1. Do Health Savings Account Generate Favorable Selection in a Large Employer Setting? Stephen T Parente, Ph.D. Associate Professor of Finance and Director, Medical Industry Leadership Institute University of Minnesota, Carlson School of Management Sponsored by the Robert Wood Johnson Foundation’s Health Care Financing & Organization Initiative (HCFO), the U.S. Department of Health and Human Services

2. Presentation Overview CDHP Models –Health Reimbursement Arrangements (HRA) –Health Savings Account (HSA) Employer Study Setting –Plan design for 2006 HSA offer against competing PPOs, EPOs and HRAs Descriptive Statistics Plan Choice Results Summary

3. ‘Classic’ CDHP Model – HRA Rx & Large ProviderPanelAvailability Web- and Phone- Based Tools Health Tools and Resources Care management program Internet enabled Health Coverage Preventive care covered 100% Annual deductible Expenses beyond the HRA Health Reimbursement Arrangement (HRA) Employer allocates HRA 1 Member directs HRA Roll over at year-end Apply toward deductible 2 Annual Deductible Preventive Care 100% Health Coverage Annual Deductible 1 Employer selects which expense apply toward the Health Coverage annual deductible. 2 Paid out of employer’s general assets. HRA $$

4. CDHP Version 2.0: The Health Savings Account (HSA) HSAs legislated in MMA 2003. Pretty similar to Definity Health HRA Design except the consumers owns the account. Annual Deductible Preventive Care 100% Health Coverage Annual Deductible HSA $$

5. Study Setting & Approach Employer with many different plan design offers in 2006 including: –CDHP: HSA, HRA High, HRA Not-High –PPO, POS, EPO, 1 or 2 HMOs in some locations Non-retiree analysis only. Employees live in all 50 states. Over 100 employees in 22 states. Health risk (including measure of chronic illness) based on 2005 pharmacy claims data. Use conditional logistic regression model to examine plan choice.

6. Plan Design Attributes Four contract types: –Single –2 Person –Adult + Child –Family CDHP Design –HRA High: Coinsurance at 5%, Smaller donut –HRA Low: Coinsurance at 10%, Larger donut –HSA – More out of pocket risk Non-CDHP Design: Moderate coinsurance (average 10%)

7. Attributes of Plan Choosers Notes: 2006 Plan choice data Risk ratio based on computation from 2005 pharmacy data Primary HMO Rx data may be under-represented

8. HSA Take Up – 2006 2.7-5.6% 1.4 – 2.6% <1.4% Take-up Data based on 1 large employer representing ~150,000 covered lives with HSA initial year offering in 2006.

9. CDHP Take Up – 2006 Data based on 1 large employer representing ~150,000 covered lives with HSA initial year offering in 2006 along with low and high HRAs. 11-39% 7.5 – 10% <7.5% Take-up

10. HSA/PPO Risk Ratio Data based on 1 large employer representing ~150,000 covered lives with HSA initial year offering in 2006. 1.0-2.6 0.75 – 0.99 <0.75 HSA/PPO Ratio Risk Score based 2005 Claims data analysis using RxRisk

11. HRA High/PPO Risk Ratio Data based on 1 large employer representing ~50,000 covered lives with HSA initial year offering in 2006. 1.0-3.7 0.75 – 0.99 <0.75 HSA/PPO Ratio Risk Score based 2005 Claims data analysis using RxRisk

12. Plan Choice Regression Results From Conditional Logistic Regression – 8 possible choices Notes: All results a regression coefficients Red results are significant at the.05 level AgeGenderFamilyChronicIncome HMO Bricks Lite2.500-0.171-0.383-1.234-0.011 HMO Bricks0.881-0.3090.218-0.100-0.009 HRA High0.2120.0970.3800.1820.013 HRA Low-3.244-0.385-0.032-0.4580.013 HSA-4.112-0.691-0.118-0.7790.017 POS1.327-0.3890.1750.1990.005 PPO2.539-0.3132.228-1.403-0.008

13. Rank of Association Between Plans and Person Attributes From Conditional Logistic Regression – 8 possible choices AgeFemaleFamilyChronicIncome HMO Bricks Lite23878 HMO Bricks44347 HRA High5*1223 HRA Low766*52 HSA887*61 POS37414 PPO15186 EPO62535 Notes: 1 is highest rank (most association), 8 is least rank *results are NOT significant at the.05 level

14. Plan Price Elasticity Results From Conditional Logistic Regression – 8 possible choices

15. Attributes of Plan Choosers Notes: 2006 Plan choice data Risk ratio based on computation from 2005 pharmacy data Primary HMO Rx data may be under-represented

16. Summary of HSA Choice when HRA and PPO are Also Choices Risk-splitting between HRA and HSA Clearly an issue of benefit design. Selection not only limited to HSAs. Favorable selection goes to the HMOs too. Is the risk segmentation of value? Is too difficult to fix short of full-replacement? Next big question: Do HSAs have better/neutral outcomes and satisfaction, adjusted for risk?

17. Thank You! For more information on our research, please visit: www.ehealthplan.org and come to Johns Hopkins next week (6/14 & 6/15) Stephen T. Parente, Ph.D., M.P.H., M.S. Associate Professor, Department of Finance Director, Medical Industry Leadership Institute Carlson School of Management University of Minnesota 321 19 th Ave. South, Room 3-122 Minneapolis, MN 55455 612-624-1391 (v), sparente@csom.umn.edu http://www.tc.um.edu/~paren010 www.ehealthplan.orgsparente@csom.umn.edu