Bargain Based?

By Nevin Adams, EBRI

Nevin Adams

My father had many admirable personality traits, but he also had his quirks. He was buying in bulk at warehouse stores well before it was “cool” to do so (and before many of the current generation of such stores existed), and he was an earlier adopter of generic food brands. And, yes, sometimes he bought generic food and paper stocks in bulk. While the quality of such offerings has doubtless improved dramatically over the years, I still shudder at the memory of my first sip of generic cola.

My childhood encounters with generic products notwithstanding, I’ve generally not been as particular about generic drugs. Oh, sure, when you have a migraine, there’s still something to be said for the confidence (if not reality) in reaching for the name brand pain reliever. But when it comes to prescription drugs, if there’s a cheaper, generic alternative, I’m generally amenable to the switch.

A greater sensitivity to cost is, in fact, one of the aspects of consumer-directed health plans (CDHP) touted by proponents, who contend that providing participants with an account and subjecting their health insurance claims to high deductibles will induce enrollees who would likely be spending more of their own money (than might be the case with traditional health coverage) to make more cost- and quality-conscious health care decisions. On the other hand, CDHP skeptics caution that these individuals lack the kind of information they need to make good decisions—and, worse, might make cost-centric choices that aren’t the best health care choices, and might even prove to be less cost-efficient (and even more expensive) over the longer term.

Using data from a large employer that implemented a CDHP, fully replacing traditional managed-care health insurance with a health savings account (HSA), new research[i], conducted through the EBRI Center for Research on Health Benefits Innovation (EBRI CRHBI)[ii], found that moving to the HSA-eligible plan reduced the number of brand name prescriptions filled. However, it also found that the move reduced the number of generic prescriptions filled. Previous EBRI research showed that while prescription drug use went down, it also resulted in decreased use of maintenance medications for chronic disease and a worsening of adherence.

As the EBRI report explains, while reductions in prescription-drug utilization can result in pharmacy expenditure savings for employer plan sponsors, increases in downstream medical costs may eclipse those benefits. In view of the potential for these kinds of unintended offsets, it notes that CDHPs and other plan designs that raise patient cost-sharing for prescription drugs might want to consider some alternative strategies that can bolster adherence and mitigate the potential impact.

Sometimes less is more – but only after you take into account all the costs. And sometimes you find that “less” is no bargain.

  • Notes

[i] “Brand-Name and Generic Prescription Drug Use After Adoption of a Full-Replacement, Consumer-Directed Health Plan With a Health Savings Account” was published in the March EBRI Notes, available online here.

[ii] The following organizations provide the funding for EBRI CRHBI: American Express, Ameriprise, Aon Hewitt, Blue Cross Blue Shield Association, Boeing, Deseret Mutual, Federal Reserve Employee Benefits System, General Mills, Healthways, IBM, JP Morgan Chase, Mercer, and Pfizer.

 

System Upgrades?

By Nevin Adams, EBRI

Adams

Adams

I recently upgraded the operating system on my iPhone. Not that that would normally be a big deal—I generally try to keep such things current, despite the occasional “bumps” that inevitably come with software upgrades. But this time the upgrade wasn’t just about improving performance and fixing issues that had been identified since the last update.  No, this one not only LOOKED different, some core functions were said to work differently—and “different” in this case appeared to be a problem for a number of users.

So, before I took the “plunge,” I spent some time trying to do some research—trying to find out what kinds of improvements I could anticipate, and to better understand the complaints associated with an upgrade from which there was, apparently, no “return.” The upgrades were readily quantified (on the vendor’s website most notably), although I think it’s fair to say they had a motivation in promoting the new system. However, most seemed to be relatively unimportant in terms of how I used, or planned to use, my device. As for the problems: Well, they were equally easy to find, but harder to quantify. And, like those product ratings on any website, were from people I did not know and whose judgments I had no particular reason to trust.

Consequently, stuck between conflicting perspectives, and seeing no particular advantage in making a change, I did what most human beings do. Nothing. Until, with my current contract expiring, I realized that the upgrade was likely to be imposed on me at that point, regardless of my preferences.

On October 1, the public marketplaces (formerly known as connectors or exchanges) associated with the implementation of the Patient Protection and Affordable Care Act (PPACA) will begin to come online—in various phases and, from what one can discern from published reports and official updates, in various states of readiness. The advantages have been outlined, as have the potential pitfalls. Doubtless the experiences will be as varied as the experience(s) and expectation(s) of the individuals involved.

