Consumer Driven Health Plans:

Early Findings from the Field

and Future DirectionsStephen T. Parente, Roger Feldman, Jon B.

ChristiansonUniversity of Minnesota

December, 2003

Funded by the Robert Wood Johnson Foundation Health Care Organization

and Financing Initiative

For more information: sparente@csom.umn.edu

Presentation Objectives

• Describe the CDHP business model. • Illustrate the mechanics of a CDHP

using Definity Health as an example. • Provide an Overview of our RWJ

evaluation of Definity.• Present current analysis results. • Opportunities and conundrums of

CDHPs.

Issues Driving CDHP CreationPatients

Dissatisfaction with provider access Patient incentives are to consume Limited choices of benefits and providers Combative relationship with managed care companies

Providers Loss of autonomy Erosion of physician/patient relationship Misalignment of physician reimbursement and incentives

Employers Plan costs are increasing Employees are not happy Increase of employer administration burdens

CDHP Business Enablers

–‘Ready to Lease’ Components of Health Insurance:• Electronic claims processing • National panel of physicians• National pharmaceutical benefits management firms• Consumer-friendly health data web portals• Disease management vendors

–Internet • Transaction medium for claims processing• 2-way communication with members

–ERISA-exemption• Lack of state oversight• Half the US commercial health insurance market is self-

insured.

Early CDHPs in Operation

– Definity•Concept developed in 1998, Funded in April, 2000•Minnesota based•Clear first mover & dot-bomb survivor

– Lumenos•Started in 2000•Based in Virgina•Havard B-School inspired (Regina Herzlinger)

– Destinty•Operating as Medical Savings Account model•In operation for 10 years in South Africa

Definity Health Component Details

Definity Definity HealthHealthCareCare

AdvantageAdvantage

Web- and Web- and Phone-Phone-Based Based ToolsTools

Health ToolsHealth Toolsand Resourcesand Resources

Health Tools and Resources• Care management

program• Extensive easy-to-use

information and services

Health Coverage• Preventive care covered

100%• Annual deductible• Expenses beyond the

PCA• Nationwide provider

access• No referrals required

Personal Care Account (PCA)• Employer allocates PCA1

• Member directs PCA• Section 213(d) “scope”• Roll over at year-end • Apply toward deductible2

Annual Annual DeductibleDeductible

Annual Annual DeductibleDeductible

Pre

ven

tive

Care

10

0%

Pre

ven

tive

Care

10

0%

Health Health CoverageCoverage

An

nu

al

Ded

uct

ible

1 Employer selects which expense apply toward the Health Coverage annual deductible.2 Paid out of employer’s general assets.

PCAPCAPCAPCA

$$

New RWJ-Funded Research

Key Research Questions1. Is there an ‘adverse selection’ problem?

Traditionally, adverse selection is defined as the situation when healthy individuals choose Definity leaving the sick in a traditional plan that will soon implode its premiums because of disproportionate share of sick individuals in the insurance pool.

2. What is the impact on cost and utilization? Definity has been chosen as a response to rising premium prices in an attempt to make the consumer ‘drive the market’ be examining price variations and constraining their personal consumption, if possible.

Research Design– 2 Year study (11/1/2002 - 10/31/2004)– Six employers examined:

• University of Minnesota, MN• Medtronic, National• Ridgeview Medical Center, MN• Hannaford Bros, New England• Welch-Allyn, Upstate NY (tentative)• To be Named (New England or South Atlantic firm)

– Data collected• Claims data of all utilization for all health plan choices, pre (2001)

and post (2002-2003) Definity.• Employer info on flexible spending accounts and employee income

• Survey information on Definity choices in 2002 & 2003 from U of M.

Early Results #1:

Employee Choice of a Consumer Driven Health

Plan in a Multi-Plan, Multi-Product Setting

Health Plan Choices

1. Health Partners: Staff model HMO with direct capitation contracting at a limited number of group practices.

2. Patient Choice: A ‘Tiered-direct contracting’ descendent of Minnesota’s Buyers Health Care Action Group health benefit design experiment.

