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					Rising Health Care Costs
          and
Private Market Options
    Coletta C. Barrett           RN, MHA
                                 Vice President, Mission
          Moderator               Our Lady of the Lake RMC


Kenneth E. Thorpe, Ph.D.Professor and Chair of Health
                      
                        Policy and Management
            Panelist              Emory University

    Mila Kofman, J.D.            Assistant Research Professor
                                  Georgetown University Health
            Panelist              Policy Institute

Stephen T. Parente, Ph.D.Asst. Professor, Dept. of Finance
                       
                        Deputy Director
            Panelist              Medical Leadership Institute
                                 Carlson School of Management
                                  University of Minnesota

       Rising Health Care Costs and Private Market Options
Health Care Spending
 Role   of prevention…
Overview
 Crafting effective health reform
  solutions requires a clear
  understanding of what accounts
  for the growth in spending
 Key “facts” from the US context…
       80% of total health care spending
        linked to chronically ill patients
       Chronically ill receive approximately
        55% of all clinically recommended
        medical care
       Rise in prevalence of treated disease
        accounts for nearly two thirds of the
        growth in health care spending
Overview
   Rise in obesity prevalence in U.S.
    accounted for 27% of the growth in
    health spending over the past 20 years
   Substantial dollar volume rise in
    spending linked to modifiable
    individual risk factors
   Current cost containment initiations
    and debate largely ignore the central
    role of prevention
       We will not “solve” the spending
        growth through a singular focus on
        health insurance redesign

         HSAs         Higher co-pays
Implications
 Most policy discussion on reform has
  focused on insurance benefit design
  and reforms
 This ignores the underlying issues…

                         Clinically
         Rising
                         effective
       population
                       treatment of
      prevalence of
                      chronically ill
         disease
                         patients
   Health Care Spending
                             • More than 80% on
100%                            Behalf of Those
       16%      6                With Chronic
       12%      5                 Conditions

       16%      4
       18%      3              80%

       21%      2
       17%      1
 0%
           Number of
        Chronic Conditions
Why Does Real Per
Capita Health Spending
Rise Over Time?




   Rise in treated          Rise in spending per
    disease prevalence        treated case




                         Both
 Key Single Largest Driver of
 Health Care Spending Over Time
            Rise in Treated Disease Prevalence
               Linked to the Rise in Obesity
      Accounts for 62% of Rise in Per Capita Spending
25%
            Heart Disease      Depression
20%         Diabetes           High Blood Pressure
            Cancer             Back Problems
15%

10%

5%

0%
      '91    '92   '93   '94   '95   '96   '97   '98   '99   '00   '01
 Percent Privately Insured Population Treated
 By Medical Condition … 1987 - 2002


Medical Condition                     1987 %   2002 %
Mental Disorders                       4.7%    11.0%
Hyperlipidemia                         1.4%     7.4%
Hypertension                           9.3%    12.0%
Diabetes                               2.4%     4.0%
Pulmonary Conditions (OPD, Asthma)     9.3%    17.7%
Lupus/Other Related                    4.2%     6.5%
Arthritis                              4.6%     7.6%
Back Problems                          4.6%     8.1%
Upper GI                               2.6%     7.0%
Kidney Problems                        0.7%     1.3%
Similar Results for Medicaid
Most Growth Enrollment Driven


             Prevalence of Treated Disease
Medical Condition            1987            2002
Pulmonary Disorders         14.2%            19.8%
Mental Disorders             6.2%            16.3%
Hyperlipidemia               0.5%            3.5%
Bone/Osteoporosis            0.6%            2.9%
Diabetes                     4.8%            5.9%
What Accounts For The Rise In
Treated Disease Prevalence?

  Rise in Population Disease Prevalence
   …fueled by obesity and other risk factors
  Changes in threshold for treating
   asymptomatic patients (hypertension,
   hyperlipidemia, metabolic syndrome)
  Innovation (SSRI, statins, medical devices)
Changes In Obesity Prevalence
1978 - 2000

 60%
                            49.6%
 50%          1978
              2000
                                           38.9%
 40%
               31.1%    31.0%
 30%                                   26.6%

 20%    15.1%
 10%

  0%
              Total    Black Females    Hispanic
                                        Females
Changes In Obesity Prevalence
1978 - 2000


 18%
              1978             15.8%
 16%
              2000
 14%
 12%
 10%
  8%                 6.5%
  6%
  4%
  2%
  0%
                        Children
Key Single Largest Driver of
Health Care Spending Over Time
        Rise in Treated Disease Prevalence
           Linked to the Rise in Obesity

% Change in Spending Over Time, 1987-2002
Rise in Obesity Prevalence Holding      = 11%
Technology Constant

Rise in Additional Cost Of Treating     = 16%
Obese vs. Normal Weighted Patients

TOTAL                                   = 27%
Rapid Rise In Treated Disease
Prevalence Among Obese!

