restorers, skin-grafters & calibrators: a five-year forecast for large employer cost sharing
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December 3, 2003. Restorers, Skin-grafters & Calibrators: A Five-Year Forecast for Large Employer Cost Sharing. Arnie Milstein MD, MPH Mercer Human Resource Consulting Pacific Business Group on Health. 2003 A. Milstein MD. Why are Large Employers Re-Examining Cost Sharing?. - PowerPoint PPT PresentationTRANSCRIPT
Arnie Milstein MD, MPHMercer Human Resource ConsultingPacific Business Group on Health
Restorers, Skin-grafters & Calibrators: A Five-Year Forecast for Large Employer Cost Sharing
December 3, 2003
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Why are Large Employers Re-Examining Cost Sharing?
Health benefit plans are rated the “#1 cost problem” in CEO surveys (BRT 2003)
Health benefit plans are rated “the #1 compensation/ benefits objective” in surveys of American employees
Tighter managed care and government regulation of cost are regarded as not viable
Large public sector employers and Taft-Hartley purchasers face a similar challenge
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Three Employer Cost Sharing ArchetypesMost Offer Incremental Consumer Decision Support
Archetype Problem Definition Preferred Tool
Restorers “restore higher beneficiary share of health benefits cost”
Unintended and/or imprudent purchaser cost share creep over prior 30 years
Hollow out benefit coverage within all health plan options
Skin-grafters “get more beneficiary skin in the game”
Moral hazard Offset hollowed out benefits with portable spending account
Calibrators “calibrate beneficiary cost-share to discretionary inefficiency”
Beneficiary selection of inefficient options
Incentivize selection of efficient (and, perhaps, higher quality) options before and after plan enrollment
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Forecasted Private Sector Trajectory & Its Yield(Assumes availability, precision, and consumer grasp of health care performance measures will steadily increase)
‘02 ‘05 ‘08
Higher
CalibratorsPredominate
Skin-grafters Predominate
RestorersPredominate
Value of Health Benefits (“health gainper dollar”)
Lower
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To Whom Does the 5-Year Forecast Not Apply?
Many small employers
Large employers with mostly unskilled labor forces
Large desperate employers without labor agreements
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Question 1
Q: What fraction of average per beneficiary health care spending will employers pay?
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Question 1:
What fraction of average per beneficiary health care spending will employers pay?
A: Enough to attract and retain the required labor force.
– This fraction is decreasing in today’s weaker labor market and economy.
– Employer indirect cost savings from employee health care consumption will partly offset an employer’s total spending calculation, but be significantly discounted because it is less visible in employers’ financial accounting systems.
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Question 2
Q: How will a beneficiary’s amount and percentage cost share be linked to individual beneficiary distinctions?
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Question 2:
How will a beneficiary’s amount and percentage cost share be linked to individual beneficiary distinctions?
A: More will be paid by (1) service users; (2) those with dependents; (3) the more affluent; and (4) those making certain types of selections which increase spending.
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Question 3
Q: Which beneficiary selections will carry a higher cost sharing burden?
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Question 3:
Which beneficiary selections will carry a higher cost sharing burden?
A: (Pre-2004 – focused on bundled, annual beneficiary selections)
Insureds selecting
– A richer plan of benefits;
– A less efficient health plan (premium divided by enrollees’ predicted cost risk);
– Not to complete an annual health risk appraisal*.
*rare, but increasing
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Question 3 (continued):
Which beneficiary selections will carry a higher cost sharing burden?
A: (Post-2004 – focused on unbundled, continuous beneficiary selections)
Beneficiaries selecting
– Not to participate in personalized program(s) to reduce risk of illness and/or cost;
– A less longitudinally efficient (a/o lower quality) provider;
– A less longitudinally efficient (a/o lower quality) treatment option.
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Participation inHealth Management
Estimated Static Savings from Insureds Selecting More Efficient Options(by year 3, while preserving or improving quality of care)
7.3%
5.1%
0.9%
0.0%
12.2%12.7%
1.9%
5.0%
17.0%16.3%
3.7%
6.5%?
?
?
