1. 1 Innovations in Cost-Sharing New Uses of Cost-Sharing for Value-Based Purchasing John Bertko, F.S.A., MAAA VP and Chief Actuary Humana Inc. December 3, 2003

2. 2 Goals for New Cost-Sharing Make more costs/choices visible to consumers Channel individuals to most efficient/affordable providers Reduce inappropriate use of new technology Provide positive incentives for Disease Management programs

3. 3 Old (i.e., 1990s) vs. New (2003+) Old cost-sharing –Moved to low copays from deductibles and coinsurance plans of the 1970s –Many covered services (e.g., hospitals, Rx) became exempt from deductibles New cost-sharing –Provider tiers to aid channeling –More site- and service-specific deductibles/copays to reduce inappropriate usage –Fewer requirements for approvals means greater cost- sharing pressure

4. 4 Current Trends in Cost-Sharing More layers of deductibles and copays –Tiered hospital benefits may have both copays and coinsurance –Tiered physician networks may have different copays for Primary Care vs. Specialist Two or three network categories Prescription Drugs are returning to coinsurance –High tech tier may have significant coinsurance –A few products with only coinsurance tiers

5. 5 Current Trends in Cost-Sharing Use of cost-sharing to change site of care –Higher Emergency Room copays to provide incentives for greater use of Office Visits –Mid-level Ambulatory Surgi-Center copays as an alternative Much higher cost-sharing for certain imaging services –Inappropriate use of MRIs and CAT scans leads to higher copays for those services –Cost-sharing becomes much more complex

6. 6 Current Trends in Cost-Sharing Use of Health Reimbursement Accounts (HRAs) to modify medical consumption –Many new Health Reimbursement Accounts with $500- 1000 (per person) Once used, a large deductible must be satisfied –Combined with cost-calculators and decision-support tools to show cost of an episode and alternative treatment options –Icons (only) to indicate cost of facilities and physicians –Appears to be changing medical consumption behavior, but data is still preliminary and with small populations

7. 7 Current Trends in Cost-Sharing Incentives for “better behavior” –Use of “frequent flyer” types of incentives for rewards Points for purchases Points to reduce cost of care –Disease Management enrollment/ compliance already in place Currently a low percentage of identified individuals participate Enrollment and compliance result in awards –Rewards for Rx compliance might be next

8. 8 What Comes Next? Future cost-sharing possibilities: –Use of episodes to purchase care Easy for a few types of services (e.g., normal delivery) Hard for many others –Much greater specificity for copays Ex: Imaging –Low copays for x-rays –Medium copays for MRI when indicated (e.g., concussions) –High copays when “discretionary” (e.g., sports injuries) –Purchasing facility-specific types of services, not all services Cardiac care from Hospital System #1 Oncology from Hospital System #2

9. 9 What Comes Next? –Some alternatives may be problematic -- scheduled benefits In 1960s and 1970s, many plans provided scheduled benefits (e.g., “up to $1000 for Hospital benefits” or “up to 40 CRVS units for major surgery”) Then, “Major Medical” was added in the 1970s to wrap around scheduled Hospital and Physician benefits A few low-premium plans with limited/scheduled benefit amounts are now being sold

10. 10 Using Cost-Sharing for Value Purchasing High continuing trend is (partially) a product of inappropriate use of new technology –See supply-sensitive services research –Use of more appropriate site of care or services appropriate to the diagnosis will reduce trend Using cost-sharing to promote centers of excellence and efficient providers will provide: –Better quality care –Reduced trend

11. 11 ARNOLD MILSTEIN PRESENTATION (click here)