Tales from the New Frontier: Pioneers' Experiences with Consumer-Driven Health Care

Objective. To conduct site visits to study the early experiences of firms offering consumer-driven health care (CDHC) plans to their employees and firms that provide CDHC products.
Data Sources/Study Setting. A convenience sample of three firms offering CDHC products to their employees, one of which is also a large insurer, and one firm offering an early CDHC product to employers.
Study Design. We conducted onsite interviews of four companies during the spring and summer of 2003. These four cases were not selected randomly. We contacted organizations that already had a consumer-driven plan in place by January 2002 so as to provide a complete year's worth of experience with CDHC.
Principal Findings. The experience of the companies we visited indicated that favorable selection tends to result when a CDHC plan is introduced alongside traditional preferred provider organization (PPO) and health maintenance organization (HMO) plan offerings. Two sites demonstrated substantial cost-savings. Our case studies also indicate that the more mundane aspects of health care benefits are still crucial under CDHC. The size of the provider network accessible through the CDHC plan was critical, as was the role of premium contributions in the benefit design. Also, companies highlighted the importance of educating employees about new CDHC products: employees who understood the product were more likely to enroll.
Conclusions. Our site visits suggest the peril (risk selection) and the promise (cost savings) of CDHC. At this point there is still far more that we do not know about CDHC than we do know. Little is known about the extent to which CDHC changes people's behavior, the extent to which quality of care is affected by CDHC, and whether web-based information and tools actually make patients become better consumers.     

Did the Affordable Care Act's dependent coverage mandate increase premiums?

We investigate the impact of the Affordable Care Act's dependent coverage mandate on insurance premiums. The expansion of dependent coverage under the ACA allows young adults to remain on their parent's private health insurance plans until the age of 26. We find that the mandate has led to a 2.5–2.8 percent increase in premiums for health insurance plans that cover children, relative to single-coverage plans. We are able to conclude that employers did not pass on the entire premium increase to employees through higher required plan contributions.     

Managed Care and Employer Premiums

This paper used 1993–1997 data from medium and large size employers to examine the effects of market wide managed care penetration on the premiums paid for employer sponsored health insurance. Regressions were run for weighted average single coverage premiums and for premiums on conventional, HMO, and PPO coverage. Four findings emerged from the analysis. First, increased managed care penetration had no statistically significant effect on weighted average employer premiums. Second, higher HMO penetration resulted in lower HMO premiums but higher conventional and PPO premiums. Third, higher PPO penetration had no statistically meaningful effects across plan types. Finally, the results depended critically on whether firms offered self-insured plans. Higher levels of HMO penetration led to smaller increases in conventional and PPO premiums for firms with self-insured plans, but also yielded smaller premium reductions from HMOs relative to those with purchased coverage.     

Employer perspectives on the preferred provider organization concept

The goal of preferred provider organizations (PPOs) is to identify cost effective physicians, hospitals and other providers and form them into healthcare delivery systems. Widespread interest in PPOs stems from the belief that they can contain costs while offering consumers a choice of physicians and hospitals. But there is little information available about the demand by employers to offer PPOs as a health plan option. This study gathered information on employers' attitudes toward PPOs through a survey of companies in the Minneapolis metropolitan area. Most of the surveyed firms were found to be self-insured and offered a choice of healthcare plans, including HMOs. Contrary to some previous studies, healthcare costs are a major concern by all of the firms. PPOs are viewed as one part of an overall strategy to reduce those costs while maintaining quality of care and convenient access to providers. Although somewhat skeptical about potential savings and concerned over the administrative costs of offering a new health plan, most of the firms indicated support for the PPO concept. The greatest market opportunity for PPOs is to offer the plan as an alternative within the company's existing indemnity plan, wherein employees who use the preferred providers are exempt from at least a portion of the coinsurance and deductible requirements.     