However, it’s hardly a new idea. Back in 1980 the conservative Heritage Foundation began advocating that the Federal Employee Health Benefit Program (FEHBP—a marketplace for multiple insurers and scores of plan options) become a model for expansion of health coverage through an individual mandate. Today, simply telling those in Washington, DC, that “the marketplaces are just a version of FEHBP” brings an immediate understanding of the concept.

A year ago, EBRI published an Issue Brief that outlined the issues related to private health insurance exchanges, possible structures of an exchange, funding, as well as the pros, cons, and uncertainties to employers of adopting them. That report contained a summary of recent surveys on employer attitudes, as well as some changes that employers have made to other benefits that might serve as historical precedents for a move to some type of defined contribution health benefits approach. It is a report that provides both current analysis alongside a historical perspective—a resource for those looking to better understand and plan for the potential changes ahead.¹

That said, when Paul Fronstin, EBRI’s director of Health Research and the EBRI Center for Research on Health Benefits Innovation, updates the information in the future, he may well call them marketplaces, unless the name “upgrades” again in the weeks ahead!

Notes

¹ See “Private Health Insurance Exchanges and Defined Contribution Health Plans: Is It Déjà Vu All Over Again?” online here.

You can find a catalogue of recent EBRI research on PPACA and its potential impact on employment-based health benefits online here.

Cost Conscience

By Nevin Adams, EBRI

Adams

Adams

In about a month my eldest will be setting up a new home in a different state. It won’t be her first time living in another state, and it won’t be her first apartment. It will, however, be her first apartment as an entrant into the full-time career workforce, and so the criteria—and budget—are quite different than our past experience(s). And while she’s done a great job of constructing a budget (including savings), I can’t help but notice that she also spends “her” money a little differently than when Dad was footing the bill.

My daughter’s spending inclinations aren’t unusual, of course. As parents we tried to give our kids a sense of the cost of things, certainly as they grew older. There were, however, plenty of times over the years we didn’t share that information, either because it wasn’t important, or, in some cases, because we didn’t want them to make a decision based solely on price.

There’s a similar logic afoot with consumer-driven health plans (CDHPs). Advocates of these programs¹ contend that providing participants with an account and subjecting their health insurance claims to high deductibles will induce enrollees who would likely be spending more of their own money (than might be the case with traditional health coverage) to make more cost- and quality-conscious health care decisions. On the other hand, CDHP skeptics caution that these individuals lack the kind of information they need to make good decisions—and, worse, might make cost-centric choices that aren’t the best health care choice, and might even prove to be less cost-efficient (and even more expensive) over the longer term.

In one of the first studies of its kind, EBRI has analyzed detailed claims data over a five-year period from a large Midwestern employer that adopted a high-deductible health plan with a health savings account (HSA) for all employees in place of its traditional health care offering. The research, published in the July EBRI Issue Brief,² found that in this case, where the HSA plan was the only type of health plan the employer offered, the HSA reduced the plan’s total health care spending by 25 percent in the first year ($527 per person in the aggregate). Moreover, the cost savings continued over the succeeding three years—albeit at a slower pace.

The study also found that each category of health spending experienced statistically significant reductions in the first year of the HSA plan, with the exception of spending on inpatient hospital stays. Spending on laboratory services and prescription drugs had the largest statistically significant declines (36 percent and 32 percent, respectively). Indeed, reductions in pharmacy spending were large and mostly sustained over the four years after the HSA was adopted. In the first year of the HSA, pharmacy-spending reductions were 40–47 percent for individuals in all but the highest quintile of spending.

There are some limitations to what can be inferred from this particular study, which focused on the experience of a single large employer, and participants with continuous coverage throughout the study period, among other things. While it did not allow for distinguishing utilization of discretionary from necessary services, the data suggest that the highest users were least affected and that moderate users were most vulnerable. If the cost savings trends don’t necessarily speak to the quality of those health care decisions, the report clearly adds to the consumer-directed-health-plan literature, and our understanding of how these programs can influence cost and utilization—information that is essential to our understanding of the value of account-based, high-deductible plans.

After all, when you don’t know the cost of something, it’s hard to appreciate the value.

Notes

¹ A recent EBRI report notes that employers have now been using CDHPs for over a decade. In 2012, 22 percent of smaller employers, 36 percent of larger employers, and 59 percent of jumbo employers offered some form of a CDHP, and nearly 1 in 5 workers were enrolled in one.

² “Health Care Spending after Adopting a Full-Replacement, High-Deductible Health Plan With a Health Savings Account: A Five-Year Study” is available online here.

