Promoting Fair and Efficient Health Care Panel Discussion: Predictive Modeling and Consumer Driven Plans Friday, December 14 th, 2007 Vincent Kane, FSA, MAAA Research Scientist, DxCG 2007 National Predictive Modeling Summit

Promoting Fair and Efficient Health Care Health Savings Accounts- Background HSAs are individual health care financing vehicles legislated into existence by the 2003 MMA A product of “consumerism”, which attempts to engage consumers in their health care choices, mitigate moral hazard and expose consumers to the true cost of health care HSAs are increasingly under scrutiny because of their novelty and because President Bush has set out an agenda to expand HSA enrollment and eligibility through further tax subsidies and changes to contribution limits Available public data for empirical research has been very sparse to date. © 2007, Urix®, Inc.

Promoting Fair and Efficient Health Care What does an HSA look like? Design For 2007, the HSA contributions used to fund the “donut hole” are limited by the HDHP deductible of $2,850 Amounts not used in current year roll over to the next © 2007, Urix®, Inc. Health Savings Account Preventive Care “High-Deductible Health Plan” Insurance Coverage Coinsurance Health Savings Account -Employee and employer contributions permitted, up to statutory limit -$2,850/indiv -$5,650/fam -“Catch-up” contributions allowed from Funding required - Balance accumulates - Earnings allowed on accumulation -IRC Section 213(d) allowable expenses -Balance is non-forfeitable Preventive Care -Need not be subject to deductible -Encourages prevention - Minimizes hoarding HDHP -$1,100/$2,200 minimum deductible* -$5,500/$11,000 maximum out-pocket

Promoting Fair and Efficient Health Care © 2007, Urix®, Inc. “Claims Prediction Model and the Simulation of Health Savings Account (HSA) Performance” Using data from the Health & Retirement Study (HRS), a two- part medical claim prediction model was estimated for the cohort of survey respondents approaching Medicare-eligibility age (age 50-65). A High Deductible Health Plan (HDHP) with a companion Health Savings Account (HSA) is applied to the simulated claims streams to model the build-up of HSA assets over the near- retirement years. HSA, alone, was an inadequate savings vehicle to provide for retiree medical care expenses at age 65, even when allowing catch-up provisions and maximum HSA contributions for this age cohort. Claims prediction & HSA project

Promoting Fair and Efficient Health Care HSA Simulation Results Total Population Results by attained age at simulation © 2007, Urix®, Inc.

Promoting Fair and Efficient Health Care © 2007, Urix®, Inc. HSA adequacy worsens exponentially with decreasing health status, whether self-reported or measured as the number of chronic medical conditions. Claims prediction & HSA project

Promoting Fair and Efficient Health Care © 2007, Urix®, Inc. What might attract those with higher disease burden and therefore predictably high out-of-pocket outlays? Attempts to attract the chronically ill to CDHPs and HSAs often focus on the informational tools to help members manage their conditions Engage them directly through disease management programs integrated into the CDHP/HSA plan of benefits. Reward members by adding contributions to the HSA upon completion of health risk appraisals or submitting to case management of their conditions Claims prediction & HSA project

Promoting Fair and Efficient Health Care © 2007, Urix®, Inc. Risk adjustment may be an option Additional HSA contributions might “make whole” the chronically ill member relative to their healthier counterparts, preventing adverse selection and stabilizing the risk pool. Employer could determine fixed HRA subsidy to a CDHP, or HSA contribution, e.g., $500 Risk adjust based on employees’ relative risk score Risk adjustment tied in to participation in employer initiatives Claims prediction & HSA project

Promoting Fair and Efficient Health Care Other applications of PM to Consumerism Stochastic claims simulations over longer time horizons, based on actual micro-insurance data for CDHP or HSA enrollees Evaluate longer-term performance of account-based plans, over wider age range (and who will spend versus save?) Predict enrollment and dis-enrollment in multiple plan option environments Quantifying impact of adverse selection Use predictive modeling to adjust for health status differences between enrollees Risk adjustment is necessary for comparative studies of expenditures between high-deductible plans and traditional comprehensive plans over time © 2007, Urix®, Inc.

Promoting Fair and Efficient Health Care Other applications of PM to Consumerism Predict utilization and behavioral effects due to increased OOP and reduced moral hazard Utilization of preventive care services Utilization of discretionary services Is increased cost sharing a “blunt instrument”? (RAND HIE) How does utilization change over the policy year for members satisfying the high deductible, or members hitting the OOP maximum (earlier than PPOs of equivalent actuarial value). Use PM to adjust utilization measures by developing specific models, e.g., for high cost imaging. Predicting who will exceed the high deductible © 2007, Urix®, Inc.

Promoting Fair and Efficient Health Care Other applications of PM to Consumerism Presentation by Adrian Gore, CEO Discovery, South Africa, at IAAHS meeting Discovery introduced high deductible plans with insured chronic benefit component, thereby exposing members to higher cost-sharing only for services where “rational decisions can be made” (e.g., for discretionary care) Predictive models may be built that group services based on chronic and non-chronic diagnosis codes May be used to price these plans, or to evaluate changes in expenditure and utilization compared to traditional HSA or HDHP plans Such plans might address adverse selection issues © 2007, Urix®, Inc.

Promoting Fair and Efficient Health Care Other applications of PM to Consumerism CDHPs with tiered networks where provider groups or hospitals are rated based on efficiency Risk adjustment of quality indicators to provide credible information on which to base consumer choice in a CDHP Health plans face challenges in developing appropriate measures Use models to adjust for differences across providers that stem from other factors (e.g., high quality providers treat sicker patients). Data collection issues? © 2007, Urix®, Inc.

Promoting Fair and Efficient Health Care Some great references... For HSAs: “Frequently Asked Questions on Health Savings Accounts” published Oct by the American Academy of Actuaries For CDHPs and HSAs: “Consumer-Directed Health Plans: Potential Effects on Health Care Spending and Outcomes” published Dec by the CBO For CDHPs in general: Health Affairs released a “Web Exclusive” on CDHP on Oct. 26, Articles of interest, especially “Consumer-Directed Health Care: Early Evidence About Effects on Cost and Quality” by Melinda Buntin (RAND), et al © 2007, Urix®, Inc.