THE PRICE SENSITIVITY OF MEDICARE BENEFICIARIES: A REGRESSION DISCONTINUITY APPROACH

We use 4 years of data from the retiree health benefits program of the University of Michigan to estimate the effect of price on the health plan choices of Medicare beneficiaries. During the period of our analysis, changes in the University's premium contribution rules led to substantial price changes. A key feature of this ‘natural experiment’ is that individuals who had retired before a certain date were exempted from having to pay any premium contributions. This ‘grandfathering’ creates quasi‐experimental variation that is ideal for estimating the effect of price. Using regression discontinuity methods, we compare the plan choices of individuals who retired just after the grandfathering cutoff date and were therefore exposed to significant price changes to the choices of a ‘control group’ of individuals who retired just before that date and therefore did not experience the price changes. The results indicate a statistically significant effect of price, with a $10 increase in monthly premium contributions leading to a 2 to 3 percentage point decrease in a plan's market share. Copyright © 2012 John Wiley & Sons, Ltd.     

The effect of premiums on the decision to participate in health insurance and other fringe benefits offered by the employer: evidence from a real-world experiment

In this paper, we investigate the effect of the out-of-pocket premium on the decision to enroll in employer health insurance and other benefits plans including dental insurance, vision care, long-term care insurance, and wellness benefits. Previous estimates of the effects of premium on takeup of health insurance could be biased toward zero due to a correlation between premium and unobservable demand or plan quality. We solve this problem using data representing hypothetical choices by employees under three different price regimes, providing price variation uncorrelated with either individual-specific or plan-specific unobservables. We find that workers are insensitive to price in health insurance takeup. Workers show much greater price sensitivity to decisions about dental insurance, vision plans, long-term care insurance, and wellness benefits. We conclude that premium subsidies are unlikely to have a substantial impact on increasing insurance rates of workers already offered employer insurance.     

Employer-sponsored health insurance in 1991.

Since 1987 the Health Insurance Association of America (HIAA) has documented features of employer-sponsored group health insurance through detailed surveys of over 3,000 U.S. firms. The 1991 employer survey reveals several noteworthy developments. The percentage of small firms (100 employees and under) that offer health insurance to their employees has declined since 1989. With a significant increase in health maintenance organization (HMO) market share, more than half (54 percent) of employees in employer-sponsored plans are now covered by managed care plans. Premiums increased 14 percent in 1991, showing identical increases for conventional, HMO, and preferred provider organization (PPO) plans. The percentage of employees in self-insured health plans decreased from 45 percent in 1990 to 40 percent in 1991.     

Will Choice‐Based Reform Work for Medicare? Evidence from the Federal Employees Health Benefits Program

OBJECTIVE:. To examine the effect of premiums and benefits on the health plan choices of older enrollees who choose Federal Employees Health Benefits Program (FEHBP) health plans as their primary payer. DATA SOURCES: Administrative enrollment data from the Office of Personnel Management (OPM) and plan premiums and benefits data taken from the Checkbook Guide to health plans. STUDY DESIGN: We estimate individual plan choice models where the choice of health plan is a function of out-of-pocket premium, actuarial value, plan attributes, and individual characteristics. Plan attributes include plan structure (fee-for-service/preferred provider organization, point-of-service, or health maintenance organization), drug benefit structure, and whether or not the plan covers other types of spending such as dental services and diabetic supplies. The models are estimated by conditional logit. Our study focuses on three populations that currently choose FEHBP as their primary health care coverage and are similar to the Medicare population: current employees and retirees who are approaching the age of Medicare eligibility (ages 60-64) and current federal employees age 65+. Current employees age 65+ are eligible for Medicare, but their FEHBP plan is their primary payer. Retirees and employees 60-64 are not yet eligible for Medicare but are similar in many respects to recently age-eligible Medicare beneficiaries. We also estimate our model for current employees age 55 and younger as a comparison group. DATA COLLECTION METHODS: We select a random sample of retirees and employees age 60-64, as well as all current employees age 65+, from the OPM administrative database for the calendar year 2001. The plan choices available to each person are determined by the plans participating in their metropolitan statistical area. We match plan premium and attribute information from the Checkbook Guide to each plan in the enrollee's list of choices. PRINCIPAL FINDINGS: We find that current workers 65+, 60-64, and non-Medicare eligible retirees are sensitive to variation in plan premiums. The premium elasticities for these groups are similar in magnitude to those of the age 55 and under employee group. Older workers and retirees not yet eligible for Medicare are willing to pay a substantial amount for plans with open provider networks. The willingness to pay for open networks is significantly greater for these groups than for younger employees. Willingness to pay for open network plans varies significantly by income, but varies little by age within group. CONCLUSIONS: Our finding that older workers and non-Medicare eligible retirees are sensitive to plan premiums suggests that choice-based reform of Medicare would lead to cost-conscious choices by Medicare beneficiaries. However, our finding that these groups are willing to pay more for open network plans than younger employees suggest that higher risk individuals may migrate toward higher benefit, higher cost plans. Our findings on the relationship between income and willingness to pay for open network plans suggest that means testing is a viable reform for lowering Medicare program costs.     