3. Definity Health: Consumer-driven Health Plan 4. Preferred One: Preferred Provider

Organization

UPlan Options/Enrollment

Total CostLess UM

contributionEmployee

contribution EnrollmentHealthPartners Classic $137.84 $137.84 $0.00 5,027Patient Choice Cost Group I $137.84 $137.84 $0.80 Patient Choice Cost Group II $147.15 $137.84 $9.31 2,091Patient Choice Cost Group III $157.90 $137.84 $20.06PreferredOne National $189.51 $137.84 $51.77 731

Definity Health Option 1 $150.52 $137.84 $12.68 349Definity Health Option 2 $150.48 $137.84 $12.64

Total 8,198

Employee-only coverage

Total CostLess UM

contributionEmployee

contribution EnrollmentHealthPartners Classic $344.59 $323.92 $20.67 3,967Patient Choice Cost Group I $329.60 $323.92 $20.67Patient Choice Cost Group II $351.30 $323.92 $39.23 2,808Patient Choice Cost Group III $376.80 $323.92 $65.73PreferredOne National $448.40 $323.92 $143.91 997

Definity Health Option 1 $353.00 $323.92 $51.63 346Definity Health Option 2 $327.50 $323.92 $51.55

Total 8,118Single & Family Total 16,316

Family coverage

Early UM Definity ExperienceYear 2002

54%46%Option 1Option 2 51%49% Family

Single

49% 51% FemaleMale

51%49%Employee

Dependents

Definity Age/Gender Distribution

2002 University of Minnesota

0

10

20

30

40

50

60

70

<25 25-34 35-44 55-64 >65

Definity Male

Definity Total

Other Plans

All RespondentsSatisfaction with Plan

OverallYes No

How would you rate your overall experience with your health plan in 2002? (1=worst possible, 10=best possible)

Definity 7.47 7.41 7.50Other Plans 7.55 7.64 7.49

For Definity respondents, would you recommend Definity to a friend, family member or colleague? (%)

Yes 85.0 87.4 83.6No 12.4 9.3 14.1

Don't know/refused 2.6 3.3 2.2

By Whether Respondent or Dependent Has Chronic Condition

Health Plan Features Most Preferred

50

36.7

29.8

6.9312

1516

46.4

76.44

0 20 40 60 80 100

My doctors in health plan

No referral authorizations

Has preventive care

National provider panel

PCA balance rolls over

Small out-of-pocket $$

Small paycheck deduction

No copayments

Online tools

Percent agreement

Other Health Plans Definity

Results: Premium Sensitivity • Employees are sensitive to out-of-pocket

premiums, and surprisingly, employees with chronic conditions are more premium-sensitive

•If Definity raised its premium by 1% it would lose 4.6 % of healthy single enrollees and 5.4% of healthy families

•1% premium boost would cause 6.9% of singles and 10.7% of families with chronic condition to leave Definity

•The results depend on 100% of the premium hike being passed along to the employee (i.e, defined contribution), as is the case for the UM

Results: Health Status and Other Employee Characteristics

• Employees and families with chronic conditions prefer the PPO, but otherwise, there is no evidence of adverse selection•Having a chronic condition is associated with a 3.2% increase

in the probability of choosing PreferredOne vs. HealthPartners•Note that PreferredOne had the highest premiums ($189.51

for single coverage and $448.40 for family coverage per pay period), suggesting that the plan is experiencing adverse selection

• Higher income employees chose Definity or Choice Plus, suggesting these plans may evolve as favorites of the ‘well-to-do’

• Older employees chose PreferredOne or Choice Plus

Early Results #2:

Consumer-Driven Health Plans:

Early Evidence about Utilization, Spending and

Cost

What was the gross impact on provider and patient payment?

2000 2001 2002Other Health Plans 142.51$ 165.05$ 206.08$ CDHP 116.56$ 156.13$ 238.84$

2000 2001 2002Other Health Plans 14.54$ 17.45$ 22.65$ CDHP 14.16$ 15.77$ 19.95$

Employer Payment - Per Member Per Month

Consumer Payment - Per Member Per Month

NOTE: These are results from a restricted continuously enrolled sample of 50% to 60% of the total employee population and are not a reflection of the plans’ full PMPM expenditures. Also note: 1) Patient expenditures from the Personal Care Account (PCA) are included in the employer payment category. 2) Consumer payment reflects deductibles, copayments, and coinsurance expenses.

What was the impact on provider & patient payment by different

services?

2000 2001 2002Other Health Plans 63.61$ 75.62$ 85.32$ CDHP 55.04$ 77.12$ 99.28$

2000 2001 2002Other Health Plans 52.47$ 56.19$ 82.09$ CDHP 40.58$ 51.08$ 102.60$

2000 2001 2002Other Health Plans 26.44$ 33.25$ 38.67$ CDHP 20.93$ 27.92$ 36.95$

Employer PMPM - Physician $$

Employer PMPM - Hospital $$

Employer PMPM - Pharmacy $$

NOTE: These are results from a restricted continuously enrolled sample of 50% to 60% of the total employee population and are not a reflection of the plans’ full PMPM expenditures.

