Health Savings Accounts and the Health Care Delivery System
Health Care Forecast Conference February 25, 2005
Professor James C. Robinson University of California, Berkeley
OVERVIEW
The four functions of health coverage Efforts to manage the four functions Health Savings Accounts Why now?
I. The Four Functions of Health “Insurance” Coverage
Health coverage is not really insurance It serves four distinct functions Sponsors are unbundling these functions and seeking to perform them in ways that generate less moral hazard To date: partial success, partial failure
The Four Functions
1. 2. 3. 4. ill
Catastrophic coverage Incentives for preventive services Wholesale pricing Income redistribution from healthy to
1. Catastrophic Coverage
Unpredictable, high-cost medical needs are “insurable events” Catastrophic coverage with (very) high deductible protects assets, saves lives, and induces only limited moral hazard Insurance coverage does not cause people to demand a liver transplant
2. Incentives for Preventive Services
Some preventive/primary services are desirable for all and low-cost
Vaccines, pap smears, child wellness visits
Health benefits encourage their use
A hallmark of managed care
Contrast with auto insurance, which excludes oil changes (indemnity model)
3. Wholesale Pricing
Health coverage typically limits prices paid to providers and producers
Managed care contracting Medicare/Medicaid administered pricing
These price discounts are of value even for services under the deductible No one wants to pay retail
4. Income Redistribution from Healthy to Sick
Need for non-preventive, noncatastrophic services is highly skewed but usually is quite predictable (esp. for chronic illness) Coverage is mechanism for transferring funds from the healthy to the ill Especially important for chronic illness Unfortunately, this induces moral hazard, as there is much discretion
II. How Health Plans Seek to Manage the Four Functions
Health plans and employers seek to reduce the cost of providing the four functions These efforts cross all product designs, albeit in somewhat different ways Health plans seek alternative to HMO Donut-hole HSA designs are the most radical reconfiguration of the functions
1. Catastrophic Coverage
Although coverage does not influence the medical need for catastrophic services, it can influence the cost of that care Health plan strategies to manage that cost:
PPO networks Centers of excellence Case management
PPO Networks
Even for catastrophic coverage, it is important for plans to have contracted networks, not any-willing-provider
Modest unit price discounts in PPO Fee schedule rather than UCR Lays basis for pay-for-performance Modest requirements for utilization review
Centers of Excellence
For very high cost, variable-outcome services (transplantation) insurers channel enrollees to high volume, pricediscounted regional “centers of excellence” This now is spreading to tertiary services
Open heart, bariatric surgery No or only very limited coverage outside
Case Management
Patients with catastrophic conditions suffer from fragmented, noncoordinated care Health plans offer case management programs to bridge gaps Participation is voluntary but often comes with better coverage, help in navigating PPO, COE networks
2. Incentives for Preventive Services
Health plans and employers seek to expand, not limit, use of selected services
First-dollar coverage, no deductible
These services are either (1) clinically effective and cost-effective and/or (2) strongly influence worker recruitment, productivity, return from disability
Examples of Coverage Incentives
First-dollar coverage for preventive services, exempt from deductible WLP: two covered PCP visits/year Jack-in-the-Box: $300 per year HSA designs (more on this later)
3. Wholesale Pricing
Insurers seek steep discounts off retail for all professional, hospital, drug services Discounts depend on local market share
Major incentive for insurer consolidation Providers fight back by provider consolidation
Government uses DRG, RBRVS etc. Success of Blue plans largely driven by
Wholesale Pricing without Insurance
Enrollees benefit from price discounts even when paying personally for care
Payments under deductible Payments under coinsurance provisions
Health plans are offering non-insured but discounted networks (complementary medicine, vision, psychotherapy, etc.) Discounts are available even if employee must pay entire premium (e.g., for dependents)
4. Health Coverage as Income Redistribution
The skewed distribution of nonpreventive, non-catastrophic services poses the greatest challenge for the design of coverage Exclusion of these services from coverage is punitive for the chronically ill Inclusion in coverage fuels moral hazard
Evidence-Based Medicine
Effectiveness and cost-effectiveness of care could be increased if services were fully covered for those who would benefit greatly, partially covered for those who would benefit somewhat, and not covered for those unlikely to benefit This was the principle of managed care…
Disease Management
Managed care backlash forbids strong application of EBM to coverage policy DM programs must be voluntary, though with incentives to participate (lower copay) They are focused at patient, not physician, behavior change Health plans do DM because most providers have no chronic illness programs
Provider Tiers and Sub-Networks
Health plans seek to identify costeffective providers and create incentives (lower cost sharing) for enrollees to use them
Tiers: Hospitals, specialists, IPAs Mild form of narrow networks
Carve-outs and sub-networks for specialty services (psych, PT/OT, lab, radiology) Sub-networks for high cost specialties?
IV. The Four Functions in DonutHole Products
1. 2. 3. 4.
Catastrophic coverage Incentives for prevention Wholesale pricing Income redistribution: chronic care
1. Catastrophic Coverage
Donut hole designs all have catastrophic coverage with high deductible
Minimum of $1K, and rising to $5K
Almost all rely on PPO, not AWP networks, even for above-deductible services Almost all use COE for transplant, etc. Almost all offer case management
2. Incentives for Preventive Services
All donut-hole designs impose a large deductible but offer first-dollar coverage for selected high-value services
Vaccines, etc.
Some offer first-dollar coverage for limited number of PCP visits These do not count towards deductible
3. Wholesale Pricing
All donut-hole designs rely on contracted networks to achieve wholesale pricing, even for services paid out-of-pocket by enrollee
Early rhetoric of return to retail pricing is over For this reason, large incumbent insurers will dominate these products, at expense of startups
Aetna, Humana, Blues,
4. Income Redistribution from Healthy to Ill
The “health savings account” is designed to cover non-catastrophic, non-preventive services while minimizing moral hazard “Use it or save it” v. “Use it or lose it” Enrollee/consumer, not health plan, gets to define which services are “needed”
Most HSA products offer DM programs
IV. Why Donut Hole Designs Now?
Donut hole designs are a regulatory (Medicare) and market response to:
Continuing low-value care (variation in practice patterns, quality deficiencies, cost inflation) Backlash against government regulation Backlash against managed care
Virtues of Donut-Hole Designs
It is imperative that Americans come to realize that priority-setting is essential, that someone else cannot and will not pay for everything some doctor and patient want Donut-hole designs increase costsensitivity while substantially improving over traditional high-deductible designs But…
Consumerism by Default
Government, employers, insurers, providers have all been burned in effort to set priorities, impose limits/budgets/priorities Donut hole puts the consumer/patient in position to set priorities, self-limit care But offer inadequate information, decision-support, subsidies for sick and poor
No Incentives for Delivery Reform
Donut hole designs perform adequately for catastrophic coverage, prevention incentives, wholesale price discounts Perform poorly in financing chronic care Perform very poorly in providing stimulus for reforming delivery system to be able to support chronic care delivery