Consumer Directed Consumer Directed Health CareHealth Care

Winnie Nelson, PharmD, MSWinnie Nelson, PharmD, MS

CDHPCDHPConsumer Directed Health PlansConsumer Directed Health Plans

Potential Solution to Premium GrowthPotential Solution to Premium Growth

CDHP ExpectationsCDHP Expectations

Financial risk to members will alter demandFinancial risk to members will alter demand Balance cost against expected health benefitsBalance cost against expected health benefits Reduce use of discretionary careReduce use of discretionary care Seek lower-cost providersSeek lower-cost providers

Increase efficiencyIncrease efficiency Lowering utilizationLowering utilization Turning member into “smart shoppers”Turning member into “smart shoppers”

Cost-containment AND protection against Cost-containment AND protection against catastrophecatastrophe

Types of Health Care AccountsTypes of Health Care Accounts

Two components:Two components: High deductibleHigh deductible Tax-favored savings accountTax-favored savings account

Health Savings Account (HSA)Health Savings Account (HSA) Designed to pay for qualified medical expensesDesigned to pay for qualified medical expenses Must be paired with high-deductible planMust be paired with high-deductible plan

Health Reimbursement Arrangement (HRA)Health Reimbursement Arrangement (HRA) Designed to reimburse employees’ qualified medical Designed to reimburse employees’ qualified medical

expendituresexpenditures Can be paired with any planCan be paired with any plan

HSA vs. HRAHSA vs. HRA

HSAHSA HRAHRA

OwnershipOwnership EmployeeEmployee EmployerEmployer

ContributorsContributors Employee, employer Employee, employer and/or family membersand/or family members

Employer onlyEmployer only

Annual limits on Annual limits on contributionscontributions

Federally-set limitFederally-set limit No limit; employer No limit; employer usually sets limitusually sets limit

Tax TreatmentTax Treatment Qualified medical Qualified medical spending exempt from spending exempt from income taxes; employee income taxes; employee contributions contributions tax- tax-deductible; employer deductible; employer contributions contributions excluded excluded from gross income and from gross income and not taxednot taxed

Employer contributions Employer contributions excluded from gross excluded from gross income; not treated as income; not treated as taxable income to taxable income to employeesemployees

HSA vs. HRAHSA vs. HRA

HSAHSA HRAHRA

PortabilityPortability Fully portableFully portable No requirement; many No requirement; many employers do not make employers do not make accounts portableaccounts portable

Unspent fundsUnspent funds Rolls over yearly without Rolls over yearly without limitslimits

May roll over yearly but May roll over yearly but employer may set employer may set maximums; funds may maximums; funds may revert to employer if revert to employer if employee leaves or employee leaves or retiresretires

Qualified medical Qualified medical expense definitionexpense definition

Specified by IRS; Specified by IRS; payment for health payment for health insurance premiums may insurance premiums may be restrictedbe restricted

Specified by IRSSpecified by IRS

Non-medical useNon-medical use Subject to income tax Subject to income tax with additional 10% with additional 10% penalty before age 65penalty before age 65

ForbiddenForbidden

Overall Enrollment Still LowOverall Enrollment Still Low

CDHP GrowthCDHP Growth

2008 Best Seller for Large Group2008 Best Seller for Large Group

AmountAmount

Avg Annual DeductibleAvg Annual Deductible Single: $2,046Single: $2,046

Family: $3,998Family: $3,998

Avg Annual Out-of-Avg Annual Out-of-Pocket LimitPocket Limit

Single: $3,194Single: $3,194

Family: $6,110Family: $6,110

Avg Lifetime Max Avg Lifetime Max BenefitBenefit

Single: $3.6 MillionSingle: $3.6 Million

Family: $3.7 MillionFamily: $3.7 Million

Avg Annual PremiumAvg Annual Premium Single: $3,185Single: $3,185

Family: $8,241Family: $8,241

CDHP EffectsCDHP Effects

Behavioral ChangeBehavioral Change

Members:Members: More likely to use decision support toolsMore likely to use decision support tools Pay closer attention to preventive carePay closer attention to preventive care More likely to delay/avoid careMore likely to delay/avoid care Increase cost-sharing associated with decrease Increase cost-sharing associated with decrease

patient medication adherencepatient medication adherence

MDs:MDs: Likelihood of prescribing high cost medication Likelihood of prescribing high cost medication

droppeddropped

Cost-Sharing EffectsCost-Sharing Effects

Davis K, 2004.

Care-Seeking Behavior ModifiableCare-Seeking Behavior Modifiable Rowe et al. 2008. Health AffairsRowe et al. 2008. Health Affairs Compared use of preventive, cancer screening Compared use of preventive, cancer screening

& diabetic monitoring services& diabetic monitoring services Between CDHP & PPO plansBetween CDHP & PPO plans Members with continuous 3-year enrollmentMembers with continuous 3-year enrollment

Results: No difference in level & trends in useResults: No difference in level & trends in use

WHY?WHY?

The services were free in CDHP

Adverse SelectionAdverse Selection

In TheoryIn Theory Healthier, higher-income Healthier, higher-income

individuals enrolling in individuals enrolling in CDHP CDHP

Sicker, lower-wage Sicker, lower-wage individuals in traditional individuals in traditional plansplans

Escalation of cost in Escalation of cost in traditional planstraditional plans

In PracticeIn Practice Healthy & sick Healthy & sick

expectations drive expectations drive consumer decisionconsumer decision

Conflicting findings in Conflicting findings in research affected by research affected by benefit designbenefit design

Research methods not Research methods not precise enough to detectprecise enough to detect

Patients Becoming More Cost ConsciousPatients Becoming More Cost Conscious

Patients Price-Conscious on MedicationPatients Price-Conscious on Medication

Increased Influence of Consumer Decision SupportIncreased Influence of Consumer Decision Support

Cost conscious decision makingCost conscious decision making Check coverageCheck coverage Ask for generic drugsAsk for generic drugs Talk to doctor about treatment optionsTalk to doctor about treatment options Ask doctor for cheaper drugsAsk doctor for cheaper drugs Check price of service beforehandCheck price of service beforehand Check quality rating of doctor & hospitalCheck quality rating of doctor & hospital Participate in wellness programsParticipate in wellness programs Use online cost-tracking toolsUse online cost-tracking tools

Implications to Pharmaceutical IndustryImplications to Pharmaceutical Industry

Threats:Threats:

Erosion of market in Erosion of market in “lifestyle” conditions“lifestyle” conditions

CDHP becoming only CDHP becoming only choicechoice

Medication non-Medication non-adherenceadherence

Cost pressure against Cost pressure against biologics & other high biologics & other high cost drugscost drugs

Opportunities:Opportunities:

Price vs. value perception Price vs. value perception for consumersfor consumers

Provision of decision Provision of decision supportsupport

Effects of CDHP Effects of CDHP modifiablemodifiable

Strong interests in Strong interests in consumer engagement to consumer engagement to decrease patient cost decrease patient cost sharingsharing