1. Outlook on Consumerism in Health Care Paul Fronstin, Ph.D. Director, Health Research and Education Program Employee Benefit Research Institute Copyright© - Employee Benefit Research Institute Education and Research Fund, 1978-2008. All rights reserved. The information contained herein is not to be construed as an attempt to provide legal, accounting, actuarial, or other such professional advice. Permission to copy or print a personal use copy of this material is hereby granted and brief quotations for the purposes of news reporting and education are permitted. Otherwise, no part of this material may be used or reproduced without permission in writing from EBRI-ERF.

2. 2 HSA & HRA Enrollment (millions) 20062007Notes AHIP3.2 (HSA-only)4.5 (HSA-only)HSA & HSA-eligible. Employment & individual market. No info on methodology. AAPPO10 (4.5 HSA, 5.5 HRA) No info on methodology. CDMR610.3 (5.8 HSA, 4.3 HRA) No info on methodology. ICDC5.58EBRI estimates based on data printed in ICDC. KFF/HRET2.7 (1.4 HSA, 1.3 HRA) 3.8 (1.9 HSA, 1.9 HRA) Workers only. Does not include dependents. Mercer2.44Workers only. Does not include dependents. EBRI/ Commonwealth 3.6Mid-range of above

3. 3 Large Employer Interest in HSAs: Likelihood of Offering a High- Deductible Health Plan with an HSA

4. 4 HSA Offer Rates, by Firm Size, 2006 & 2007

5. 5 2007 CDHP Offer Rates Compared to 2006 Predictions, Selected Firm Sizes Source: published & unpublished data from KFF/HRET.

6. 6 Health Plan Enrollment, 1988 & 2007 Source: KFF/HRET.

7. 7 Three “Types” of Consumerism Simple –Generally higher cost sharing Lite –Account-based plans (HRAs & HSAs) Heavy –Align incentives with real time information on price, quality, treatment options, and outcomes.

8. 8 What is Heavy Consumerism? Strategic use of cost sharing –diabetes in Asheville, NC, et al. –NY heart surgery Condition-specific information at hospital and physician level Tiered cost-sharing

9. 9 Annual Claims Distribution “20/80 Rule” Source: EBRI estimates from MEPS.

10. 10 15 Most Costly Conditions Account for Over 50% of Spending Heart disease9% Trauma7% Cancer6% Pulmonary conditions6% Mental disorders5% Hypertension4% Diabetes3% Arthritis3% Back problems3% Cerebrovascular disease2% Pneumonia2% Skin disorders2% Endocrine2% Infectious disease2% Kidney1% Total spending56%

11. 11 Challenge of Consumerism “All we need to do is present people with more information, greater choices, and the right kind of incentives, and good things will come.” speaker at Dec. 2007 EBRI Policy Forum

12. 12 Consumerism in Retirement Low participation in retirement plans. –20-30% of employees don’t participate and forgo employer match. Poor investment choices. Too much information is overwhelming leads to herding effect. Education changes intentions but does not modify behavior.

13. 13 401(k) Plan Participation Rates, by Age Groups, 2003 Source: Fidelity Investments.

14. 14 401(k) Plan Participation Rates, by Age Groups and Earnings, 2003 Source: Fidelity Investments.

15. 15 Percent of 401k Plan Participants with Company Stock Option Who Allocate 50% or More of Account Balance to Company Stock, by Age Group, 2006 Source: EBRI.

16. 16 Percent of 401k Participants With Zero Equity Allocation in Account Balance, by Age Group, 2006 Source: EBRI.

17. 17 The Paradox of Choice % Visiting % Buying 40% 30% 60% 3%

18. 18 More Investment Choices Means Lower Participation More Choices, Less Participation Source: Iyengar, Jiang, and Huberman.

19. 19 Consumerism Predictions CDHP backlash. Movement to greater transparency. Usable information on cost, quality, outcomes. Strategically-designed cost-sharing to create incentives based on above data.

20. 20 “Headlines”- Characterizations of the Employment-Based System Vanishing Employers are fleeing the system Employer-based health care is ending. It is dying in front of our very eyes Employer-based health coverage is melting away like a popsicle on the summer sidewalk

21. 21 Percentage of Employers With 3-199 Employees Offering Health Benefits, 1996-2007 Source: Kaiser Family Foundation.

22. 22 Worker Eligibility and Take-Up Rates for Own Employer Health Benefits, Wage and Salary Workers Ages 18-64, 1988-2005 Source: Employee Benefit Research Institute estimates based on data from the Current Population Survey.

23. 23 Percentage of Workers, Ages 18-64, With Employment-Based Health Benefits, 1994-2006

24. 24 Percentage of Private Consumer Health Care Expenditures that are Out-of-Pocket and Private Health Insurance Payments, 1960-2005

25. 25 Big Questions Is current employment-based system sustainable without fundamental reform? What changes are needed to shore up/strengthen the employment-based system? Is the employment-based system worth saving? What is the role of the employer, worker, et al? Where is the employment-based system heading?

26. 26 Employer Interviews 10 employers – leaders in field Senior HR and Benefits. One CFO. All jumbo employers – 14,000 – 200,000+ 650,000 workers + dependents covered Over $10 billion spent on health care –one-half of 1% of private spending 3 of 10 moved to HRA or HSA –13-60% enrollment, 4% overall Viewpoints not necessarily nationally representative, but they are informative, and influential. –Towers Perrin complement study.

27. 27 Why Coverage is Offered Business case Competitive labor market – recruitment & retention Wellness, prevention, DM have positive effect on worker health & productivity Despite view on bottom line – role of employer is access

28. 28 Employer Innovations Health coaches for both healthy and unhealthy employees Educational campaigns Increased emphasis on preventive care and enhanced wellness programs Increased innovation in disease management programs Elimination of employee and family premiums when choosing a high performing health plan Elimination of cost sharing when choosing in-network health care providers No-cost on-site health screenings Quarterly scorecards of health plans RFPs from health plans every 2 or 3 years

29. 29 Employers Not on the Verge of Dropping Benefits None would be the first to drop coverage –“Insane” –“Would be last” Would drop coverage if… –elimination of the employer tax deduction –movement to universal system –erosion and/or elimination of ERISA preemption –Other employers dropped coverage Think talk of dropping coverage by other employers is an empty threat

30. 30 Next Generation of Benefits Greater focus on shared responsibility and accountability Individuals need to be become more engaged, and should make informed decisions Employers starting to facilitate next generation –Could be seen as step away from employment-based system Account-based health plans may play role in next generation of benefits, but will not play central role.

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