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.

 

Motion “Sensers”

By Nevin Adams, EBRI

Nevin Adams

I’m not sure exactly when I was introduced to the concepts behind Sir Isaac Newton’s laws of motion.  While behavioral finance has laid claim to the concept of (and means of combatting) inertia in benefit plan design, Newton’s first law of motion (sometimes called “the law of inertia”)—first published in the late 1600s—reminds us that (in layman’s terms), an object at rest remains at rest; or perhaps more precisely, an object continues to do whatever it happens to be doing unless a force is exerted upon it.

However, the one I remember most from earlier days is the third law of motion—the notion that for every action there is an equal and opposite reaction.  To this day, I have a “Newton’s cradle” at my desk.

While Newton’s laws were intended to explain the motion of objects, they do seem to have application in matters of human interaction as well.  One need only look at the increasingly strident levels of partisanship on Capitol Hill to appreciate the stridency of “equal and opposite” reactions.

A recent EBRI publication[1] noted that recent decisions by some employers to eliminate health benefits for spouses who were eligible for coverage through their own employer could represent a “tipping point” in employment-based health benefits.  While the report noted that in 2012, 7 percent of employers did not cover spouses when other coverage was available to them, it also cautioned that as of late 2012–early 2013, another 8 percent of large employers were reporting that they planned to exclude spouses from coverage when other coverage was available.

These decisions come at a time when employers are wrestling with how to control the rising cost of providing health benefits to workers, in part due to the requirements of the Patient Protection and Affordable Care Act of 2010 (PPACA).[2]  In fact, one large employer that recently made the decision to drop spousal coverage under those circumstances specifically said, “since the Affordable Care Act requires employers to provide affordable coverage, we believe your spouse should be covered by their own employer.”

EBRI’s analysis indicates that the costs of covering spouses may well represent a tempting cost reduction target for some.  The report notes that, in 2011, policyholders spent an average of $5,430 on health care services, compared with $6,609 for spouses, and—even adjusting for factors such as gender, age, and overall health status—found that spouses still have health care costs that are roughly 7 percent higher than policyholders.

The report cautions, however, that while “first-mover” firms may save money in the short run by eliminating working spouses from their plan, those costs could come back to them over time as other employers embrace that approach—basically returning policyholders to their coverage who heretofore were covered as spouses in other programs.

Ultimately, any savings from those moves will depend upon each firm’s composition of couples and their respective employment statuses.  Indeed, given prevailing levels of cost sharing, the report notes that employers might end up worse off under a change in spousal coverage policies, particularly since employers generally subsidize employee-only coverage more than they subsidize family coverage.

As the EBRI report reminds us, decisions about benefit plan design, like so many other decisions, should be made thoughtfully—and with an eye toward the realization that, for every action there can be an equal, opposite, and sometimes greater, reaction.


[1] “The Cost of Spousal Health Coverage” is available online here.

[2] PPACA requires that employers with 50 or more workers provide health coverage to workers and dependent children until they reach age 26. It does not, however, require employers to provide health coverage to spouses, whether or not they are eligible for other health insurance.

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.