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
MoreEfficient Providers
More EfficientTreatment Options*
More EfficientPlan Administrator
LeanerCoverage Level
Net
Per
cen
tag
e P
oin
t R
edu
ctio
n i
n C
om
mer
cial
Sp
end
ing
low est.medium est.high est.
* Potential is large, but evidence base is weak.
Observation A:Predicted Increased Cost Burden Allocations Among Insureds Aligns with Locus of Largest Unharvested Efficiencies
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1
0.8
1.21.1
1.2
11 1
1.2
0.9
A B C D E Unit Price Longitudinal Efficiency
(average adjusted total cost per acute episode and/or per year of chronic illness)
Observation B:Unit Prices are Poor Proxies for Longitudinal Efficiency
Tomorrow’sPreferred Providers
Today’sPreferred Providers
Adapted from Premera Blue Cross 2003 A. Milstein MD
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Observation C:High Longitudinal Efficiency and Quality are Compatible (Applies to selections of providers & treatment options)
Higher LowerMD Longitudinal Efficiency Index
(total cost per case mix-adjusted treatment episode)
Low QualityHigh TCO(Nightmare Suppliers)
MD
Qu
ali
ty I
nd
ex
(ou
tco
me
s o
r %
ad
he
ren
ce
to
EB
M)
High QualityLow TCO(Dream Suppliers)
Low QualityLow TCO
High QualityHigh TCO
L
ow
er
Hig
he
r
50th %ile
50th %ile
Adapted from Regence Blue Shield
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Question 4
Q: How much of the estimated incremental cost burden from sub-optimal selection decisions will be paid by the beneficiary making the decision?
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Question 4:
How much of the estimated incremental cost burden from sub-optimal selection decisions will be paid by the beneficiary making the decision?
A: All of it, subject to income-tiered limits based on the “20/20 ogre test.”
(This is the heart of the Calibrator archetype)
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Question 5
Q: Will employers transfer to beneficiaries the estimated incremental cost of sub-optimal selection decisions in a bundled fashion via annual (or multi-annual) selection of plans (or “sub-plans”); or in an unbundled fashion via continuous beneficiary selections after plan enrollment?
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Question 5:Will employers transfer to beneficiaries the estimated incremental cost of sub-optimal selection decisions in a bundled fashion via annual (or multi-annual) selection of plans (or “sub-plans”); or in an unbundled fashion via continuous beneficiary selections after plan enrollment?
A: Both. Unbundled (AKA “point-of-care”) opportunities to select more efficient options will receive more emphasis because (1) they have been previously underused and (2) their easier “trialability” by beneficiaries is likely to improve consumer acceptance.
Purchaser emphasis on unbundled cost-sharing is reflected in early purchaser choices of “consumer-directed plans.” Most purchasers are opting for HRA plans or tiered plans which emphasize variable cost-sharing at the point-of-care.
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Question 6
Q: Will higher quality be subsidized by employers?
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Question 6:
Will higher quality be subsidized by employers?
A: Yes, until the inflection point where higher quality unavoidably incurs higher longitudinal net costs, after netting out indirect illness cost savings accruing to the employer. Beyond the inflection point, the implications of higher quality options will be transparent to beneficiaries, but higher quality is unlikely to be subsidized.
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The Quality-Efficiency Inflection Point
Higher
Lower
Quality
Lower HigherEfficiency
2004
2010
2018ImprovedUtilizationEfficiency
(Fisher, Wennberg)
ImprovedProductionEfficiency
(James, Berwick) InflectionPoint
Four SeasonsHealth Care
Beneficiaries’ cost share will be higher if they select higher quality providers
Beneficiaries’ cost share will be lower if they select higher quality providers
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Career Counseling for Your Niece/Nephew:What Knowledge Vacuums Need Filling for Cost Sharing to Optimize Social Welfare
Health economists (esp. researchers on consumer price elasticities beyond demand for care and for hospitalists)
Health psychologists (esp. researchers on non-rational decision making and quality-cost tradeoffs)
Health ethicists (fine turners of the “ogre test”)
Health care operations engineers (chasm-crossing pilots/ inflection point extenders)
2003 A. Milstein MD