Quality and employers' choice of health plans

We seek to understand the relationship between employer decisions regarding which health plans firms choose to offer to their employees and the performance of those plans. We measure performance using data from the Health Plan Employer Data Information Set (HEDIS) and the Consumer Assessment of Health Plan Survey (CAHPS). We use a unique data set that lists the Health Maintenance Organizations (HMOs) available to, and offered by, large employers across markets in the year 2000, and examine the relationship between plan offerings, performance measures and other plan characteristics. We estimate two sets of specifications that differ in whether they model plan choice as a function of absolute plan performance or plan performance relative to competitors. We find that employers are more likely to offer plans with strong absolute and relative HEDIS and CAHPS performance measures. Our results are consistent with the view that large employers are responsive to the interests of their employees.     

Health insurance,cost expectations,and adverse job turnover

Because less healthy employees value health insurance more than the healthy ones, when health insurance is newly offered job turnover rates for healthier employees decline less than turnover rates for the less healthy. We call this adverse job turnover, and it implies that a firm's expected health costs will increase when health insurance is first offered. Health insurance premiums may fail to adjust sufficiently fast because state regulations restrict annual premium changes, or insurers are reluctant to change premiums rapidly. Even with premiums set at the long run expected costs, some firms may be charged premiums higher than their current expected costs and choose not to offer insurance. High administrative costs at small firms exacerbate this dynamic selection problem. Using 1998–1999 MEDSTAT MarketScan and 1997 Employer Health Insurance Survey data, we find that expected employee health expenditures at firms that offer insurance have lower within‐firm and higher between‐firm variance than at firms that do not. Turnover rates are systematically higher in industries in which firms are less likely to offer insurance. Simulations of the offer decision capturing between‐firm health‐cost heterogeneity and expected turnover rates match the observed pattern across firm sizes well. Copyright © 2010 John Wiley & Sons, Ltd.     

The effect of HMOs on premiums in employment-based health plans.

This study documents the effect of HMOs on premiums in employment-based health plans. We analyzed a survey of Minnesota employers conducted in 1986. Among 922 usable observations, 239 firms offered HMOs in addition to fee-for-service (FFS) health plans. We estimated an equation for the probability of offering an HMO, followed by equations for HMO enrollment share, and HMO and FFS premiums. The weighted average HMO and FFS premium in firms that offer HMOs was compared to the premium of FFS-only firms. We found that offering an HMO raises the average premium for family coverage health insurance by $25.14 per month and for single coverage by $3.68 per month. This effect was smaller for firms in the Twin Cities metropolitan area. HMOs may be viewed as a progressive and innovative health care benefit, but they are likely to increase firms' health insurance premiums.     

The effect of narrow provider networks on health care use

Network design is an often overlooked aspect of health insurance contracts. Recent policy factors have resulted in narrower provider networks. We provide plausibly causal evidence on the effect of narrow network plans offered by a large national health insurance carrier in a major metropolitan market. Our econometric design exploits the fact that some firms offer a narrow network plan to their employees and some do not. Our results show that narrow network health plans lead to reductions in health care utilization and spending. We find evidence that narrow networks save money by selecting lower cost providers into the network.     

Does the Racial/Ethnic Composition of Medicare Advantage Plans Reflect Their Areas of Operation?

