An application of Albert Wong's simulated lifecycles to health savings accounts Rudy Douven (CPB, iBMG)

1. CPB Netherlands Bureau for Economic Policy Analysis Erasmus University Rotterdam An application of Albert Wong's simulated lifecycles to health savings accountsRudy Douven(CPB, iBMG) Health Savings Accounts

2. Today is Celebration time Albert Wong’s simulated life cycles will be approved!! Health Savings Accounts

3. What are simulatedhealth care lifecycles? Health Savings Accounts

4. What is so special about these cycles? • Itsnew! • We getbetterinformationabouthealth care costs • How are health care costsdistributed over the lifecycle? • Howlarge is the variation in costsamongindividuals? • Howlarge are ourfuturehealth care costs, given the past? • if we are 5, 45, 60, 90 yearsold? • Howlarge are the differencesfor different types of care? Health Savings Accounts

5. 6 different healthcategoriesforcure (and 2 for care) Health Savings Accounts

6. Application: Health savings accounts • Current research project by Rudy Douven (CPB, EUR), Remco Mocking (CPB) and Albert Wong (RIVM, UvT). • Idea project: Are health savings accounts more efficient than annual cost sharing mechanisms? Health Savings Accounts

7. Year 1: Mandatoryannualdeductible of 220 euros Ifyouneedhealth care Pricelargerthan 220 euros youpay 220 euros Ifyouneedlittleorno care Price =P < 220 euros yousave 220-Peuros whichyou put onyour bank account Health Savings Accounts

8. Year 2: exactly the samerulesapply Ifyouneedhealth care Price > 220 euros youpay 220 euros Ifyouneedlittleorno care PriceP < 220 euros yousave 220-Peuros whichyou put onyour bank account Health Savings Accounts

9. Idea of individualmandatorydeductible • Advantage: lessmoral hazard • Health care becomes more efficient • Disadvantages: lesssolidarity • Chronicillpayeveryyear 220 euros, • Healthypeoplepay (much) less • Mainquestion: • Can we improveonbothaspectswithhealthsavings accounts? Health Savings Accounts

10. How does a healthsavings account work? Ifyouneedhealth care Price > 220 euros youpay 220 euros Ifyouneed few healthorno care PriceP < 220 euros youpayX=220-Peurosinto healthsavings account Health Savings Accounts

11. Year 2: Ruleschange! Youpaid 220 euros in firstyear Ifyouneedhealth care Pricelargerthan 220 euros youpay 220 euros Youpaidlessthan 220 euros in firstyear Ifyouneedlittleorno care PriceP < 220+Xeuros totalsavings: 220+X-Peuroswhichyou put onyour bank account Health Savings Accounts

12. Idea of healthsavings accounts • More solidarity • Relativelyhealthypeoplepay money intotheirsavings account touseitiftheybecomeill later • More efficiency • Relativelyhealthypeople face higherdeductiblewhenbecomingill Health Savings Accounts

13. Expandidea of healthsavings accounts • Length of savingperiod • not 2 years, butfrom 18-65, from 0-end of life etc. • Maximum deductiblefor Health Savings Account • Whenilluseall money upon the account to a maximum amount Health Savings Accounts

14. Howeverlife is notthat easy! • Consumerswillreacton HSA´s and formexpectations • HSA´s are less efficiënt than a deductible • Ifhealth shock in period 2 is large and knowntoconsumer Idea: Consumersknowthey have tospend money in period 2 and thereforewillspend more money in period 1 as well. Health Savings Accounts

15. Crucialforevaluation HSA´s • How do individualsrespondto (large) deductibles? • someevidencefromfamous RAND experiment in the US (Newhouse, 1997) • Are consumerforwardlooking? • someevidencesaysyes: (Aron-Dine, Einav, Finkelstein, Cullen, NBER, 2012) Health Savings Accounts

16. How do individualsformtheirexpectationsonfuturehealth care costs? • etremelycomplicatedbut? WehAVE ALBERT WONG´S sIMULATED life cycles!!! Health Savings Accounts

17. 0 Simulateexpectationswith AW´s lifecycles • Individuals have perfect informationaboutfuturecosts • Individualsknow distribution of futurecosts • Chronicallyill have different expectations etc. etc. • Allowfor time preferenceforconsumerchoice • futurepayment is lessvaluablethancurrentpayment Health Savings Accounts

18. Somefirstexperimentswithoursimulation model • Setup model • Consideronlyindividualsbetween 18-65 • Perfect informationaboutfuture, time preference is 0 • Fixed premiums foreachindividual Model 1: AnnualDeductible • Deductible: 150 euros Model 2: Health Savings Account • HSA fromage 18-65 • Payment out of HSA toconsumer at age 65 • Annualpayment in HSA: 150 euros • Maximum deductible: 1000euros • Youpay OOP onlywith money in HSA Health Savings Accounts

19. A firstexample Full Insurance Deductible Health Savings Account (150 euro) (maxdeductible 1000 euro) % fixed premium = 100% 90.9% 88.0% % out of pocket payments = 0% 8.3% 11.8% % lesshealth care = 0% 0.8% 0.2% First Example: • Health savings account model lessefficientthanannualdeductible model • Solidarityunclear Health Savings Accounts

20. Future research: continue search for the holygrail: • Varywithsize of annualpaymentinto HSA • Varywith maximum deductiblesizefor HSA • Allowfornegativesavings in HSA • Vary time span of HSA • Varywithpricesensitivity effect forconsumers • Apply HSA for different agegroups • Varywith different types of care • General practicitoners • Pharmaceuticals • Hospital care • Physiotherapy etc. Health Savings Accounts

21. Health Savings Accounts