1. Consumer Directed Health Plans: New evidence on cost and utilization iHEA Conference, Barcelona, Spain July, 2005 Roger Feldman, Stephen T. Parente, and Jon B. Christianson Sponsored by the Robert Wood Johnson Foundation’s Health Care Financing & Organization Initiative (HCFO)

2. Presentation Overview  Past Results  New questions  Methods and results from new analysis  Conclusions

3. 2004 Study Design  Reported in August 2004 Health Services Research* A large employer that offered CDHP in 2001, alongside existing POS and PPO plans Employees who worked for firm from 2000-02 3 cohorts:  Joined CDHP in 2001 and stayed in 2002  Always in POS 2000-02  Always in PPO 2000-02 Control for several factors to adjust cost & use estimates *ST Parente, R Feldman, JB Christianson. “Evaluation of the Effect of a Consumer Driven Health Plan on Medical Care Expenditures and Utilization,” Health Services Research, 39: 4, Part II, pp. 1189-1209, August 2004.

4. What was the adjusted impact on total expenditure? NOTES: (1) These are results from a restricted continuously enrolled sample of 50% to 60% of the total employee population and are not a reflection of the plans’ full PMPM expenditures. (2) Patient expenditures from the Personal Care Account (PCA) are included in the employer payment category. ( 3) Employee payment reflects deductibles, copayments, and coinsurance expenses.

5. Did the adjusted impact on total expenditure differ by type of service? NOTE: These are results from a restricted continuously enrolled sample of 50% to 60% of the total employee population and are not a reflection of the plans’ full PMPM expenditures.

6. What was the adjusted impact on use of different services? NOTE: These are results from a restricted continuously enrolled sample of 50% to 60% of the total employee population and are not a reflection of the plans’ full admissions and prescription drug experience.

7. Summary of 2001-2002 CDHP Results  CDHP cohort began with favorable selection but experienced highest rate of growth in total $  CDHP cost and use trends were highest for hospital care: hospital expenditures and admission rate were dramatically higher by 2002  No dramatic differences in use physician services  Relatively better control of Rx spending in CDHP

8. Cohort Design for New Study  Experimental Cohort #1 (“long” cohort): Worked for firm from 2000-03 Joined CDHP in 2001 and stayed through 2003 Control groups: worked for firm from 2000-03 and stayed in PPO or POS the entire time  Experimental Cohorts #2 &3 (“short” cohorts):  Another plan in 2001, CDHP in 2002  Another plan in 2002, CDHP in 2003  Control groups for short cohorts: enrolled in PPO or POS for matching two-year period

9. Research questions  Will another year of data show that the CDHP can control trends in total cost and use?  Did CDHP enrollees use more resource- intensive hospital care?  Do we observe inappropriate substitution away from Rx in the CDHP, leading to higher hospital spending, more inpatient admissions, and more ER visits?

10. Methods: Research Question #1 Prob ($ it > 0) = b 0 + b 1 Cohort i + b 2 Time + b 3 Time x Cohort i + b 4 X it + e it Ln ($ it | $ it > 0) = f (same variables) $ = annual expenditure per contract Cohort = indicators for CDHP and PPO, relative to omitted POS Time = indicators for 2001, 2002 and 2003, relative to 2000 X = contract-holder age, sex, and income, contract-level illness burden, health shock, number of covered lives, and use of FSA b 3 coefficients indicate difference-in-difference effects

11. Research Question #1, continued Estimate same model for short cohorts that joined CDHP in 2002 or 2003 Strongest evidence in favor of pent-up demand would be stable or declining spending for experimental cohort #1 compared with POS, but high spending for short cohorts #2 and #3 We cannot rule out permanent moral hazard if all CDHP cohorts experience high cost & use

12. Research Question #2 Ln($/ADM it |ADM it > 0) = b 0 + b 1 Cohort i + b 2 Time + b 3 Time x Cohort i + b 4 X it + b 5 IB it + e it IB = illness burden measured annually to control for factors related to hospitalization

13. Research Question #3 Y it = b 0 + b 1 Cohort i + b 2 Time + b 3 Time x Cohort i + b 4 X it + b 5 RX it-1 + e it Y = hospital or emergency room use or $ (in 2 parts) RX = lagged prescription drug expenditures

14. Table 1. Impact of CDHP and PPO on Cost NOTE: These are results from a restricted continuously enrolled sample of 28% of the total employee population and are not a reflection of the plans’ full PMPM expenditures. Bolded numbers are significant at p<.05. Annual Plan Effects Compared With POS Plan

15. Table 2. Impact of CDHP and PPO on Physician, Hospital, and Pharmacy Cost NOTE: These are results from a restricted continuously enrolled sample of 28% of the total employee population and are not a reflection of the plans’ full PMPM expenditures. Bolded numbers are significant at p<.05. Annual Plan Effects Compared With POS Plan

16. Table 3. Impact of CDHP and PPO on Visits, Hospital Admissions, and Scripts NOTE: These are results from a restricted continuously enrolled sample of 28% of the total employee population and are not a reflection of the plans’ total expenditures. Bolded numbers are significant at p<.05. Annual Plan Effects Compared With POS Plan

17. Table 4. Short (1 year) Impact of CDHP and PPO on Total Expenditure NOTE: These are results from two two-year cohorts and are not a reflection of the plans’ Full PMPM expenditures. Bolded numbers are significant at p<.05. Annual Plan Effects Compared With POS Plan

18. Table 5. Impact of CDHP and PPO on Hospital Expenditure (all costs) per Admission NOTE: These are results from a restricted continuously enrolled sample of 28% of the total employee population and are not a reflection of the plans’ full PMPM expenditures. Bolded numbers are significant at p<.05. Annual Plan Effects Compared With POS Plan

19. Table 6. Impact of Prior-year Pharmacy Spending on Hospital and ER Cost and Use NOTE: These are results from a restricted continuously enrolled sample of 28% of the total employee population and are not a reflection of the plans’ full PMPM expenditures. Bolded numbers are significant at p<.05. Effect of Lagged Rx Spending is Assumed Equal Across Plan Cohorts

20. Conclusions #1 Addition of 3 rd year of CDHP data does not change our previous result: the CDHP is unable to control medical expenditures over time in this large employer  The CDHP had annual gap of only $500 between the personal care account and full insurance coverage for single contracts, and $1,000 gap for family contracts #2 There is some evidence of pent-up demand, but not enough to deny the existence of a permanent moral hazard problem

21. Conclusions, continued #3 We pinpoint the source of the moral hazard problem: the CDHP cohort spent considerably more money on hospital care, and this difference persists over time #4 The analysis of expenditure per hospital admission produces inconclusive results #5 Lagged prescription drug spending is associated with higher hospital spending, admissions, and ER use

22. Summary The CDHP had too little out-of-pocket cost sharing to be effective Copies of presentation and draft paper are available from www.ehealthplan.org www.ehealthplan.org