Benefit Design in Health Care Reform Paul B. Ginsburg, Ph.D. Alliance for Health Reform, Congressional Health Care Reform Educational Project, October 10, 2008

Context  Range defined by Obama and McCain proposals Expansion of public coverage for low-income persons and subsidies for others to purchase private insurance  Benefit structure enters discussion through What states can do in Medicaid and SCHIP Eligibility of private coverage for subsidies - Minimum benefit standards Structuring of markets for non-group private insurance

Competing Objectives for Benefit Structures  Financial protection from large outlays for medical care  Avoid barriers to accessing effective care  Patient incentives to use care judiciously  Affordable premiums (consumer/employer/government)  Productive consumer choice of plans Avoid market failure due to adverse selection Avoid risk segmentation Avoid unnecessary complexity and opacity

Contrasting Policy Approaches in Medicare Modernization Act  HSAs Detailed benefit structure for eligibility - Specifics have limited attractiveness in marketplace - Cannot evolve over time without additional legislation  Medicare Part D Specific benefit structure but ability to offer products “at least as good” - Criterion of “actuarial value” - Plans have incorporated commercial experience into designs  Part D designs will evolve with commercial designs - Adverse selection may preclude richer designs

Degree of Financial Protection  Key components are size of deductible and limit on out-of-pocket spending  Can assess benefit structures in terms of burden as percentage of income for distribution of claims Should the period be one year?  Lower-income people need more financial protection Public coverage with little patient cost sharing Larger subsidies for premiums Scheduling benefits by income is awkward--but information technology is making it more feasible

Barriers to Accessing Effective Care  Issues similar to financial protection Inadequate financial protection also means barriers to access  Potential to differentiate benefits/incentives according to importance of care “Value-based benefits design” (Chernew presentation)

Patient Incentives to Use Care Judiciously (1)  Greater patient cost sharing leads to lower use Also keeps premiums lower by shifting portion of expense to patient - But at the expense of financial protection and access to care Typical structures do not apply to large proportion of dollars spent on health care over a year (10 percent spend 70 percent of dollars) Consumers not always successful in curtailing low-value care the most

Patient Incentives to Use Care Judiciously (2)  Need to design cost sharing to reduce low-value care while maintaining needed financial protection Greater emphasis on incentives to choose more efficient providers Provider choice influences all of the dollars of spending Potential to generate a favorable supply response - Providers get more efficient to protect patient volume Make incentives to choose providers meaningful - Bundled prices rather than FFS prices

Consumer Choice of Plans (1)  Public coverage traditionally does not involve choice  Consumer choice among different carriers offering a standard benefit structure Dependent on wise choice of standard structure - Need process to update structure over time

Consumer Choice of Plans (2)  Consumer choice of benefit structure as well as carrier Accommodating consumer preferences versus segmenting the risk pool Key consumer choice is low cost versus broad networks  Options to address adverse selection FEHBP approach: reject structures designed to attract favorable risks Medicare Advantage: state-of-the-art risk adjustment - Not visible to beneficiaries--all pay same premium

Wrap-up of key choices  How comprehensive should minimum benefit structure be? Where in the current distribution of private insurance does it fall?  Should government or the marketplace choose benefit structures?  How to pool predictable risks for those using public funds to purchase non-group insurance