Was service use different for CDHPs?

Physician visits

*Utilization data presented are per member averages.

NOTE: These are results from a restricted continuously enrolled sample of 50% to 60% of the total employee population and are not a reflection of the plans’ full physician visit experience.

2000 2001 2002Other Health Plans 2.59 2.82 2.81CDHP 2.35 2.11 2.19

Physician Office Visits*

Was service use different for CDHPs?

Admissions and prescriptions

*Utilization data presented are per member averages.

NOTE: These are results from a restricted continuously enrolled sample of 50% to 60% of the total employee population and are not a reflection of the plans’ full admissions and prescription drug experience.

2000 2001 2002Other Health Plans 0.065 0.064 0.086CDHP 0.040 0.083 0.139

2000 2001 2002Other Health Plans 8.272 9.201 10.832CDHP 7.013 8.048 9.441

Admissions*

Prescription Drug Scripts Filled*

Is illness burden different?

*Data presented are per member averages.

NOTE: These are results from a restricted continuously enrolled sample of 50% to 60% of the total employee population and are not a reflection of the plans’ full illness burden..

2000 2001 2002Other Health Plans 2.79 3.06 3.09CDHP 2.60 2.98 3.18

Note: The Johns Hopkins Ambulatory Diagnostic Group (ADG) system was used

Illness Burden Index*

CDHP, HMO versus PPO

2000 2001 2002CDHP 116.56$ 156.13$ 238.84$ HMO 144.99$ 157.97$ 169.44$ PPO 138.82$ 170.53$ 242.97$

PMPM Differences for Continuously enrolled sample

What was the ADJUSTED impact on provider and patient

payment?

NOTE: These are results from a restricted continuously enrolled sample of 50% to 60% of the total employee population and are not a reflection of the plans’ full PMPM expenditures. Also note: 1) Patient expenditures from the Personal Care Account (PCA) are included in the employer payment category. 2) Consumer payment reflects deductibles, copayments, and coinsurance expenses.

Health Plan Cohorts Mean Mean Mean

CDHP Cohort N=531Total Expenditure 5,555.57$ 6,456.57$ 7,988.80$ Employer Expenditure 5,119.68$ 6,242.51$ 7,707.16$ Employee Expenditure 488.89$ 613.91$ 702.30$

HMO Cohort N=1,551Total Expenditure 6,574.79$ 7,552.76$ 8,170.57$ Employer Expenditure 6,162.39$ 7,012.36$ 7,373.04$ Employee Expenditure 458.35$ 580.92$ 755.15$

PPO Cohort N=1,554Total Expenditure 6,324.16$ 7,542.66$ 8,472.59$ Employer Expenditure 5,727.73$ 6,847.41$ 7,466.26$ Employee Expenditure 582.79$ 674.94$ 864.38$

2000 2001 2002

What was the ADJUSTED impact on provider & patient payment by different

services?

NOTE: These are results from a restricted continuously enrolled sample of 50% to 60% of the total employee population and are not a reflection of the plans’ full PMPM expenditures.

Health Plan Cohorts MeanDeviationMean MeanDeviation

CDHP Cohort N=531Hospital Expenditure 1,721.23$ 1,982.79$ 3,224.46$ Physician Expenditure 2,590.43$ 3,058.93$ 3,411.27$ Pharmacy Expenditure 1,086.11$ 1,072.45$ 1,229.97$

HMO Cohort N=1,551Hospital Expenditure 2,284.27$ 1,957.99$ 2,077.66$ Physician Expenditure 2,899.45$ 3,263.15$ 3,452.05$ Pharmacy Expenditure 1,266.97$ 1,533.62$ 1,717.15$

PPO Cohort N=1,554Hospital Expenditure 2,100.61$ 2,045.69$ 2,238.25$ Physician Expenditure 2,658.17$ 2,997.35$ 3,305.93$ Pharmacy Expenditure 1,135.19$ 1,481.71$ 1,690.24$

Year 2000 Year 2001 Year 2002

Was ADJUSTED service use different for CDHPs?

NOTE: These are results from a restricted continuously enrolled sample of 50% to 60% of the total employee population and are not a reflection of the plans’ full admissions and prescription drug experience.