 6 or More Medical Treated Conditions During Year

30%
         Obese                           25.0%
25%
         Morbidly Obese
20%                              15.5%
                 13.6%
15%
          8.7%
10%
5%
0%
             1987                    2002
Implications
Slowing The Growth In Spending


     Key Issues … slow rise in treated
      disease prevalence through…
         Slowing the rise in obesity prevalence
          among children and adults
         Need to broaden discussion of reform to
          include primary care, primary prevention
              Should be a center piece of any
               reform proposal
Implications
Slowing The Growth In Spending


   Policy Tools …
       School-based interventions (both calories
        and intervention)
       New and effective health promotion, wellness,
        disease prevention programs available for all
        adults … perhaps a universal wellness and
        health promotion benefit for all
       Financial incentives to participate
Summary

   Changes outlined herein require fundamental
    restructuring of U.S. health care system
   Attacking key drivers of rising spending
   How to treat chronically ill patients
   Develop national strategy for addressing rise in
    treated disease prevalence
   Devote resources to developing effective health
    promotion, wellness programs for use in
    schools, and the worksite
    Coletta C. Barrett           RN, MHA
                                 Vice President, Mission
          Moderator               Our Lady of the Lake RMC


Kenneth E. Thorpe, Ph.D.Professor and Chair of Health
                      
                        Policy and Management
            Panelist              Emory University

    Mila Kofman, J.D.            Associate Research Professor
                                  Georgetown University Health
            Panelist              Policy Institute

Stephen T. Parente, Ph.D.Asst. Professor, Dept. of Finance
                       
                        Deputy Director
            Panelist              Medical Leadership Institute
                                 Carlson School of Management
                                  University of Minnesota

       Rising Health Care Costs and Private Market Options
Discount Medical Cards
What They Are

   Promise a discount…
       From all types of providers, including
        specialists and hospitals
       On all types of services
          Doctor Visits
          Lab Work
          Surgical Procedures

   Companies offering discount
    medical cards do not pay
    medical claims of enrollees
    (unlike health insurance)
Discount Medical Cards
How They Work

   Consumer pays monthly fee ranging from
    $12.99/month to $99.95/month for a single person
       Plus a non-refundable administrative fee as high as
        several hundred dollars

   Company typically requires consumer to
    pre-pay for care and services prior to or
    at the time of visit
       Credit card payments
       Auto debits from bank account
       Escrow account
Marketing
   Discount card companies use marketers to sell
    (few are licensed insurance agents)
   Sales mostly done through multi-level “network
    marketing”…similar to pyramid marketing
      Significant price differences for same program
   Promoters are not licensed
    or regulated                                 $120.00
       Few if any standards
       High-pressure sales tactics
       Misleading or false             $54.95
        information
       Use TV, radio, internet, fax,
        email, telemarketing to sell
Marketing
   Associations            Have affiliated with
   Retailers                 discount card
   Credit card                 programs

   Even churches are not immune
       Pastor in Illinois sold discount medical
        cards to his parishoners
Marketing Insurance Buzz Words
     “Every one is accepted regardless
      of past medical history”
     “No underwriting”
     “100% approval”
     “No one can turn you down
      because you’re too sick or too old”
     “No exclusions for preexisting
      conditions”
     “No medical forms to fill out”
Discount Medical Cards Growing
                        Why?
   High prices and limited access to private health
    insurance coverage
   Small businesses & individuals have enrolled
    (dropping their health insurance due to price hikes)
   Consumers who are
    uninsurable enroll             Everyone
                                 Low monthly
                                You cannot be
                                    accepted
                                       No
                                rates100% of
                                       for those
                                  turned down
                                 regardless
                                 Underwriting
                                    Approval
                                  with medical
                                       medical
                               because you are
                                 past
                                   conditions!
                                      or too
                                sickhistory old!
Demographics and Data
   No data on number of medical discount card
    enrollees or demographic data on enrollees
   One large company reports…
      680,000 enrolled in physician discount program
   Another large company reports re: discount medical
    card program…
      81,000 enrollees
      $39.3 million in revenue
         Uninsured
         Underinsured
         People with high deductible or limited benefit
          medical insurance policies
Our Research (Funded by Commonwealth Fund)
Testing Out Medical Discount Cards Sold Nationally
   Identified nearly 30 cards
       Most were excluded from research because…
          Disconnected phone number
          No discounts in Washington DC area
          Not open for new enrollment
          Turned out to be an ad for health insurance