”Charge” Accounts

By Nevin Adams, EBRI

Adams

Adams

I was a late convert to the convenience of NetFlix, and while I appreciated the convenience of delivery, when they expanded the offering to include online movie viewing “at no additional charge,” I didn’t really “get” it. Aside from the fact that, at that time, my DVD player wasn’t wireless compatible, the selection (certainly in those early days) was unremarkable at best. In fact, I remember telling a friend once that the online movies were free, and worth every penny.

The quality and breadth of selection improved over time, until of course, there came that fateful decision to charge a fee for that online movie access separate and apart from the home DVD delivery. All of a sudden, a service that had been a nice-to-have “at no additional charge” had to be viewed through a whole new prism―it was now a benefit with a cost.

Under the Patient Protection and Affordable Care Act (PPACA), group health plans that offer dependent coverage are required to extend coverage to workers’ children until they reach age 26, regardless of student status, marital status or financial support by the employees. It has been estimated that 3.1 million young adults have acquired health coverage as a result of the adult-dependent mandate (ADM) provision, and overall, 31 percent of employers enrolled adult-dependent children as a result of the mandate, according to a recent EBRI report (online here).

However, under PPACA, employers are not allowed to directly charge higher premiums for the cost of this “adult-dependent” coverage. An EBRI analysis of the experience of a single large employer during the period Jan. 1, 2010, through Dec. 31, 2011, found that nearly 700 adult children enrolled in the employer plan in 2011 as a result of the adult dependent mandate―and this group used about $2 million in health care services in 2011 (about 0.2 percent of the over $1 billion in total spending on health care services by that employer that year).

The EBRI report also looked at the claims behaviors of the ADM group compared with a group of dependent children ages 19–25 that were covered prior to Jan. 1, 2011, some 13,000 young adults. Both groups had health coverage for the entire 2011 calendar year through the employer examined in this study. Average spending in the ADM cohort was higher: 15 percent higher than the comparison group, in fact. While the period of review was short, and the experiences associated with that of a single large employer, the ADM group used more inpatient services than the comparison group, and, in what is perhaps the most interesting finding of the analysis, were more likely to incur claims related to mental health, substance abuse, and pregnancy.

So, while this adult-dependent coverage is currently offered “at no additional charge” (certainly for those already carrying family coverage), there are almost certainly additional costs―costs that employers and workers will (and indeed already have begun) to share through claims payments, cost sharing, and worker premiums.

Of course, as a result of this expanded coverage, there also are individuals who might otherwise not have the benefit of the coverage, either because they wouldn’t have access, or would find it to be prohibitively expensive―and this coverage might well be less expensive than the alternative consequences. Little wonder that the debate continues as to whether the provisions of PPACA will serve to increase or decrease long-term health care spending trends.

It will be interesting to see how the health care spending trends of this younger demographic change over time, and how employers respond. It also underlines the importance of ongoing research on these spending and usage patterns as implementation of the PPACA proceeds, even as it serves to remind us that there can be a difference between no additional charge, and no additional cost.

Most Workers Would Look for Alternatives if Health Benefits Are Taxed

What if Congress decides to start taxing workers’ health benefits as a means to raise revenue as part of an effort to rein in the federal deficit? More than half of American workers would either switch to a less costly plan, shop around, or drop coverage, according to new research from EBRI.

The 2012 EBRI/MGA Health Confidence Survey (HCS) finds that if current tax preferences were to change and employment-based coverage became taxable to workers, 26 percent would want to switch to a less costly plan, 21 percent say they would want to shop for coverage directly from insurers, and 9 percent say they would want to drop coverage altogether.  However, nearly 4 in 10 (39 percent) individuals say they would continue with their current level of coverage, up 10 percentage points from last year’s HCS findings.

While changes resulting from the Patient Protection and Affordable Care Act (PPACA) have raised concerns as to whether employers will continue to offer health coverage in the future, the 2012 HCS finds that health benefits remain a key a factor for workers in choosing a job, and health insurance in particular continues to be—by far—the most important employee benefit to workers.

“Most Americans are satisfied with the health benefits they have now and prefer not to change the mix of benefits and wages,” said Paul Fronstin, director of EBRI’s health Research and Education Program and author of the report. “About three-quarters say they are satisfied with the health benefits they currently receive, while 15 percent say they would trade wages to get more health benefits, and 9 percent say they would surrender health benefits for higher wages.”

