the impact of recent republican health insurance reform proposals stephen t parente, ph.d. &...
TRANSCRIPT
The Impact of Recent Republican Health Insurance
Reform Proposals
Stephen T Parente, Ph.D. & Roger Feldman, Ph.D.
University of Minnesota
Presented at the American Enterprise Institute, Washington, DC
September 20, 2007
Overview• Previous research findings on consumer
driven health plans• ARCOLA Simulation Model Overview• 2007 State of the Union proposal • 2007 Tax Credit (e.g. Coburn) proposal • Implications
‘Classic’ CDHP Model – HRA
Health Tools and Resources• Care management
program• Internet enabled
Health Coverage• Preventive care covered
100%• Annual deductible• Employer selects
expenses that count toward deductible
• Expenses beyond the deductible usually covered at 80-100%
Health Reimbursement Arrangement (HRA)• Employer allocates $$ to HRA• Member directs HRA• Balance in HRA rolls over at year-end
• Applies toward deductible
Annual Annual DeductibleDeductible
Annual Annual DeductibleDeductible
Pre
ven
tive
Care
10
0%
Pre
ven
tive
Care
10
0%
Health Health CoverageCoverage
An
nu
al
Ded
uct
ible
HRAHRAHRAHRA
$$
Health Savings Account (HSA)
Authorized by 2003 law, an HSA account is owned by the enrollee and used to pay for current and future medical expenses
Both employee and employer can make tax-free contributions to HSA
Health plan design is similar to HRA
Bush Administration has proposed refundable tax credits for individuals to purchase health plans with HSAs
HSAs are offered by UnitedHealth, the Blues, Aetna, Cigna, Humana, and Kaiser
Annual Annual DeductibleDeductible
Annual Annual DeductibleDeductible
Pre
ven
tive C
are
P
reven
tive C
are
1
00
%1
00
%
Health Health CoverageCoverage
An
nu
al
Ded
uct
ible
HSAHSAHSAHSA
$$
Questions Addressed by Previous Peer-Reviewed Research
• Do CDHPs (in the form of HRAs) have national appeal?– Yes. In almost every major market, when introduced, take-
up exceeded 5% of employees offered (range 4% to 85%).• Do CDHPs always have favorable selection?
– No. While there is some evidence of initial favorable selection in one employer, it does not persist. (Parente, Feldman, Christianson, 2004)
• Do CDHPs have different effects on cost & utilization compared with other plans?– Yes. Results depend on benefit generosity. Long run costs
are not less with a generous plan. (PFC, 2004). For less generous plans, preliminary evidence suggest reduction in rate of increase.
– Least cost increase is for pharmacy (Parente, Feldman, Chen, 2007). .
• Are HSAs a viable approach to addressing the problem of the uninsured?– Yes. But it is still more a political economy question of
budget priorities. Reductions in uninsured range from 3 million to 25 million with federal costs as high as $100 billion per year. (Feldman, Parente, et al., 2005).
Q. Do CDHPs Generate Adverse Selection for Other
Plan Choices?
A. Yes (HSA) and No (HRA)
HSA/PPO Risk Ratio
Data from 1 large employer representing ~150,000 covered lives with HSA offered in 2006
1.0-2.6
0.75 – 0.99
<0.75
HSA/PPO Ratio
Risk Score based 2005 Claims data analysis using RxRisk
High-option HRA/PPO Risk Ratio
Data from 1 large employer representing ~50,000 covered lives with HSA offered in 2006
1.0-3.7
0.75 – 0.99
<0.75
HSA/PPO Ratio
Risk Score based 2005 Claims data analysis using RxRisk
Rank of Association Between Plans and Person Attributes
From Conditional Logistic Regression – 8 possible choices
AgeFemal
e FamilyChroni
c Income
HMO-POS 2 3 8 7 8
HMO Bricks 4 4 3 4 7
HRA High 5* 1 2 2 3
HRA Low 7 6 6* 5 2
HSA 8 8 7* 6 1
POS 3 7 4 1 4
PPO 1 5 1 8 6
EPO 6 2 5 3 5Notes: • 1 is highest rank (most association), 8 is least rank• *results are NOT significant at the .05 level
Summary of HSA Choice when HRA and PPO Also Are
Choices• Risk-splitting between HRA and HSA• Clearly an issue of benefit design• Selection not limited to HSAs. HMOs also
get favorable selection.• Is the risk segmentation of value? Is it too
difficult to fix short of full-replacement?• Next big question: Do HSAs have
better/neutral outcomes and satisfaction, adjusted for risk?
