Mila Kofman

January 26, 2006

“CONSUMER” DRIVEN HEALTH PLANS

2006 Families USA Conference

Mila Kofman, J.D., Associate Research Professor

Health Policy Institute, Georgetown University202-784-4580 direct; mk262@georgetown.edu

hpi.georgetown.eduwww.healthinsuranceinfo.net

Mila Kofman

January 26, 2006

BACKGROUND

• Double-digit annual premium increases• For-profit marketplace: “Pricing is a function of

medical cost + administrative cost + PROFIT = base rate” (emphasis added) President/CEO, Coventry Health Care of Louisiana, Inc.

• No legislation to address reasons for price hikes • Conservative’s Ideology:

– From risk-sharing to “personal responsibility” – Auto insurance model for health care

• Conservative’s solution: pass premium increases to workers, cut benefits, and shift cost of medical care to patients

Mila Kofman

January 26, 2006

Consumer-Driven Health Plans

• Market trend (new products CDHP, “mini-med” and “med-light”): “less is more”

• Legislation to promote trend: HSAs, AHPs, “Enzi” compromise

Mila Kofman

January 26, 2006

Consumer-driven health care…

a.k.a.: • consumer-directed health plans,• health savings accounts (HSAs)

with high-deductible health plans (catastrophic coverage),

• health reimbursement accounts/arrangements (HRAs) with high-deductible plans

Mila Kofman

January 26, 2006

Consumer-Driven Health Plans: cost shifting from

health plans to patients

• Reduce costs for employers and insurers

• Raise out-of-pocket costs for patients

Mila Kofman

January 26, 2006

Health Savings Accounts

• Tax free in/tax free out - $$$• “Above the line” tax deduction: $2650 individual/

$5250 families (only with plan: annual deductible of $1000/$2000 minimum and max out-of-pocket $5100/$10,200) – for 2005

• Account used to pay for: medical expenses, annual deductibles, COBRA & health insurance while unemployed, Medicare-related expenses

• 10% penalty if used for other purposes (over 65 no penalty)

Mila Kofman

January 26, 2006

HSAs MSAs* FSAs HRAs

Health plan type

High deductible only

High deductible only High deductible and comprehensive

High deductible and comprehensive

Carryover from year to year

Yes Yes No Yes

Individual owns account (keep even after leaving job)

Yes Yes No No (up to employer if individual allowed access to HRA after employee leaves)

Type of coverage?

Individual and job-based health coverage

Small business or self employed health coverage only

Job-based only

Job-based only

Who contributes?

Individuals, employees, and employers

Employee, self-employed person or small business employer (50 or less employees) – both employee and employer cannot contribute in a tax year

Employee Employer

How is it taxed?

“Above-the-line deduction” (employer contribution not taxed as income)

“Above the line deduction” (employer contribution not taxed as income)

Not taxed as income

Not taxed as income

Mila Kofman

January 26, 2006

HSAs are not proposals for uninsured (except healthy & wealthy uninsured)

• HSAs and HRAs – tax deductions and non-taxable benefits (to soften the blow of cost-shifting)– $0 help to working poor and moderate income

wage earners– No help to uninsurable people

• Sales pitch: “consumer empowerment,” “choice,” “consumer in the driver’s seat,” “cost-sharing” etc.

Mila Kofman

January 26, 2006

Flawed Assumptions about Consumer Behavior

• Patients can make difficult decisions (MRI v. x-ray)– Information gap– 90 million Americans are health illiterate (IOM 2004)

• Choose cheapest option (cheapest heart surgeon)• “skin in the game”

– Name brand only drugs, no generics– Catastrophic conditions (even small co-pays =

$1000’s/month)– Personal bankruptcy

• Rational decisions – Prescription drug ads & $$ on marketing – Lack of information

Mila Kofman

January 26, 2006

Secrets revealed:

• Health coverage is expensive because medical care is expensive

• Cost drivers: provider costs, hospital costs, higher utilization, prescription drugs, etc.

• Chronic illness: 125 million Americans

• 80-20 rule

Mila Kofman

January 26, 2006

Consumer Driven Health Plans

• Do NOT address real cost (medical inflation)• Hurts people who need medical care and moderate

and low income people and families• Have adverse long term implications for all

CDHPs are a way to divert attention

from real reforms

Mila Kofman

January 26, 2006

• Implications for people

– Access to medical care: less care/delays in necessary care (RAND 2004)

– No financial security & bankruptcy (Warren 2004)

– For others: higher premiums (family premiums included $922 to pay for uncompensated care) (Families USA 2005)

• Implications for system

– Higher long-term spending

– Cost shifting to people with comprehensive coverage: uncompensated care paid for by privately insured people ($43 billion in 2005)

Mila Kofman

January 26, 2006

Recent research: 2005 California HealthCare Foundation survey

• Employers: – 75%+ (surveyed in CA) believe “cost-sharing” causes

consumers to forgo needed medical care and has a negative impact on people with chronic conditions

– 40%+ believe that it reduced workers’ productivity

• Consumers: – 1 in 7 adults forgo medical care– especially a problem among low income and people

with fair/poor health (skipping check-ups, tests or procedures, not going to a doctor for a problem, etc.)

Mila Kofman

January 26, 2006

Recent research: 2005 EBRI/Commonwealth Fund Survey

• Less satisfied with Consumer Driven Health Plans than comprehensive coverage

• Higher out-of-pocket (OOP) costs:

Percent of enrollees who spent more than 5% of their income on OOP costs & premiums HDHP 42% CDHP 31% Comprehensive Coverage

12%

Mila Kofman

January 26, 2006

Cost Shifting

• Ensure continued high profits for insurers• Short reprieve for employers from double-

digit cost increases 73% in the last 5 years Just because it’s good for Wall Street

doesn’t make it good for working families, for people with medical needs, and for our communities

Mila Kofman

January 26, 2006

Consumer-Driven Health Plans(high deductible plans, HSAs, etc):

• Erode job-based health care financing

• Erode comprehensive health insurance

• Move us to a model of self-financing our medical care (from community …sharing risk and helping each other … to “personal responsibility”)

Mila Kofman

January 26, 2006

Back to the basics:

Why do we care about health insurance?

• Access to medical care and services

• Financial security

Mila Kofman

January 26, 2006

• VALUES: moral and ethical– It’s un-American to let 18,000 people die/year

• ECONOMIC INTERESTS– Productive communities and society– Healthy people = productive (economically, socially,

politically)– Uninsured: $65 to 130 billion/year is cost to economy

(Inst. Of Medicine) – U.S. companies in a global economy (GM $1500/car to

pay for health care)• Public policy goals

– Consumer-driven health plans and HSAs do not help us achieve