POLICY/HEALTH PLANS: More evidence that HDHPs work, by Eric Novack

Eric Novack has something to say about HDHP/HSAs, even more to say about who’s getting rich as a result, and little to mention about self-selection. But then I’m just a cynic.

Novack_sm_2>A simply fascinating report has come from Aetna recently. This from the company that has been about the worst in the Phoenix area for reimbursing physicians at well-below Medicare rates for services. Let me just copy some of the main findings (highlights mine).

Full replacement plans see the most significant savings from Aetna HealthFund. Health Reimbursement Arrangement (HRA) plans effective in January of 2003 experienced an average medical cost trend of 1 percent over three years, meaning that medical costs for these plans increased only 3 percent between 2002 and 2005.Employers who offered Aetna HealthFund as an option are seeing savings across all products offered. Those who offered an HRA option plan effective in January of 2003 experienced an average medical cost trend of 6.7 percent over a three-year period. Both Aetna HealthFund HRA and Health Savings Account (HSA) members with chronic conditions maintained or improved the level of care they received prior to joining the plan, including a 6 percent higher usage of inhaled steroids among asthmatics when compared to a similar population. Preventive care was also maintained or improved. For example, first-year HSA members received cervical cancer screenings at a 13.8 percent higher rate than PPO members. Generic drug utilization for HRA members was 4.5 percent higher than PPO members.

The essence is this: companies that only offered HSA/HRA saw health cost increases averaging only 1% per year over 3 years. Those that had an HSA as an option saw increases averaging only 2.3% per year over 3 years. All this while utilization of preventative services appears to have stayed the same or gone up. Now this is only a snapshot of proprietary data. But maintaining below inflation rates of health spending increases for more than one year deserves the attention of everyone genuinely interested in keeping the healthcare from going over the cliff (or further down the hillside, depending upon where you believe we are).

The really big question is this: Are the cost savings to Aetna being passed on to the consumer? In other words, are premiums getting that much more affordable compared to standard PPO, HMO plans? I do not know for sure, but I am suspicious that these savings are translating into much higher profits, at least for now—meaning that costs to the public are continuing to go up unabated. I shall try to contact Aetna and get the answer and update you.But for the anti-HSA crowd… this certainly does not help the arguments that are so vehemently against HDHP/CDHP.

UPDATE: A shot across the bow for the Medicare-for-all crowd.
From the story:

Medicaid officials comb applications to find Medicare recipients who work in such jobs, focusing on large employers most likely to offer health insurance. If the employee premiums are less than Medicaid’s costs for the same family, the state contacts the family and offers to reimburse their portion of the premiums.
Under the program, Medicaid pays only the employee portion of the premium, not the employer’s. Typically, employees pay about a quarter of the total insurance premium, with the employer paying the rest, according to the Kaiser survey.
Washington spends an average of $173 a month per person on Medicaid. But it pays only about $76 a month in premiums to put a person on an employer’s plan, plus another $16 a month for any services not covered by some employer’s plans, such as vision and dental.

It is still very flawed, since it relies on the employer tax exclusion for health benefits—but it is saving the state (and really, you, the taxpayer, money).
But, where is the Dad in the story… or is that not politically correct?

Categories: Uncategorized

Tagged as:

14 replies »

  1. Ex President Mr. Bush aggressively promoted Health Saving Accounts (HSA)as one solution to the high cost of Health Care. However, most of the employers discovered on their own that Health reimbursement Arrangements (HRA)were better solution. Interestingly the HRA was kept from spotlight by the administration.

  2. Interesting… I might try some of this on my blog, too. It’s quite interesting how you sometimes stop being innovative and just go for an accepted solution without actually trying to improve it… you make a couple of good points
    online job

  3. If you live in New JErsey, you can just about forget HSA’s altogether. I recently visited a medical school colleague in LA who is a solo physician. He pays $325/mo to insure a family of five for an HSA plan with a $5000 deductible (total yearly expense <$9000). When i came home i asked our healthcare benefits consultant why we couldn't get such a reasonably priced plan. HIs response? In New Jersey, the legislature has mandated so much coverage that the pricing of HSA's isn't below that of traditional plans. As a result, we pay over $14,000 per year for similar coverage.

  4. Tom- do not misunderstand… I am no fan of the current tax exclusion. I agree with your articulation of ‘crowd-out’ effect of government intrusion and bailout of private insurance. Yet I could not help but bring the concept of public subsidy of private coverage as being cheaper than pure government based healthcare.
    Thanks for pointing out the philosophical inconsistency…

  5. For a free-market enthusiast, Eric, I’m surprised at how little thought you’ve given to how Washington State companies will respond to the new incentive structure.
    Washington State has given away its bottom line: for any Medicaid enrollee whose employer provides health coverage, Washington will pay up to some percentage, say 90%, of the amount it would otherwise provide in Medicaid subsidies to the employer. What should a rational employer do?
    1. Get all your employees to enroll their families in Medicaid and CHIP.
    2. Raise deductibles and copays to reduce the value of your health plan to just above the State’s subsidy threshold.
    3. Sit back and watch the taxpayer-financed savings roll in.
    Of course the result should be a massive woodwork effect that costs Wash State large quantities of money, accompanied by employer demands to make this discretionary program mandatory to avoid picking “lucky winner” employers. But hey, we’ll see.

  6. Peter- you are a taxpayer. I tell you it will cost less than half of your dollars to insure someone privately through his or her employer than if the state covers it 100%. Which would you choose?
    Put another way, do you want a tax of $1 or $2.50?