Health Plan Cohorts Mean Mean Mean

CDHP Cohort N=531Physician Visits 6.54 4.87 4.63Hospital Admission Rate 0.07 0.13 0.14Prescriptions Filled 21.23 21.21 22.80

HMO Cohort N=1,551Physician Visits 7.49 7.60 7.46Hospital Admission Rate 0.08 0.07 0.09Prescriptions Filled 21.06 22.67 31.54

PPO Cohort N=1,554Physician Visits 6.31 6.36 6.48Hospital Admission Rate 0.08 0.07 0.07Prescriptions Filled 22.43 22.43 22.96

2000 2001 2002

Distribution of CDHP Population by PCA Usage

LevelsPCA MAP 2001 2002Under PCA Limit 40% 28%Ended Within Gap 13% 15%Above Deductible 47% 57%

Continuously enrolled population

Conclusions• The most important factor affecting choice is

income.• The consumer drive health plan was not

disproportionately chosen by the young and the healthy (for this population).

• In unadjusted dollars, CDHP cost is lower relative to a PPO, but maybe not a HMO in the long term.

• In adjusted dollars, CDHP cost is the lowest of all, but only after favorable expenditure selection.

• Year 3 of CDHP experience will reveal if they can stem high cost growth trajectory from years 1 & 2.

Policy Conundrums

• How does a employer-based personal care account move with an employee?

• How should CDHPs be treated in the non-ERISA marketplace?

• What if CDHPs accelerate the consumer’s burden of health care spending ‘too’ quickly?

Policy Opportunities

• Innovative means to bring consumer choice into the medical marketplace as well as consumer awareness of the trade-offs of liberal medical insurance coverage policies.

• Creates foundations for infrastructure for personal, portable health care coverage.

• Hybrid variants could be crafted to serve low income and part time workers.

CDHP Health Information Technology

Enablement:

A Personal, Portable Medical Record How-to

Opportunity

Health IT Fantasies Goals

• Linked medical records – womb to tomb• Access medical results online (patient &

provider access)• Universal views

– Provider perspective (missing data problem)– Payer perspective (moral hazard problem)

• Real time – adjudication, care tracking• Personal medical resource calculator• Customized treatment/care prompts• Personalized new technology opportunity

finder

A Look Inside the “Health IT Sausage” of one Integrated

Delivery System

LifeSupport

Data

Hardware

DecisionSupport

What’s Wrong With Today’s Health IT Picture?

TOO MANY SILOES!

15% ofCare

25% ofCare

15% ofCare

10% ofCare

35% ofCare

Data Available to the Average Medical Provider About a Patient’s Care

Physicians

Congress Main Street Biotechnology

Courts

Federal Government

<90% Income

Insurers 99% Income 91-99% Income

Big Business

Hospitals

Actual eLinks To Build

Today’s Health IT Realities

• +400 IT-siloed insurers• +6000 IT-siloed hospitals• +600,000 IT-siloed practicing physicians• data does not connect by person• cost to transition from one a platform is

huge• capital investment is substantial to change• lack of standards• little digital data present• niche firms/vendors with turf not willing to

yield

One CDHP Future to Accelerate Creating Personal, Portable

Medical Records2004: CDHPs requires links to

outpatient laboratory results data at the provider encounter level.

2006: CDHPs requires links to pharmaceutical prescription orders at the provider encounter level.

2008: CDHPs requires data from practices from ‘approved’ EMR/CPOE software applications.

Why Should CDHPs Take Initiative

• Demonstrates an ability to give patients and providers better data as part of the regular health care system.

• Living innovation to meet the challenge of the IOM ‘Quality Chasm/Patient Safety’ Call to Arms.

• It fits the evolution, not revolution, mantra of CDHPs.

• Gives CDHPs a marketing edge.• Encourages patients to develop a brand taste

for information packaging via their CDHP – which could make possible employer ‘cash-out’ of health benefits easier to take.

Why Care?

How might you gain/lose from this?

Health Reform Circa 2005-2006• Nation Health Opportunity Act Legislation

introduced to reform system by:– Mandatory health insurance coverage for all adults and

their dependents. Enforced through combination of DMV highway construction pork and IRS tax law rules.

– Voucher system provided by employers to employees for 30 hour to full-time employees.

– Government voucher system to all others of low option CDHP or price equivalent of a staff model HMO.

– Small business and single contract co-ops created regional catastrophic insurance using TriCare bidding model.

– All consumers own their electronic medical transactions and have a default agency that manages them as a government program (much like we all have a default DMV).