Stephen T. Parente Roger Feldman Jon B. Christianson Funded by the Robert Wood Johnson Foundation

1. What is the Impact of the Internet on Medical Care Use and Cost? New Findings from a Consumer Driven Health Plan Stephen T. Parente Roger Feldman Jon B. Christianson Funded by the Robert Wood Johnson Foundation Health Care Financing and Organization Initiative. June, 2005

2. Presentation Overview • 1999 Dreaming: The Internet and “eHealth Plans” • 2005 Reality: Health Plan Web Portals • A Conceptual Model for Effect of Internet Use on Medical Care Demand within a Consumer Driven Health Plan • Research Questions • Study Setting & Data • Statistical Modeling Using Instrumental Variables • Results • Implications

3. 1999 Vision of E-Commerce in 2005 • $250 billion of the New Health Economy would be e-commerce (e.g., mostly e-prescribing). • Ubiquitous electronic health records • Providers access/enter data on web • Patients access/enter data on web • Information access as seamless as credit card transactions • Informed health care shoppers (patients) pick hospitals and physicians based on quality. • Internet-enabled medical savings accounts.

4. Reality of 2005 • $250 billion of the New Health Economy would be e-commerce (e.g., mostly e-prescribing). • Ubiquitous electronic health records • Providers access/enter data on web • Patients access/enter data on web • Information access as seamless as credit card transactions • Informed health care shoppers (patients) pick hospitals and physicians based on quality. • Internet-enabled medical savings accounts.

5. Consumer Driven Health Plan (CDHP)Storyline to Date • Version 1.0 – Dot-com ehealth insurance (1998-2004) • Definity Health • Vivius • Lumenos • Healthmarket • Destiny Health • Version 1.5 – ‘Me-too’ HRA responses (2003-2005) • Aetna • Cigna • Humana • Blue Cross Blue Shield • Version 2.0 - Health Savings Accounts drive up demand (2003-on) • 2003 MMA • Dot-com venture capitalists get return on their investment • “Ownership society” proposals • United Health’s Golden Rule/Exante/UHC Trifecta • “The Health Partners HSA” • Fidelity, Vanguard, Merrill Lynch looking to jump in

6. What is the Relationship Between the Internet and CDHPs? • Early CDHP developers made new and innovative use of the Internet a key part of their business plan. • Primary selling point #1: Better informed consumers/patients will be more knowledgeable purchasers of medical care. • Primary selling point #2: Giving consumers an incentive to evaluate the price of medical care goods will make them even more engaged. • Proposed outcome: e-health plans will lead to more cost-effective health care consumption. • Previous research by Baker, Bundorf & Wagner (2003) suggests consumers actively seek information on the web. The key question is whether information-seeking affects demand.

7. 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?

8. Study Setting • University of Minnesota’s CDHP Plan: Definity Health • Years Studied: 2002 and 2003 • Data – Unique combination of: • Two telephone surveys (Spring, 2003 & Spring, 2004) • Claims data from 2002 and 2003 for CDHP enrollees • Human resources records for all employees • Study size: 565 continuously employed workers in 2002 and 2003. • Take-up of CDHP approximately 4% in 2002 and 7% in 2003. • Other plan choices were: (HMO: 51%, PPO: 13%, Tiered: 29%) • General caveat: ONE Employer’s experience can be quite different due to: • Alternatives offered • Plan design • Communications with employees • Sponsor’s objectives for the plan

9. 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

10. Econometric Approach • Objective: Estimate impact of CDHP web portal use and CDHP benefit knowledge on medical care demand. • Issue: Internet use and benefit knowledge are likely to be endogenous to medical care demand. • Approach: Use an instrumental variables approach similar to work by Parente, Salkever and DaVanzo (2005) where benefit knowledge for one type of medical service (e.g., flu shot) was instrumented by benefit knowledge of another service (e.g., mammography) and general benefit knowledge. • Instrument candidates used in this analysis: • Overall university health plan benefit knowledge • Have a usual source of medical care • Like to have a plan with online tools • Are concerned with out of pocket expenses • Instruments must be correlated with Internet use or benefit knowledge, but must not affect medical care demand. • Used two-stage lease squares with tests for over-identification.

11. Econometric Model of Three Stages • Internet usei = f(agei, genderi, incomei, health statusi, prior health plani,t-1, information preferencesi, eii) • Knowledgei = f(Ineti, agei, genderi, incomei, health statusi, prior health plani,t-1, other knowledgei,,,e21) • Medical Care Demandi = f(Ineti, Knowledgei, agei, genderi, incomei, health statusi, prior health plani,t-1,,,e31)

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

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

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

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

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

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

18. Summary of Results • No statistically significant impact of general CDHP web site use on medical care demand. • CDHP subscribers with higher benefit knowledge may consume more medical resources. Results differ depending on case-mix method used (survey-based methods show results and claim-based methods do not). • Consumer use of CDHP pharmacy Internet tools is associated with a substantial reduction in pharmacy expenditure. • Consumers who have money left in their PCA are less likely to examine their accounts. • Consumers who actively monitor their PCA balances are much more likely to exceed their deductible.

19. Implications • Use of the Internet by CDHP subscribers appears to be associated with moral hazard in all cases examined, except pharmacy. • The value of the Internet as the enabler of a lower-cost ‘Consumer-driven’ health plan is not clear. • May need long-term data to see if what seems like moral hazard may be cost-savings in the long run (e.g., 5 years out).

20. Next Steps • Work with the CDHP to get actual consumer web site behavior as substitutes and possible complements to the survey data. • Identify more opportunities to apply 3-stage conceptual model: I-net info  knowledge  demand. • Refine econometric model to identify other relationships between the CDHP web site use and demand for medical care as recorded in claims data. • Extend this work to more specific study populations in larger employers, particularly to subscribers with chronic illnesses and special medical needs.

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