Policy Proposal Simulations
President Bush’s 2007 State of the Union and the Coburn Proposal (S-
1019)
Impacts simulated by the ARCOLA (Adjusted Risk Choice & Outcomes
Legislative Assessment) model
What Does ARCOLA Do?
• ARCOLA models national health plan take-up from policy proposals in the individual and group markets
• Unique combination of attributes:– Uses MEPS for simulation weights– Choices based on claims from 4 large employers
matched with employee demographics and plan choices– Includes CDHP choice data in model– Risk-adjustment (Hopkins ACGs) used to predict both
individual and group market premiums – Model is iterative – Can identify premium elasticity response to policy
options for specific plan choices and the uninsured
Previous Work:2004 State of the Union
Estimates
2007 SOTU Simulation
• Using the ARCOLA model, we predicted the effect of 2007 SOTU on health insurance take-up and costs– Background: Our model predicted the take-up of
HSA plans in the individual market quite accurately (Feldman, Parente et al., 2005)
– Population: adults aged 19-64 who are not students, not covered by public insurance, and not eligible for coverage under someone else’s ESI policy
– Baseline uninsurance: 33.7 million people (edited out military, students, age <18 or 65 and older)
SOTU 2007• A tax deduction of $7,500/$15,000 – but
you have to have health insurance to get the deduction
• Health insurance premiums will be taxable (equal tax treatment of individual and ESI (employer sponsored, a.k.a. group, premiums)
• Complicated incentives created by SOTU cannot be modeled using results from existing economic studies.
Assumptions & Caveats• Price after tax credit or tax deduction is
actionable at point of purchase of insurance (e.g., don’t want to wait up to 16 month on April 15th for savings to be realized).
• Insurance coverage contract is always available.• Quasi-national individual insurance market.• No new market entrants.• Medical CPI is 4% above general inflation.• We have a subset of the national population
affected. We exclude kids, seniors, students, military and other individuals with govt. insurance. We represent ~75% of target population.
If we let the status quo persist (millions)
YearOur Sample Uninsured
Projected Total Uninsured
2005 34 442009 39 502010 40 522011 41 552012 43 572013 44 582014 45 602015 46 612016 47 632017 48 642018 49 65
Results• Uninsurance is reduced by 65% -
by at least 20 million people. • $104 billion subsidy to the
individual market• Rest for a subsidy to the ESI
market with offsetting tax recovery.
Source: Steve Parente and Roger Feldman, ‘ARCOLA’ simulation model, [email protected] and
Why?• Tax subsidy is quite large, even for low-
income workers• Individuals are sensitive to the prices of
different types of health insurance:– Individual HSA policies will increase from 3.1 to
12 million and low-option PPOs from 6 to 16 million
– The subsidy covers the full cost of these policies for many people
• The ESI market is not hollowed out, but expensive PPO plans will disappear
Subsidy cost per person in the individual market, by income
$2,041
$3,736 $3,813$4,069
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
$4,000
$4,500
0-25 % 25-50 % 50-75 % 75-100 %Income Percentile
Coburn S-1019, 2007• A tax credit of $2,000 for single person• Additional $2,000 credit for spouse• Additional $500 credit per child up to a
total of $5,000 (assuming two parents)• Health insurance premiums will be
taxable (equal tax treatment of individual and ESI (employer sponsored, a.k.a. group, premiums)
Results• Uninsurance is reduced by 39% to
over twenty million.• $64 billion subsidy to the
individual market.• Additional subsidy to the ESI
market with offsetting tax recovery of $91 billion
Source: Steve Parente and Roger Feldman, ‘ARCOLA’ simulation model, [email protected] and
Summary of Proposals• Could be the most comprehensive US
health insurance market proposals ever on both the tax treatment of insurance AND reducing the uninsured by at least 60%
• Tax deduction is more effective at reducing the uninsured. Overall cost is higher.
• The Coburn proposal is the most efficient, but with far less impact on the uninsured.
Political Prognosis• Without an employer mandate, one can
significantly reduce the size of the uninsured be ‘leveling the playing field’ of taxes and health insurance.
• As long as health care inflation remains significantly above the general inflation rate, almost any proposed expansion will be costly.
• Channeling consumers to lower cost plans does occur, but the long term cost savings may be beyond ten years and also swamped due to aging population.
