“Free” Money?

Nevin AdamsBy Nevin Adams, EBRI

While I appreciate the convenience of gift cards, giving them always feels a bit lazy. As a recipient, however, I very much appreciate the flexibility and the freedom to buy, within the limits of the card, pretty much anything—sometimes things for which I wouldn’t even have thought to ask much less buy for myself. And, arguably, in at least a couple of cases, things I SHOULDN’T have bought, and probably wouldn’t have bought, if it hadn’t felt like “free” money.

That very human inclination to spend our own money more judiciously than what we are given underpins the growing interest in consumer-directed health plans, such as the now decade-old health savings account (HSA), or its slightly older cousin, the health reimbursement arrangement, or HRA[i]. Both are designed to provide workers the ability to pay for health care-related expenses with funds drawn from the account – and yet, EBRI’s 2013 Consumer Engagement in Health Care Survey (CEHCS)[ii] found evidence that adults with an HSA were more likely than those with an HRA to exhibit a number of cost-conscious behaviors related to use of health care services.

Specifically, the analysis found that those with an HSA were more likely than those with an HRA to:

  • report that they asked for a generic drug instead of a brand name (52 percent HSA vs. 49 percent HRA);
  • check the price of a service before getting care (41 percent HSA vs. 34 percent HRA);
  • ask a doctor to recommend less-costly prescriptions (40 percent HSA vs. 38 percent HRA);
  • develop a budget to manage health care expenses (32 percent HSA vs. 22 percent HRA); and
  • use an online, cost-tracking tool provided by the health plan (27 percent HSA vs. 21 percent HRA).

Moreover, the 2013 CEHCS also found that adults with an HSA were more likely than those with an HRA to be engaged in their choice of health plan, when they had a choice. They were, according to the analysis, more likely to report that they had talked to friends, family, and colleagues about the plans; used other websites to learn about health plan choices; and were more likely to have consulted with both their employer’s HR staff and an insurance broker to understand plan choices, among other things.

HRAs and HSAs are very similar, so why might those differences in behavior occur between those covered by the two plan types? Consider that an HRA is an employer-funded health plan that reimburses employees for qualified medical expenses, in contrast to the HSA, which can have both employer and employee contributions. HRAs are generally “notional” accounts maintained by the employer, and while funds unspent at the end of each year can be carried over for future use, that option is at the employer’s discretion.

On the other hand, and as the EBRI report notes, an HSA is owned by the individual and is completely portable, with no annual “use-it-or-lose-it” rule. Additionally, those who do not use all the money in their HSA during their working years can use it to pay out-of-pocket expenses after they retire.

Said another way, for most people the HSA balance probably feels like it is “their” money[iii], and they spend it accordingly, while their HRA feels more like a gift card with an expiration date. It’s certainly not “free” money, but it may feel that way to them.

  • Notes

[i] Overall, 26.1 million individuals with private insurance, representing 15 percent of the market, were either in an HRA or an HSA-eligible plan.  See “Who Has “Consumer-Driven” Health Plans?

[ii]Consumer Engagement Among HSA and HRA Enrollees: Findings from the 2013 EBRI/Greenwald & Associates Consumer Engagement in Health Care Survey,” is published in the June EBRI Notes here.

[iii] In many cases it is, of course, literally funded by their contributions.

“Reference” Points

Nevin Adams

Nevin Adams

By Nevin Adams, EBRI

We started setting money aside for our children’s college education relatively early, but as they began actually considering their options, it was clear that our savings wouldn’t be enough to cover the expense at some of the schools on their lists. Moreover, while all three wouldn’t all be in college at the same time, there was enough overlap to make it “complicated.”

While we didn’t want to limit our kids’ college choices, we had certain real world constraints—and so we told them how much we could contribute to their college expenses, and that they were free to make up the difference between that figure and the actual expense of the college they chose through their own work, scholarships, and/or debt. As a practical matter, defining our “contribution” may have taken some options off their lists, but, certainly in hindsight, it seemed to give them focus and some real-world context—a reference point—for one of the biggest financial decisions of their lives.      

Employers have been interested in and have tried to implement the “defined contribution” concept for health benefits in a number of different ways. The Revenue Act of 1978 started it with Sec. 125 and flexible spending accounts and “cafeteria plans.” A recent EBRI Issue Brief outlines some of the more recent history, the introduction of health reimbursement arrangements (HRA) in 2001, health savings accounts (HSA) in 2004, and the more recent trend toward private health insurance exchanges, where employers provide a fixed amount of money for workers to use toward the cost of health coverage.

