1

THE COMMONWEALTH

FUND

Benefit Design: Access, Affordability, Risk Pooling

Cathy SchoenSenior Vice President, Commonwealth Fund

Benefits in Health InsuranceAlliance for Health Reform

Washington, DCOctober 10, 2008

2

THE COMMONWEALTH

FUND

Benefit Design: Goals and Issues

• Core goals of health insurance– Timely access– Affordability and financial Protection– Risk pooling

• Income matters: need to vary standard by income– Low income sensitive to cost-sharing

• National minimum benefit floor– Rationale– Principles and standards

• Design issues: limit variation or actuarial equivalent?– Standardization advantages: choice, administrative

costs, and health risk– Design innovation within limits?

3

THE COMMONWEALTH

FUND

Insurance Matters for Access and Financial Protection: Underinsured and Uninsured at High Risk

31

21

5345

68

51

0

25

50

75

Went without needed care due to

costs*

Medical bill problem or medical debt**

Insured, not underinsured Underinsured Uninsured during year

Percent of adults (ages 19–64)

*Did not fill prescription; skipped recommended test, treatment, or follow-up, sick but did not visit doctor; or did not get needed specialist care because of costs. **Problems paying medical bills; changed way of life to pay medical bills; collection agency for inability to pay medical bills or debt.

Source: C. Schoen et al. “How Many are Underinsured? Trends Among U.S. Adults, 2003 and 2007, Health Affairs Web Exclusive, June 2008. Data: 2007 Commonwealth Fund Biennial Health Insurance Survey

4

THE COMMONWEALTH

FUND

Cost-Sharing Can Reduce Essential and Less Essential Care and Increase Health Risks

9

1514

22

0

5

10

15

20

25

Essential Less Essential

E lderly Low Inc ome

Source: R. Tamblyn, R. Laprise, J. A. Hanley et al., “Adverse Events Associated with Prescription Drug Cost-SharingAmong Poor and Elderly Persons,” Journal of the American Medical Association, Jan. 24/31, 2001 285(4):421–29.

Percent reduction in drugs per day

117

43

97

78

0

20

40

60

80

100

120

140

Adverse Events ED Vis its

E lderly Low Inc ome

Percent increase in incidence per 10,000

5

THE COMMONWEALTH

FUND

National Minimum Benefit Floor: Principles

• Rationale– Ensure access with financial protection– Risk pooling: limit competition based on risk– Defined minimum for tax credit or mandate

• Design Principles– Broad scope of benefits – Prohibit disease or service specific limits; eliminate

lifetime limits or very high ceiling• Patient protection: benefits don’t “run out” no surprises

– Maximum deductible• Exempt preventive care and essential medications

– Annual out- of-pocket maximum • Deductible plus co-payments or co-insurance

6

THE COMMONWEALTH

FUND

Health Care Costs Concentrated in Sick Few—Sickest 10 Percent Account for 64 Percent of Expenses

Distribution of health expenditures for the U.S. population,by magnitude of expenditure, 2003

0%

10%

20%30%

40%

50%

60%

70%80%

90%

100%

U.S. Population Health Expenditures

1%5%

10%

49%

64%

24%

50%

97%

$36,280

$12,046

$6,992

$715

Expenditure threshold (2003 dollars)

Source: The Commonwealth Fund. Data from S. H. Zuvekas and J. W. Cohen, “Prescription Drugs and the Changing Concentration of Health Care Expenditures,” Health Affairs, Jan./Feb. 2007 26(1):249–57.

7

THE COMMONWEALTH

FUND

Standardization Above Minimum or Limited Variation within Group/Bands?

• Standardization, with limited variations above minimum?– Facilitates informed choice– Lowers administrative costs; complexity– Avoids variations that could segment risk

• Allow variations above minimum, equivalent bands?– Could allow for value-based design innovation– Restrict areas of variation

• Prohibit caps or limits on services; high, standardized lifetime maximum

• Limit range of cost-sharing variation; specify out-of-pocket maximums in equivalent bands or grouping

– Public disclosure in standardized format

8

THE COMMONWEALTH

FUNDSource: E. O'Brien and J. Hoadley, Medicare Advantage: Options for Standardizing Benefits and Information to Improve Consumer Choice, The Commonwealth Fund, April 2008

9

THE COMMONWEALTH

FUND

Cumulative Changes in AnnualNational Health Expenditures, 2000–2007

0

25

50

75

100

125

2000 2001 2002 2003 2004 2005 2006* 2007*

N et c os t of private health insuranc e adminis tration

Family private health insuranc e premiums

P ersonal health c are

Workers earnings

Notes: Data on premium increases are cost of health insurance premiums for a family of four. *2006 and 2007 private insurance administration and personal health care spending growth rates are projections.Sources: A. Catlin et al., “National Health Spending in 2005: The Slowdown Continues,” Health Affairs, Jan./Feb. 2007; J. A. Poisal et al., “Health Spending Projections Through 2016,” Health Affairs Web Exclusive (Feb. 21, 2007); Henry J. Kaiser Family Foundation/HRET, Employer Health Benefits Annual Surveys, 2000–2007 (Washington, D.C.: KFF/HRET).

109%

65%

91%

24%

Percent change

10

THE COMMONWEALTH

FUND

Benefit Design: Low-Income

• Low and modest income highly sensitive to cost sharing– RAND plus more recent studies: adverse health plus

increased use ER and hospital– At or near poverty = limited income for necessities

• State innovations in benefit design to assure affordability– Broad scope of benefits– Eliminate deductible– Low co-payment or cost-sharing– Low out-of-pocket maximums– Affordability standard relative to income

11

THE COMMONWEALTH

FUND

Benefit Design to Enhance Access, Affordability and Efficiency

1. Benefit floor: A standard benefit defined and available to all

2. Limit range of variation• Enable informed comparison• Provide consumer protection• Limit risk-segmentation • Lower administrative costs

3. Low-Income: more comprehensive benefits4. Design Goals:

• Access, income protection, risk pooling• Focus competition on improving health &

slowing growth in total costs