I know most of you don’t have access to the WSJ, so I’m reprinting liberally from its story about the CDHP in South Africa. You know what I think by now on the subject, but it’s worth noting that the proponents of high deductible plans are viewing this as a success. Read these snippets:
Whatever Discovery’s advantages, they are available only to a small sliver of South Africans. About seven million people in this nation of 47 million have private insurance, entitling them to use a system of private doctors and hospitals that is considered on a par with Western nations in quality. The rest — including most of the estimated five million people infected with the AIDS virus — are stuck with the public system of hospitals and clinics, which are mostly underfunded and overwhelmed.
Discovery has a 26% share of the private-insurance market in South Africa, at least twice that of its nearest competitor. The majority of insured South Africans have high-deductible plans and have put aside some of their income in a savings account with tax advantages to spend on medical care. That is the combination President Bush is promoting in the U.S.
Most of Discovery’s rivals in South Africa have tried to copy its points program, and the idea is making some headway in the U.S., too.
Discovery says preliminary studies of its South African members suggest its incentives are having an impact. The most striking result: People age 50 to 54 who were actively chasing wellness points saw their health spending decrease even as they aged. However, the data cover only a few years and haven’t been published in a medical journal.
Skeptics in South Africa, including officials at the nation’s health-insurance regulator, say Discovery’s rewards program isn’t the win-win situation the company claims. They believe the real goal of the program is to attract a vigorous, health-conscious clientele and discourage older and sicker people from signing up for Discovery’s insurance plans.
"You discount things that younger and healthier people tend to like," says Alex van den Heever, a senior technical adviser at the regulator, which is called the Council for Medical Schemes.
And now it gets interesting, because like the Singaporeans the South Africans are going to do something about the destruction which underwriting and self-selection wreaks on the risk pool.
The problem of cream-skimming by insurers is a familiar one to health economists, and recently South Africa has taken steps to prevent it. Starting in about a year, companies whose insured populations are disproportionately filled with the young and healthy will have to pay a penalty. Discovery says its customer base is close to average now, and it doesn’t believe its success is the result of cherry-picking healthy people.
Discovery Holdings, the parent of Discovery Health, saw net profit jump 40% in the year ended June 30, 2005, to $97.4 million. The company is majority-owned by FirstRand Ltd., a South African financial-services company, but trades separately on South Africa’s main stock exchange. Its stock price has more than doubled since the beginning of 2004.
Another measure of the Vitality program’s value is how members’ health-care costs change over time. The insurer measures this using the "loss ratio," which is the cost of paying a member’s annual health claims divided by the annual premium. If the insurer receives $5,000 in premiums and pays out $2,500 to cover claims, the loss ratio is 50%.
Discovery examined 1,467 insured people age 50 to 54. From 2000 through 2003, those with elite status in Vitality saw their loss ratio fall to 70% from 73%, while the loss ratio for nonelite members rose to 80% from 72%. In the 30-34 age bracket, members in both the elite and nonelite categories saw loss ratios rise but the ratio rose faster for nonelite members.
Discovery says the study excluded those with family coverage and focused on individual members so that it could be sure the person racking up the points was the same one filing the health claims.
The bottom line seems to suggest some health benefit for eager point-getters, but Discovery’s own actuary, Mark Litow of Milliman Inc., acknowledges "we’d have to follow it much longer" to prove anything. Also, separating cause and effect is difficult: It is possible that the elite Vitality members would have pursued a healthy lifestyle even if they didn’t get rewards for it.
Alex van den Heever, the senior adviser at the government regulator, says: "I do not trust any commercial entity that has a big financial incentive to produce research." Discovery’s Mr. Gore says the government is welcome to examine the raw data. So far the company hasn’t submitted the data to a peer-reviewed medical journal. It says it might at some point.
Meanwhile, Discovery has brought its Vitality rewards program to the U.S., where it has a subsidiary called Destiny Health. Destiny’s South Africa-style plans, which combine a high deductible, a medical-savings account and reward points, are available in Illinois, Maryland, Massachusetts, Texas, Virginia, Washington, D.C., and Wisconsin.
And they don’t have to contend with any of that messy risk adjustment here. On the other hand, if there was a level playing field we might find out if any of this CDHP stuff worked (backing out for health and income). It’s just that the way the US is regulated we won’t because any insurer is by definition better off avoiding sick people. The rest is just window-dressing.
Pity, because there are certainly some interesting approaches in the CDHP morass.