive Care expenses are covered 100%—encourages healthy lifestyles PCA Healthcare expenses that exceed the PCA are covered under Health Coverage—offers security to members Member Responsibility—creates true “consumer thinking”

11. 2001 Aon (pilot group) Medtronic (pilot group) Ridgeview Medical Center 2002 Aon (rollout) Dade Behring Inc. Hannaford Brothers Co. Medtronic (rollout) Raytheon Textron University of Minnesota Wise Business Solutions, Inc. Broadband/Video Service Co. ECS Designer/Manufacturer Charter Communications Budget Inc. Medical Products Co. Definity Market Penetration

12. 2003 Definity Experience

13. New RWJ-Funded ResearchKey Research Questions 1. Is there an ‘adverse selection’ problem? Traditionally, adverse selection is defined as the situation when healthy individuals choose Definity leaving the sick in a traditional plan that will soon implode its premiums because of disproportionate share of sick individuals in the insurance pool. 2. Is there a moral hazard problem? Moral hazard is a situation where an insured individual perceives the cost of seeking a insured service to be less than the actual cost of the service, thus increasing the demand for the service.

14. A Question of Adverse Selection • Is this really an adverse selection problem? • If so, why? • If not, are there situations where it might be? • How would it be detected?

15. A Question of Moral Hazard • Can Definity generate a moral hazard problem? • If so, why? • If not, are there situations where it might be? • How would it be detected?

16. Research Design • 2 Year study (11/1/2002 - 10/31/2004) • Six employers examined: • University of Minnesota, MN • Medtronic, National • Ridgeview Medical Center, MN • Budget Rent a Car, National • Hannaford Bros, New England • To be Named (New England or South Atlantic firm) • Data collected • Claims data of all utilization for all health plan choices, pre (2001) and post (2002-2003) Definity. • Employer info on flexible spending accounts and employee income • Survey information on Definity choices in 2002 & 2003 from U of M.

17. Focus on University of MinnesotaPreliminary Results from the Survey • Survey goals: • Record taste for health plan features and general experience data. • Obtain Definity-specific feature experience data. • Survey administered in April to June 2003, to report on 2002 health plan experience. • 503 Non-Definity Health Plan respondents (73.3% response rate) • 433 Definity Health Plan respondents (62.6% response rate) • Interviewers were University human resource staff trained specifically for this research project.

18. UPlan Options/Enrollment

19. 2003 Premium Contributions

20. Early UM Definity ExperienceYear 2002

21. Definity Age/Gender Distribution2002 University of Minnesota

22. All RespondentsSatisfaction with Plan

23. Definity RespondentsUse of Internet Tools

24. Health Plan Features Most PreferredDefinity Health Plan Members Only

25. Health Plan Features Most Preferred

26. Usual Source of Care andChronic Illness

27. Health Plan Benefit Knowledge

28. Illustrative Comments “Prescription co-pays were very nice because they were taken out of PCA” “Simple to use PCA, great flexibility” “Customer service was excellent and didn’t get passed to many different people” “Kept getting billed for preventive care services – huge nuisance to get fixed.” “They were very helpful, courteous, good personal service. Website was very up-to-date.” “Unable to access web site even with help from customer service.”

29. Policy Opportunities • Innovative means to bring consumer choice into the medical marketplace as well as consumer awareness of the trade-offs of liberal medical insurance coverage policies. • Creates foundations for infrastructure for personal, portable health care coverage. • Hybrid variants could be crafted to serve low income and part time workers. • Provides consumers and providers with an alternative to more restrictive managed care.

30. Policy Conundrums • How does a employer-based personal care account move with an employee? • What if ERISA is modified to doom the current CDHP practice? • How should CDHPs be treated in the non-ERISA marketplace? • What if CDHPs accelerate the consumer’s burden of health care spending ‘too’ quickly?

31. Next Steps • Collect and analyze claims data and employee records • Examine plan choice and selection issues • Examine effect on cost and utilization • Employer, health plan and human resource consultant interviews • Second year of survey for 2003 experience and/or 2004 health plan choices. • New result venues: • HCFO meeting on CDHPs in DC, 9/15/2003 • AEA meeting in January, 2004