However, the primary focus of the report is another defined contribution approach called reference pricing (RP), under which plan sponsors either pay a fixed amount or limit their contributions toward the cost of a specific health care service. If a plan member chooses a health care provider or service that costs more, he or she must pay the difference in price. Reference pricing is receiving more attention and consideration today because of growing plan sponsor interest in managing health care costs, but the approach is still relatively new; in 2012, 11 percent of employers with 500 or more workers were using some type of RP, and another 16 percent were considering it.

How might such an approach impact cost? EBRI’s analysis indicates that the potential aggregate savings could reach $9.4 billion if all employers adopted reference pricing for the health care services examined in the paper, some 1.6 percent of all spending on health care services among the 156 million people under age 65 with employment-based health benefits in 2010.

As the report notes, savings from reference pricing materializes through the combination of 1) patients choosing providers at the reference price, 2) patients paying the difference between the reference price and the allowed charge through cost sharing, and 3) providers reducing their prices to the reference price. Obviously, any increase in prices among providers below the reference price would reduce the potential for savings.

From an employer perspective, the approach establishes a cost threshold for the service(s) selected, but as the EBRI analysis notes, plan sponsors should obviously consider a number of issues as they weigh adopting reference pricing, including how the reference price is determined and how providers may react. Communication to plan members is also key to effective use of reference pricing.

For plan members, it could represent the potential for expanded choice with some pricing context—but, as with my kids’ college selection process, they’ll likely need more data on prices and quality in order to make truly informed decisions.

Notes

The full report is published in the April EBRI Issue Brief, “Reference Pricing for Health Care Services: A New Twist on the Defined Contribution Concept in Employment-Based Health Benefits” available online here.

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.

 

Penny “Whys”

By Nevin Adams, EBRI

Nevin Adams

We tried to introduce our kids to money and financial concepts relatively early. We encouraged them to save some of their monetary gifts, let them put the money in the offering plates at church, and provided them with a modest allowance for chores commensurate with their age and abilities. For all that, they never really seemed to fully appreciate the “value of money” until they started earning a paycheck outside the home (I knew they were “getting” it, when they wanted to know who FICA was!).

Perhaps because of their early education, there weren’t massive behavioral changes. I was pleased to see their spending on gifts for family members rise with their income and, after an initial spending “spurt” (likely attributable to a sense of newfound wealth), they seemed to settle in. But what happened next was that, while they would spend money on others, they tended to hold back. In fact, what seemed to emerge was not so much a pattern of setting money aside, but a reluctance to spend; not so much saving, as hoarding. Indeed, it was interesting to see how they reacted to spending now that it was their own money.

One of the premises underlying the introduction of consumer-driven health plans is that they do a better job of “engaging” the participant/consumer in the cost(s) of their health care decisions, either in providing a finite amount of financial resources from the employer for that purpose, designing the plan so that the worker has a more direct financial involvement in the decision, or both. In fact, the 2013 EBRI/Greenwald & Associates Consumer Engagement in Health Care Survey (CEHCS) found evidence that adults in a consumer-directed health plan (CDHP) and those in a high-deductible health plan (HDHP) were more likely than those in a traditional plan to exhibit a number of cost-conscious behaviors.

However, one of the policy concerns with those designs is that individuals would make medical decisions based on expense, rather than medical necessity. Indeed, recent research by the EBRI Center for Research on Health Benefits Innovation (CRHBI) notes that medication adherence—which has been shown to produce substantial savings as a result of reductions in hospitalizations and emergency room use—is known to be affected by out-of-pocket cost to patients.

That EBRI CRHBI study, published in a recent issue of The American Journal of Managed Care,
examined the impact of adopting a health savings account (HSA) consumer-directed health plan (CDHP) on medication adherence for individuals with five chronic conditions disease. Based on the experience of a large manufacturer that replaced all of its existing health insurance options with a CDHP-HSA, the research found that in the first year under the new plan, the number of prescriptions filled, the proportion of days covered, and the proportion of patients who were adherent declined for all conditions except asthma/COPD. While the effects diminished some in the second year for those with diabetes, the levels persisted among those with hypertension, dyslipidemia, and depression.

These findings have important policy implications, in that—notwithstanding the presence of HSAs and employer contributions—medication utilization and adherence declined when high deductibles were imposed.

As the article explains, if these reduced levels of medication adherence for chronic conditions are sustained, it is likely that they will increase medical costs and adversely impact worker productivity. Certain regulatory changes might permit some mitigation of the impact, by supporting CDHP design changes that would provide first-dollar coverage for chronic disease medications for participants using HRAs. Moreover, it suggests that employers may need to provide education and ongoing support to encourage appropriate use of account funds so that prescription drug use for chronic conditions remains a priority for their workers.

