THE COMMONWEALTH FUND 1 Benefit Design: Access, Affordability, Risk Pooling Cathy Schoen Senior Vice President, Commonwealth Fund Benefits in Health Insurance Alliance for Health Reform Washington, DC October 10, 2008

THE COMMONWEALTH FUND 2 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?

THE COMMONWEALTH FUND 3 Insurance Matters for Access and Financial Protection: Underinsured and Uninsured at High Risk 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 Data: 2007 Commonwealth Fund Biennial Health Insurance Survey

THE COMMONWEALTH FUND 4 Cost-Sharing Can Reduce Essential and Less Essential Care and Increase Health Risks Source: R. Tamblyn, R. Laprise, J. A. Hanley et al., “Adverse Events Associated with Prescription Drug Cost-Sharing Among Poor and Elderly Persons,” Journal of the American Medical Association, Jan. 24/31, (4):421–29. Percent reduction in drugs per day Percent increase in incidence per 10,000

THE COMMONWEALTH FUND 5 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

THE COMMONWEALTH FUND 6 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, % 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 (1):249–57.

THE COMMONWEALTH FUND 7 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

THE COMMONWEALTH FUND 8 Source: E. O'Brien and J. Hoadley, Medicare Advantage: Options for Standardizing Benefits and Information to Improve Consumer Choice, The Commonwealth Fund, April 2008

THE COMMONWEALTH FUND 9 Cumulative Changes in Annual National Health Expenditures, 2000–2007 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

THE COMMONWEALTH FUND 10 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

THE COMMONWEALTH FUND 11 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 benefits 4.Design Goals: Access, income protection, risk pooling Focus competition on improving health & slowing growth in total costs