POLICY/HEALTH PLANS: CDHPs–Employers skeptical, actuaries doubtful.

I’ve taken my time in responding to guest poster Andy Ribner, MD whose piece published in THCB last week was aggressively in favor of one free market approach to health insurance (Medical Savings Accounts) and highly opposed to another (Managed Competition) while putting almost all the blame for the system’s current failures on the alleged oligopsony of the large insurers. Although the concentration of market share among the top 10 insurers continues to increase nationally, I’m pretty sure that Andy is wrong when he calls this an oligopsony.  In the last 5 or so years, insurers have moved away from their aggressive tactics versus providers (although in fairness Andy is right to point out that hospitals have legally and practically found it easier than physicians to fight back). Instead insurers have turned to one old trick, more accurate risk selection (as in Atena’s recovery), and are developing a new wrinkle on a second–new product creation.   The new product is the Consumer Directed Health Plan (CDHP), which is really another way of wrapping some extra services around a Health Reimbursement Account, or alternatively a Health Savings Account (HSA). There’s been lots of noise about these CDHPs and of course the HSA was opened to everyone in the Medicare Modernization Act (MMA).  The problem with the HSA that no one has successfully explained away to me is how does an employer/insurer go about putting much of the risk pool in the hands of the healthy 80% who aren’t going to use much of the money for care, without at the same time reducing the amount available to the 20% who are going to need it.  HSA advocates just go on about buying catastrophic insurance as though there’s a separate pot of money–but it’s all health care spending. This continues to baffle me.

And I don’t appear to be alone.  HSC is out with another of its prescient studies of 12 major metro areas, and this one looks at the attitudes of employers.  Here’s the quick news release while the actual details are in this issue brief. Essentially the study finds that employers are pretty skeptical of the whole HSA/CDHP movement for two major reasons.  The first is that they don’t see how their overall risk pools are going to save money by doling out actual cash to everyone–in particular they are concerned that giving healthy people $1000 will make them spend it on unnecessary stuff, (or presumably in the case of the HSA rather than the employer controlled HRA, keep it). via Don Mccanes’s PNHP quote of the day, comes word that the journal Health Services Research (Yes I’ve got a degree in that subject but barely ever read the mag anymore!) has an entire August issue on CDHPs. And in that issue are two studies from representatives of two of the guilty parties who’ve been pushing the hype.  One is a benefits consulting group while the other is a health plan. Arnie Milstein from Mercer shows that from their studies of their client base "While enrollment in consumer-directed health plans continues to grow steadily, it remains a tiny fraction of all employer-sponsored coverage".  Mercer seems to believe that tiered coverage (which is akin to the old managed care IPA model of creating exclusionary networks) is doing better.  But they are skeptical of the ability of consumers to choose between different services with the current lack of easily available information.

One key concern was that by providing a spending account to all employees, employer payments might increase for their healthy workers. One employer noted that 70 percent of the firm’s covered employees had health care costs of less than $1,000 a year. Concerned that a spending account would encourage healthy workers to use more services despite being able to rollover unused funds to the next year, this employer expected that a $1,000 spending account would raise costs, not lower them.

  Similarly the employers don’t seem to think that there are any real controls on how the money is spent on the 20% who blow through their deductibles–and of course that’s the group on whom 80% of the money is spent 

Another concern was that consumer-driven health plans had no better high-cost case management tools than other managed care options. Employers believed there were more opportunities for cost savings by managing high-cost cases rather than reducing utilization among the majority of workers who already use little care. In addition, many noted that spending accounts did not provide a "high-end user" with any incentives to control costs because individuals with catastrophic illnesses typically are fully covered by the health plan after the deductible and any out-of-pocket maximums are met.

Now this is not objective data, it’s a report back on the likelihood of the success of CDHP’s based on the reaction of employers who are opining from their very limited data and guess work.  But the news can’t be good for advocates of the "HSAing" of the system. And the conclusions of the HSC researchers are that CDHPs will struggle to get much traction.  Like many health care "innovations", the hype on the powerpoint exceeds the reality on the ground.

However, it’s worth really pushing this one a little further because

None of that is nearly as damning as a study from Humana of its own employees in a new CDHP it offers. They looked at the claims experience of those who chose to go into the CDHP versus those who didn’t. While demographically the two groups appeared to be the same, the "risk experience" (that’s care utilization in English) of the people who chose the CDHP, in the year prior to their switch, was around 60% of the other groups. In other words the healthier people went into the CDHP. The authors conclusions are that:

The offering of high-deductible or consumer-directed health plan options alongside more traditional options caused risk segmentation within an employer group….Further research is needed to determine whether risk segmentation will worsen in future years for this employer and if so, whether it will cause premiums for more traditional health plans to increase.

In other words the fears of the employers whom the HSC researchers met were justified. If you have a CDHP, too many of your healthy employees will leave the overall pool and take the money, while the sicker ones will stay in the traditional plan. And that means that overall the whole pool will cost more.

So it appears that my skepticism in the face of the HSA and the CDHP seemingly taking over the whole market looks to be correct. Perhaps Andy Ribner should get out the old articles about managed competition?

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