Objective

To assess the extent to which the racial/ethnic composition of Medicare Advantage (MA) plans reflects the composition of their areas of operation, given the potential incentives created by the Centers for Medicare & Medicaid Services'' Quality Bonus Payments for such plans to avoid enrolling racial/ethnic minority beneficiaries.

Data Sources/Study Setting

2009 Medicare Consumer Assessment of Healthcare Providers and Systems (MCAHPS) survey and administrative data from the Medicare Enrollment Database.

Data Collection/Extraction Methods

We defined each plan''s area of operation as all counties in which it had MA enrollees, and we created a matrix of race/ethnicity by plan by county of residence to assess the racial/ethnic distribution of each plan''s enrollees in comparison with the racial/ethnic composition of MA beneficiaries in its operational area.

Principal Findings

There is little evidence that health plans are selectively underenrolling blacks, Latinos, or Asians to a substantial degree. A small but potentially important subset of plans disproportionately serves minority beneficiaries.

Conclusions

These findings provide a baseline profile that will enable crucial ongoing monitoring to assess how the implementation of Quality Bonus Payments may affect MA plan coverage of minority populations.     

The effect of quality information on consumer health plan switching: evidence from the Buyers Health Care Action Group

We examine the factors that lead employees to search for health plan quality information and the effect of such information on the decision to switch plans. Extending Hirshleifer and Riley's model [Hirshleifer, J., Riley, J.G., 1979. The analytics of uncertainty and information--an expositional survey. Journal of Economic Literature 17 (December (4)), 1375-1421] of the economics of information, we develop a two-equation model of quality information awareness and switching behavior. We estimate the model using data from a random sample of 651 single employees from 16 firms that are members of the Buyers Health Care Action Group, a health care purchasing coalition in the Minneapolis-St. Paul region. Our empirical results do not support either a link between quality information and switching behavior, or between perceived health plan satisfaction and switching. We do, however, find that switching is influenced by changes in premiums and whether an individual has an existing relationship with a health care provider.     

How Successful Is Medicare Advantage?

Context

Medicare Part C, or Medicare Advantage (MA), now almost 30 years old, has generally been viewed as a policy disappointment. Enrollment has vacillated but has never come close to the penetration of managed care plans in the commercial insurance market or in Medicaid, and because of payment policy decisions and selection, the MA program is viewed as having added to cost rather than saving funds for the Medicare program. Recent changes in Medicare policy, including improved risk adjustment, however, may have changed this picture.

Methods

This article summarizes findings from our group''s work evaluating MA''s recent performance and investigating payment options for improving its performance even more. We studied the behavior of both beneficiaries and plans, as well as the effects of Medicare policy.

Findings

Beneficiaries make “mistakes” in their choice of MA plan options that can be explained by behavioral economics. Few beneficiaries make an active choice after they enroll in Medicare. The high prevalence of “zero-premium” plans signals inefficiency in plan design and in the market''s functioning. That is, Medicare premium policies interfere with economically efficient choices. The adverse selection problem, in which healthier, lower-cost beneficiaries tend to join MA, appears much diminished. The available measures, while limited, suggest that, on average, MA plans offer care of equal or higher quality and for less cost than traditional Medicare (TM). In counties, greater MA penetration appears to improve TM''s performance.

Conclusions

Medicare policies regarding lock-in provisions and risk adjustment that were adopted in the mid-2000s have mitigated the adverse selection problem previously plaguing MA. On average, MA plans appear to offer higher value than TM, and positive spillovers from MA into TM imply that reimbursement should not necessarily be neutral. Policy changes in Medicare that reform the way that beneficiaries are charged for MA plan membership are warranted to move more beneficiaries into MA.     

Employer contribution and premium growth in health insurance

We study whether employer premium contribution schemes could impact the pricing behavior of health plans and contribute to rising premiums. Using 1991–2011 data before and after a 1999 premium subsidy policy change in the Federal Employees Health Benefits Program (FEHBP), we find that the employer premium contribution scheme has a differential impact on health plan pricing based on two market incentives: 1) consumers are less price sensitive when they only need to pay part of the premium increase, and 2) each health plan has an incentive to increase the employer's premium contribution to that plan. Both incentives are found to contribute to premium growth. Counterfactual simulation shows that average premium would have been 10% less than observed and the federal government would have saved 15% per year on its premium contribution had the subsidy policy change not occurred in the FEHBP. We discuss the potential of similar incentives in other government-subsidized insurance systems such as the Medicare Part D and the Health Insurance Marketplace under the Affordable Care Act.     