   Enrolled and tested 5 cards
       General findings…
          High pressure sales tactics
          Promoters making misleading or inaccurate
           statements about nature of product
          Exaggerated claims of savings
          Problems finding participating doctors
          Doctors failing to give card holders a discount
Our Research
Testing Out Medical Discount Cards Sold Nationally

   Medical events used in research process…
       Standard annual physical with Physician
       Standard annual gynecological visit with Gynecologist
       Initial visit to an allergist with testing for allergies
           50
           45
           40                44
           35            contacted
           30            28 did not
           25            accept or
           20              did not
           15            recognize
           10
            5
            0
Our Research
Testing Out Medical Discount Cards Sold Nationally


        Discounts varied…4% to 36%
        No provider gave 80% discount
         as 2 of 5 cards promised
        Discounts available to cash
         patients without card
            In one case, provider gave patients
             w/o insurance bigger discount than
             for cardholders
Our Research
Testing Out Medical Discount Cards Sold Nationally

               In Summary…Value?

         4 of 5 cards offered little value
         High cost and low / no discounts
             Price for some was as high as for
              health insurance policies
         Significant time spent finding a
          participating provider
Medical Discount Cards…
Future of Health Care Financing?


        Even with a discount, 20% off
         $100,000 hospital bill is $80,000

        Can consumers afford to be without
         health insurance coverage?
Public Policy Questions


     Is product suitable for low and
        moderate-income people?

    Can medical discount cards give
     people both access to medical
      care and financial security?
Other Problems
Fraud and Scams

   Regulatory loopholes have
    created an opportunity for
    criminal behavior
   Earlier research on proliferation
    of phony insurance companies
       Affected over 200,000 policyholders
       Left over $252 million in unpaid medical bills
    …shows evidence that some of the same
    promoters and operators of health
    insurance scams were getting into the
    business of selling discount cards
Other Problems
Fraud and Scams

   They use discount cards as
    subterfuge in one of two ways…
    1.   Establish a product they call a
         “discount plan” that actually pays
         medical claims
            Subject to state insurance law
            Operates without a license
    2.   Promoters collect monthly fees but do not
         negotiate discounts with providers
Other Problems
Fraud and Scams

     Opportunities for
      marketing scams…
         Telemarketers purport to sell
          discount medical cards … get
          personal info from unsuspecting
          consumers … then inappropriately
          bill credit cards or make bank
          account withdrawals
         Discount card companies bill
          consumer’s credit card or make
          bank account withdrawals after
          consumer has cancelled
Recommendations
      Regulate companies that provide
       medical discount programs and
       regulate promoters
      Regulate discount cards

  Even with changes and better regulation, it is
 unlikely that medical discount cards will be the
   answer for the uninsured and underinsured
                problem in the U.S.

 Medical discount cards alone do not and could
 not provide health security or even access to
             needed medical care
  Contact Information

Mila Kofman, J.D., Associate Professor
        Georgetown University
              Box 571444
3300 Whitehaven Street, NW Ste 5000
      Washington, DC 20057-1485
         202-784-4580 direct,
       mk262@georgetown.edu,
         hpi.georgetown.edu,
     www.healthinsuranceinfo.net
    Coletta C. Barrett           RN, MHA
                                 Vice President, Mission
          Moderator               Our Lady of the Lake RMC


Kenneth E. Thorpe, Ph.D.Professor and Chair of Health
                      
                        Policy and Management
            Panelist              Emory University

    Mila Kofman, J.D.            Associate Research Professor
                                  Georgetown University Health
            Panelist              Policy Institute

Stephen T. Parente, Ph.D.Asst. Professor, Dept. of Finance
                       
                        Deputy Director
            Panelist              Medical Leadership Institute
                                 Carlson School of Management
                                  University of Minnesota

       Rising Health Care Costs and Private Market Options
        Health Savings Accounts:
Early estimations on national take-up from
   2003 MMA and future policy proposals




 Funded by the Robert Wood Johnson Foundation Health Care Financing and
Organization Initiative (HCFO) and the Department of Health and Human Services
Overview

    Consumer Driven Health Plan Overview
    Policy Questions
    Data & Analytic Approach
    Policy Simulation Results
    Implications
E-Commerce
1999’s Vision of 2006
   $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) picking
    hospitals and physicians based on quality
   Internet versions of Medical Savings Accounts
Reality of 2006

   $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 date on web
       Information access as seamless as credit card transactions
   Informed health care shoppers (patients) picking
    hospitals and physicians based on quality
   Internet versions of medical savings accounts
Consumer Driven Health Plan (CDHP)
Storyline to Date

  1998       99      00      01       02    03         04   05…
      Version 1.0 - Dot-com ehealth insurance
          Definity Health           Health market
          Vivius                    Destiny Health
          Lumenos

