1. hhhkkkkkkkk kkkkkkkkkkkk An application of Albert Wong's simulated lifecycles to health savings accounts Rudy Douven (CPB, iBMG) CPB Netherlands Bureau for Economic Policy Analysis Erasmus University Rotterdam 15 March 2012 Health Savings Accounts

2. CPB Netherlands Bureau for Economic Policy Analysis Today is Celebration time Health Savings Accounts 15 March 2012 Albert Wong’s simulated life cycles will be approved!!

3. CPB Netherlands Bureau for Economic Policy Analysis Health Savings Accounts 15 March 2012 What are simulated health care life cycles?

4. CPB Netherlands Bureau for Economic Policy Analysis Health Savings Accounts 15 March 2012 What is so special about these cycles? Its new! We get better information about health care costs ­ How are health care costs distributed over the life cycle? ­ How large is the variation in costs among individuals? ­ How large are our future health care costs, given the past? ›if we are 5, 45, 60, 90 years old? How large are the differences for different types of care?

5. CPB Netherlands Bureau for Economic Policy Analysis 6 different health categories for cure (and 2 for care) Health Savings Accounts 15 March 2012

6. CPB Netherlands Bureau for Economic Policy Analysis Application: Health savings accounts Current research project by Rudy Douven (CPB, EUR), Remco Mocking (CPB) and Albert Wong (RIVM, UvT). Idea project: Are health savings accounts more efficient than annual cost sharing mechanisms? Health Savings Accounts 15 March 2012

7. CPB Netherlands Bureau for Economic Policy Analysis Year 1: Mandatory annual deductible of 220 euros If you need health care Price larger than 220 euros you pay 220 euros Health Savings Accounts 15 March 2012 If you need little or no care Price =P < 220 euros you save 220- P euros which you put on your bank account

8. CPB Netherlands Bureau for Economic Policy Analysis Year 2: exactly the same rules apply If you need health care Price > 220 euros you pay 220 euros Health Savings Accounts 15 March 2012 If you need little or no care Price P < 220 euros you save 220- P euros which you put on your bank account

9. CPB Netherlands Bureau for Economic Policy Analysis Idea of individual mandatory deductible Health Savings Accounts 15 March 2012 Advantage: less moral hazard ­Health care becomes more efficient Disadvantages: less solidarity ­Chronic ill pay every year 220 euros, ­Healthy people pay (much) less Main question: ­Can we improve on both aspects with health savings accounts?

10. CPB Netherlands Bureau for Economic Policy Analysis How does a health savings account work? Health Savings Accounts 15 March 2012 If you need health care Price > 220 euros you pay 220 euros If you need few health or no care Price P < 220 euros you pay X =220-P euros into health savings account

11. CPB Netherlands Bureau for Economic Policy Analysis Year 2: Rules change! Health Savings Accounts 15 March 2012 You paid 220 euros in first year If you need health care Price larger than 220 euros you pay 220 euros You paid less than 220 euros in first year If you need little or no care Price P < 220+ X euros total savings : 220+X-P euros which you put on your bank account

12. CPB Netherlands Bureau for Economic Policy Analysis Idea of health savings accounts Health Savings Accounts 15 March 2012 More solidarity ­Relatively healthy people pay money into their savings account to use it if they become ill later More efficiency ­Relatively healthy people face higher deductible when becoming ill

13. CPB Netherlands Bureau for Economic Policy Analysis Health Savings Accounts 15 March 2012 Expand idea of health savings accounts Length of saving period ­not 2 years, but from 18-65, from 0-end of life etc. Maximum deductible for Health Savings Account ­When ill use all money up on the account to a maximum amount

14. CPB Netherlands Bureau for Economic Policy Analysis However life is not that easy! Health Savings Accounts 15 March 2012 Consumers will react on HSA´s and form expectations HSA´s are less efficiënt than a deductible ­If health shock in period 2 is large and known to consumer Idea: Consumers know they have to spend money in period 2 and therefore will spend more money in period 1 as well.

15. CPB Netherlands Bureau for Economic Policy Analysis Health Savings Accounts 15 March 2012 Crucial for evaluation HSA´s How do individuals respond to (large) deductibles? ­some evidence from famous RAND experiment in the US (Newhouse, 1997) Are consumer forward looking? ­some evidence says yes: (Aron-Dine, Einav, Finkelstein, Cullen, NBER, 2012)

16. CPB Netherlands Bureau for Economic Policy Analysis How do individuals form their expectations on future health care costs? etremely complicated but? Health Savings Accounts 15 March 2012

17. CPB Netherlands Bureau for Economic Policy Analysis Simulate expectations with AW´s life cycles Health Savings Accounts 15 March 2012 0 Individuals have perfect information about future costs Individuals know distribution of future costs Chronically ill have different expectations etc. Allow for time preference for consumer choice ­future payment is less valuable than current payment

18. CPB Netherlands Bureau for Economic Policy Analysis Some first experiments with our simulation model Health Savings Accounts 15 March 2012 Model 1: Annual Deductible Deductible: 150 euros Setup model Consider only individuals between 18-65 Perfect information about future, time preference is 0 Fixed premiums for each individual Model 2: Health Savings Account HSA from age 18-65 Payment out of HSA to consumer at age 65 Annual payment in HSA: 150 euros Maximum deductible: 1000 euros You pay OOP only with money in HSA

19. CPB Netherlands Bureau for Economic Policy Analysis A first example Health Savings Accounts 15 March 2012 Full Insurance Deductible Health Savings Account (150 euro) (max deductible 1000 euro) % fixed premium = 100% 90.9% 88.0% % out of pocket payments= 0% 8.3% 11.8% % less health care= 0% 0.8% 0.2% First Example: Health savings account model less efficient than annual deductible model Solidarity unclear

20. CPB Netherlands Bureau for Economic Policy Analysis Future research: continue search for the holy grail: Vary with size of annual payment into HSA Vary with maximum deductible size for HSA Allow for negative savings in HSA Vary time span of HSA Vary with price sensitivity effect for consumers Apply HSA for different age groups Vary with different types of care ­General practicitoners ­Pharmaceuticals ­Hospital care ­Physiotherapy etc. Health Savings Accounts 15 March 2012

21. CPB Netherlands Bureau for Economic Policy Analysis Health Savings Accounts 15 March 2012