Do Medicare Advantage plans select enrollees in higher margin clinical categories?

The CMS-HCC risk adjustment system for Medicare Advantage (MA) plans calculates weights, which are effectively relative prices, for beneficiaries with different observable characteristics. To do so it uses the relative amounts spent per beneficiary with those characteristics in Traditional Medicare (TM). For multiple reasons one might expect relative amounts in MA to differ from TM, thereby making some beneficiaries more profitable to treat than others. Much of the difference comes from differences in how TM and MA treat different diseases or diagnoses. Using data on actual medical spending from two MA-HMO plans, we show that the weights calculated from MA costs do indeed differ from those calculated using TM spending. One of the two plans (Plan 1) is more typical of MA-HMO plans in that it contracts with independent community providers, while the other (Plan 2) is vertically integrated with care delivery. We calculate margins, or average revenue/average cost, for Medicare beneficiaries in the two plans who have one of 48 different combinations of medical conditions. The two plans’ margins for these 48 conditions are correlated (r = 0.39, p < 0.01). Both plans have margins that are more positive for persons with conditions that are managed by primary care physicians and where medical management can be effective. Conversely they have lower margins for persons with conditions that tend to be treated by specialists with greater market power than primary care physicians and for acute conditions where little medical management is possible. The two plan's margins among beneficiaries with different observable characteristics vary over a range of 160 and 98 percentage points, respectively, and thus would appear to offer substantial incentive for selection by HCC. Nonetheless, we find no evidence of overrepresentation of beneficiaries in high margin HCC's in either plan. Nor, using the margins from Plan 1, the more typical plan, do we find evidence of overrepresentation of high margin HCC's in Medicare more generally. These results do not permit a conclusion on overall social efficiency, but we note that selection according to margin could be socially efficient. In addition, our findings suggest there are omitted interaction terms in the risk adjustment model that Medicare currently uses.     

Beyond cost: 'responsible purchasing' of managed care by employers

We explore the extent of "responsible purchasing" by employers--the degree to which employers collect and use nonfinancial information in selecting and managing employee health plans. Most firms believe that they have some responsibility for assessing the quality of the health plans they offer. Some pay attention to plan characteristics such as the ability to provide adequate access to providers and services and scores on enrollee satisfaction surveys. A more limited but still notable number of firms take specific actions based on responsible purchasing information. Because of countervailing pressures, however, it is not clear whether or not the firms most involved in responsible purchasing are signaling a developing trend.     

Evaluation of the Effect of a Consumer-Driven Health Plan on Medical Care Expenditures and Utilization

Objective. To compare medical care costs and utilization in a consumer-driven health plan (CDHP) to other health insurance plans.
Study Design. We examine claims and employee demographic data from one large employer that adopted a CDHP in 2001. A quasi-experimental pre–post design is used to assign employees to three cohorts: (1) enrolled in a health maintenance organization (HMO) from 2000 to 2002, (2) enrolled in a preferred provider organization (PPO) from 2000 to 2002, or (3) enrolled in a CDHP in 2001 and 2002, after previously enrolling in either an HMO or PPO in 2000. Using this approach we estimate a difference-in-difference regression model for expenditure and utilization measures to identify the impact of CDHP.
Principal Findings. By 2002, the CDHP cohort experienced lower total expenditures than the PPO cohort but higher expenditures than the HMO cohort. Physician visits and pharmaceutical use and costs were lower in the CDHP cohort compared to the other groups. Hospital costs and admission rates for CDHP enrollees, as well as total physician expenditures, were significantly higher than for enrollees in the HMO and PPO plans.
Conclusions. An early evaluation of CDHP expenditures and utilization reveals that the new health plan is a viable alternative to existing health plan designs. Enrollees in the CDHP have lower total expenditures than PPO enrollees, but higher utilization of resource-intensive hospital admissions after an initially favorable selection.