  7. I think it will be interesting to measure the experience of companies that only offer high deductible plans vs those that only offer comprehensive plans vs those (like Wal-Mart) who are making high deductible plans the only offering for NEW employees. This should eliminate the self-selection issue and allow us to measure the cost increases attributable to different insurance models for comparable demographic groups across multiple years. It would not surprise me to see the high deductible plan result in lower total cost (including the employee’s out of pocket share) because I believe that people will act rationally and in their own best interest which includes spending their own money slower and more wisely than someone else’s.
    Separately, with respect to the potential of prevenive care to save money in the long run, if insurers who are paying out billions in claims each year really think this concept is valid, there is nothing to stop them from offering a package of preventive care services as an aggressively priced (inexpensive) loss leader.

  8. “And where is the tidal wave of criticsm and vitriole that I anticipated with this post?”
    I’m getting around to that Eric. So it seems that a plan where employees have access to prepaid company HSA’s to use for preventive care lowers costs for insurers. Well DAH. Maybe if everyone (not just those with employer insurance) had access to a plan that promotes use of preventive care, it would lower costs for all of us, not just insurers.
    As to your “shot across the bow”, not even close. Better re-sight your cannon. What does it say about company wages and health insurance when the tax payer (Medicaid) needs to pay for company insurance because the employee still can’t afford it even with a job that offers it. It may reduce costs for the taxpayer(not sure what benefits they’re giving up) but it says that a government paid and run system is still the answer because the private company one is not accessable.

  9. I’m with TomH both on the cherries, and the fact that these groups are probably self-selected (as the initial Humana/Kaiser study showed)
    Meanwhile, the first blush results on premium reductison from HMOs were MUCH MUCH larger than for these HDHPs (premiums went DOWN! Remember that). So let’s see what it loks like in a few years.
    Meanwhile I was forwarded an email from Aetna that at the least suggests that perhaps not all the savings will be heading back to teh end customer…
    But I remain open to the possibility that this works to restrain costs, as teh RAND experiment way back when suggested that it might. I just think it’ll destroy the insurance system while it’s “working”.
    Finally, to TomH’s point we’re all wankers. I never figured out why we Brits widely use the insult of someone doing an activity which all humans do, and (should) enjoy doing. If I want to insult someone on this site (e.g. the President of AHIP) I’ll call them out for doing something wrong. Like lying.

  10. These company-specific reports are dubious. The underlying data and methodology are never released, only the press release, which carefully cherry-picks the most favorable findings. I would take this study much more seriously, however, if Aetna agreed to turn over the data to the Rand Institute for an independent analysis.
    Here’s an example of the problem:
    “Preventive care was also maintained or improved. For example, first-year HSA members received cervical cancer screenings at a 13.8 percent higher rate than PPO members.”
    Yet cervical cancer screening is only one of many preventive care measures, and not one that affects a large number of women. In short, it’s an odd choice, leading me to suspect that other findings on this axis were not so favorable. Why only HSA members and not HRA members? Why compare only to PPOs (where there is virtually no care management) and not to HMOs? The scent of freshly-picked cherries hangs in the air.
    Is a 1% medical cost trend significant? It’s more than significant. It’s huge. In fact, it’s so huge as to be questionable. As Matt and others have pointed out, HDHPs exercise control costs only up to the deductible, at which point they become standard PPOs. But the vast majority of medical costs are incurred above the deductible. Something fishy is going on here, but we’re not going to find out what it is from the PR flacks at Aetna.

  11. Alas, the potency of vitriol on this site is weak beer compared to other blogging sites. Matt Holt has never so much as called anyone a wanker (I checked, just to make sure), so what can be expected of commenters? But if it would make Eric feel better, I’ll give Ron Greiner a call to see if he’s ready to come back.

  12. Peter- the features of HSAs are relatively universal, due to federal regulation.
    HSA=high deductible health insurance plan + ‘health savings account’.
    The study does appear to focus on plans based with employers. Employers generally pay most or all of the HDHP component (really it is part of the employee’s total compensation, but that is somewhat off topic). The employer can also contribute to the health account pre-tax.
    When the employee leaves the job, he or she still owns whatever is in the account.
    The study also comments on HRA= health reimbursement account. With these, the employee (or possibly employer) can put aside money for healthcare expenses. If the employee does not use the funds, then the leftover amount returns to the employer.
    Hope that helps…
    And where is the tidal wave of criticsm and vitriole that I anticipated with this post?

  13. OK, I’m trying to get my understanding of this as the Aetna web site, true to insurance clarity, doesn’t say much that is substantive. But it seems the core feature is an emplyer HSA instead of an emplyee HSA, which allows rollover of unspent monies (unlike a employee HSA). The employer pays into the fund, not the employee, and the emplyee gets use of the fund for preventive services. Is my understanding correct?

  14. I’ve heard that Cigna has a study that shows essentially similar results with its employees. While the high deductible group in both studies may include people who take personal responsibility more seriously than average, it does suggest, at the very least, that there is a sizeable segment of the population that can and will act rationally and in their own best interest. The counterintuitive data that shows the high deductible group actually sought more preventive care than the PPO group is especially encouraging.
    I think these results will be even better once we have robust pricing and quality transparency. Just being able to find the most cost effective facility (hospital, imaging center, lab, etc.) to have a procedure recommended by your doctor performed can result in considerable savings without the patient having to make any judgments about whether the procedure is appropriate or necessary. Judging the quality and cost-effectiveness of doctors is trickier but not impossible with the help of modern information technology.