There’s an old saying that cautions against being “penny wise and pound foolish”—the tendency to conserve relatively small amounts, only to be wasteful when it comes to larger expenditures. It is, after all, one thing to set money aside for a rainy day, and another altogether to trigger a rainy day by not spending enough on the right ones.

Notes

[1] “Findings from the 2013 EBRI/Greenwald & Associates Consumer Engagement in Health Care Survey” is available online here.

[1]  “Medication Utilization and Adherence in a Health Savings Account–Eligible Plan” is available online here.

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.

Consumer “Driven?”

By Nevin Adams, EBRI

Adams

Adams

Over the last several years, the trend in employment-based retirement plans has been to put in place structures to make more decisions for workers through the expansion of automatic enrollment plan designs.(1) At the same time, the trend in employment-based health plans has been to look for ways to better manage costs, while providing workers more choice, and flexibility in those choices, by looking to so-called consumer-driven health plans, or CDHPs.(2)

In the case of the former, the shift has been to help workers make better decisions, to boost savings by not only increasing plan participation, but to direct contributions to more diversified investment options than many seem to choose on their own accord. In the case of healthcare plan designs, the expansion of choice is similarly rooted in a desire to help workers make “better” decisions, albeit with a slightly different emphasis.

The addition of CDHP designs (and in many cases it is an addition, rather than a replacement for, traditional health plan designs) has arguably been motivated in no small part by a desire to constrain the costs of employment-based health care programs by giving workers some “skin in the game” beyond whatever premiums may be associated with the benefit. A recent EBRI report notes that, by 2012, 31 percent of employers offered some version of a CDHP (either a health reimbursement arrangement or health savings account-eligible plan), with about 25 million people (about 14.6 percent of the privately insured market) covered by these type plans.

The concept is relatively straightforward: CDHPs combine high deductibles with tax-preferred savings or spending accounts (that can be funded by employer and/or employee contributions, or both) that workers and their families can use to pay their out-of-pocket health care expenses. The theory is that individuals may spend money from their own account(s) more judiciously. However, there have been concerns that individuals may prove to be too frugal, choosing to defer needed and perhaps even necessary healthcare just to avoid spending money.

Additionally, while the theory that consumerism would lead to less (and perhaps better) spending appeared sound, and while prior research in this area has generally found low-to-moderate reductions in measures such as services used, conclusions have also been limited by the potential for selection bias, in that workers were often given a choice between CDHPs and more traditional options—and it was possible that individuals of a particular profile might be more inclined to opt for the CDHP.

A recent EBRI study, published in the June issue of Health Affairs,(3) was able to examine healthcare services utilization trends by using data from two large employers—one that adopted a CDHP in 2007 and another with no CDHP. That research(4) found that after four years under an HSA plan, there were 0.26 fewer physician office visits per enrollee per year and 0.85 fewer prescriptions filled, although there were 0.018 more emergency department visits, and the likelihood of receiving recommended cancer screenings was lower under the HSA plan after one year and, even after recovering somewhat in later years, still lower than the baseline at the study’s conclusion. While small numbers, these figures are considered statistically significant.

Ultimately, the longer-term impact of CDHPs on health status, outcomes, and spending remains to be established. On the other hand, and as the research paper notes, if CDHPs succeed in getting workers to make decisions that are more cost-sensitive, employers may well want to ensure not only that the plan designs work to incentivize the right choices, but that their work force is educated on the expanded choices that lie ahead.

Notes

(1) See “The Impact of PPA on Retirement Savings for 401(k) Participants,” online here.

(2) CDHPs combine high deductibles with tax-preferred savings or spending accounts that workers and their families can use to pay their out-of-pocket health care expenses. These accounts allow people to accumulate funds on a tax-preferred basis—the funds may include contributions from the employer, the employee, or both, depending on the plan’s structure. Employees can choose between using the funds for their health care cost sharing or saving the money for the future. Employers began offering CDHPs in 2001 when a handful started offering health reimbursement arrangements (HRAs). They then started offering health savings account (HSA)-eligible plans after the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 included a provision to allow individuals with certain high-deductible health plans to contribute to an HSA. See also “What Do We Really Know About Consumer-Driven Health Plans?”  and “Characteristics of the CDHP Population, 2005–2010.”

(3) See “Consumer-Directed Health Plans Reduce The Long-Term Use Of Outpatient Physician Visits And Prescription Drugs,” online here.

(4) This work was conducted through the EBRI Center for Research on Health Benefits Innovation (EBRI CRHBI). The following organizations provided the funding for EBRI CRHBI: American Express, BlueCross BlueShield Association, Boeing, CVS Caremark, General Mills, Healthways, IBM, John Deere & Co., JP Morgan Chase, Mercer, and Pfizer.