      Version 1.5 - “Me-too” HRA responses
          Aetna                     Humana
          Cigna                     Blue Cross Blue Shield
      Version 2.0 - HSAs drive up demand
          2003 MMA
          Dot-com venture capitals get their return on investment
          Ownership society proposals
          United Health’s Golden Rule/Exante/UHC Trifecta
          “The Health Partners HSA”
          Fidelity, Vanguard, Merrill Lynch jumping in
    Classic CDHP Model
    Definity Health
                                                                 Health Tools
                                                                 & Resources
   Personal Care Account (PCA)
        Employer allocates PCA1
        Member directs PCA
                                                                  Health




                                                                                Preventive Care 100%
        Roll over at year-end                                   Coverage
        Apply toward deductible2                $$
                                                                  Annual
   Health Coverage                                              Deductible




                                                   Annual Ded.
        Preventive care              Definity                                                         Web- and
         covered 100%                  Health                      PCA                                  Phone-
                                        Care                                                            Based
        Annual deductible           Advantage                                                           Tools
        Expenses beyond
         the PCA
   Health Tools and Resources
        Care management program
        Internet enabled
1 Employer selects which expense apply    toward the Health Coverage annual deductible
2 Paid out of employer’s general assets
    The Health Savings Account (HSA) Model


   HSAs legislated in
    MMA 2003                                     Health




                                                             Preventive Care 100%
                                                Coverage
   Similar to Definity Health   $$
    HRA design except                            Annual
    consumers own the                           Deductible




                                  Annual Ded.
    account
                                                  HSA
Nearly National Appeal
   States where the study employers’
    1st year CDHP take-up was > 5%


                                 Take-Up
                                   >5%
                                   0.1 - 5%
                                   0%
Policy Questions

    What is the expected take-up rate of HSAs in
     the individual market from the 2003 MMA?
    What is the impact of the Administration’s
     proposed HSA subsidies?
        Take-up rate of HSAs
        Impact on the uninsured
        Cost of the subsidy
    What is the impact of other possible
     subsidy designs?
Data Sources
                                      Coinsurance
    2002 health plan choice
                             Single/Family     Employee
     data from 3 large         Coverage        premium
     employers participating
     in a Robert Wood           Income              Age
     Johnson Foundation
                                Gender        Deductible
     funded study on CDHPs
    2001 Medical Expenditure Panel Survey (MEPS)
        Household component
        Linked insurance component
    eHealthinsurance.com
       Individual HSA plan information
  Simulation Results:
  Cost Per Newly Insured

                     Estimated     Total Estimated     Per
                    reduction in    Annual Cost       Capita
                     uninsured                         Cost
Administration’s     2,924,949      $8,075,081,354    $2,761
Proposal (Sim#1)
Low-income Buy-In    4,495,887     $12,219,668,960    $2,718
(Sim#2)
Full subsidy        12,819,856     $69,214,319,880    $5,399
(Sim#3)
Full subsidy        23,507,540     $211,118,893,800   $8,981
Generous HSA
(Sim#3a)
Full subsidy Non-    3,143,487     $11,234,374,714    $3,574
working (Sim#4)
Price Responsiveness (aka Elasticity)
Estimates Associated With CDHP Design


PriceVariable                                       Elasticity
Tax adjusted Employee Premium in $1,000               -0.9213
Employee's Health Account in $1,000                   0.0885
∆ Between Deductible and Health Account in $1,000     -0.2430
Coinsurance (e.g., 15% = .15)                         -0.5405
Policy Implications

   People are more price
    responsive to more
    coinsurance than a             More               Larger
    larger deductible           Coinsurance         Deductible
   Probability of HSA take-up is positively
    correlated to income (as opposed to an HMO,
    which is usually negatively correlated)
   Implication is that lower income population
    need more inducement to take-up an HSA
   Plan design matters
       Greater take-up from a reduction in the donut
        hole than an increase in the account size
Summary
   Untouched, the 2003 MMA HSAs will have
    take-up of ~3.2 million
   The 2004 Administration plan would double HSA
    take-up and reduce the uninsured by ~2.9
    million at a cost of ~$8 billion, an average of
    $2,761 per person
   Full subsidy of premium yields best case
    reduction of uninsured 86%, (~23.5 million
    person reduction) at a cost of ~$210 billion
    annually, an average of $8,981 per person
   Offering a free HSA to the non-working, non-
    public population reduces the uninsured, but
    less efficiently than income targeted subsidies
       Questions & Answers
            For More Information
            www.ehealthplan.org
                     or
                  Email…
          sparente@csom.umn.edu

Rising Health Care Costs and Private Market Options

				
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