Full results of the 2012 Health Confidence Survey are published in the December 2012 EBRI Notes, “Views on Employment-Based Health Benefits: Findings from the 2012 Health Confidence Survey,” online at www.ebri.org

The HCS examines a broad spectrum of health care issues, including Americans’ satisfaction with health care, confidence in the future of the nation’s health care system and the Medicare program, as well as their attitudes toward certain aspects of health care reform.

Notes.Dec12.HCS.Fig5

Consumer-Driven Health Plan Participants More Cost-Conscious

Adults in a consumer-driven health plan (CDHP) were more likely than those in a traditional plan to exhibit a number of cost-conscious behaviors, according to new research from EBRI.

While CDHP enrollees, high-deductible health plan (HDHP) enrollees, and traditional-plan enrollees were about equally likely to report that they made use of quality information provided by their health plan, CDHP enrollees were more likely to use cost information and to try to find information about their doctors’ costs and quality from sources other than the health plan, according to the report. Moreover, CDHP enrollees were more likely than traditional-plan enrollees to take advantage of various wellness programs, such as health-risk assessments, health-promotion programs, and biometric screenings. In addition, financial incentives mattered more to CDHP enrollees than to traditional-plan enrollees.

More Americans are continuing to enroll in so-called “consumer-driven” health plans: In 2012, 12 percent of the population was enrolled in a CDHP, up 3 percentage points from last year, according to the new EBRI research, while enrollment in so-called “high deductible” health plans was unchanged, at 16 percent, EBRI found. HDHPs have lower premiums but higher deductibles (at least $1,000 for employee-only coverage) than traditional health plans.

“It is clear that the underlying characteristics of the populations enrolled in these plans are different,” noted Paul Fronstin, director of EBRI’s Health Research and Education Program and author of the report. “Adults in a CDHP were significantly more likely to report being in excellent or very good health, and they were significantly more likely to exercise.” He noted that those in a CDHP and those in a HDHP were significantly less likely to smoke than were adults in a traditional plan—and that CDHP and HDHP enrollees were also more likely than traditional-plan enrollees to be highly educated.

The full report is published in the December EBRI Issue Brief, online at www.ebri.org

Self-Insured Health Plans Growing, Driven by Large Employers

Large private-sector employers are driving a trend toward more “self-insured” health plans, according to a new report by EBRI.

Among employers that offer health coverage to their workers, there are two basic types of insurance plan:

* A self-insured plan, in which the employer assumes the financial risk related to health insurance; or

* A fully insured plan, in which an insurance company is paid to assume the risk.

Historically, large employers have been far more likely to self-insure than have been small employers, the EBRI report notes, and there are significant incentives for them to do so: Large multi-state employers can provide uniform health benefits across state lines if they self-insure (lowering administrative costs) and also are not required to cover state-mandated health care services—as are fully insured plans.

Following the passage and implementation of the Patient Protection and Affordable Care Act (PPACA), there has been speculation that an increasing number of smaller employers would opt for self-insurance. As the EBRI report explains, some employers think that components of PPACA, such as the strict grandfathering requirements, the minimum-creditable-coverage requirement, the breadth of essential health benefits, affordability requirements, as well as taxes on insurers, medical-device manufacturers, and pharmaceutical companies and reinsurance fees will work to drive up the cost of health coverage.

“Employers generally, and small employers particularly, concerned about the rising cost of providing health coverage may view self-insurance as a better way to control expected cost increases,” notes Paul Fronstin, director of EBRI’s Health Research and Education Program and author of the report. “This new analysis provides a baseline against which to measure future trends.”

Among the findings of the EBRI report:

  • The percentage of workers in private-sector self-insured health plans has been increasing. In 2011, 58.5 percent of workers with health coverage were in self-insured plans, up from 40.9 percent in 1998. To date, large employers (with 1,000 or more workers) have driven the upward trend in overall self-insurance. The percentage of workers in self-insured plans in firms with fewer than 50 employees has remained close to 12 percent in most years examined.
  • Massachusetts, the only state to have enacted health reform similar to PPACA, has seen an increase in the percentage of workers in self-insured plans among all firm-size cohorts, except among workers in firms with fewer than 50 employees.
  • Overall, 58.5 percent of workers were in self-insured plans in 2011, but the percentage ranged by state, from a low of 30.5 percent to a high of 73.8 percent.

Full results are published in the November 2012 EBRI Notes, “Self-Insured Health Plans: State Variation and Recent Trends by Firm Size,” online at www.ebri.org