1. Mila Kofman January 26, 2006 CONSUMER DRIVEN HEALTH PLANS 2006 Families USA Conference Mila Kofman, J.D., Associate Research Professor Health Policy Institute, Georgetown University 202-784-4580 direct; mk262@georgetown.edu hpi.georgetown.edu www.healthinsuranceinfo.net

2. Mila Kofman January 26, 2006 BACKGROUND Double-digit annual premium increases For-profit marketplace: Pricing is a function of medical cost + administrative cost + PROFIT = base rate (emphasis added) President/CEO, Coventry Health Care of Louisiana, Inc. No legislation to address reasons for price hikes Conservatives Ideology: –From risk-sharing to personal responsibility –Auto insurance model for health care Conservatives solution: pass premium increases to workers, cut benefits, and shift cost of medical care to patients

3. Mila Kofman January 26, 2006 Consumer-Driven Health Plans Market trend (new products CDHP, mini-med and med- light): less is more Legislation to promote trend: HSAs, AHPs, Enzi compromise

4. Mila Kofman January 26, 2006 Consumer-driven health care… a.k.a.: consumer-directed health plans, health savings accounts (HSAs) with high-deductible health plans (catastrophic coverage), health reimbursement accounts/arrangements (HRAs) with high-deductible plans

5. Mila Kofman January 26, 2006 Consumer-Driven Health Plans: cost shifting from health plans to patients Reduce costs for employers and insurers Raise out-of-pocket costs for patients

6. Mila Kofman January 26, 2006 Health Savings Accounts Tax free in/tax free out - $$$ Above the line tax deduction: $2650 individual/ $5250 families (only with plan: annual deductible of $1000/$2000 minimum and max out-of-pocket $5100/$10,200) – for 2005 Account used to pay for: medical expenses, annual deductibles, COBRA & health insurance while unemployed, Medicare-related expenses 10% penalty if used for other purposes (over 65 no penalty)

7. Mila Kofman January 26, 2006 HSAsMSAs*FSAsHRAs Health plan type High deductible only High deductible and comprehen sive Carryover from year to year Yes NoYes Individual owns account (keep even after leaving job) Yes NoNo (up to employer if individual allowed access to HRA after employee leaves) Type of coverage? Individual and job- based health coverage Small business or self employed health coverage only Job-based only Who contributes? Individuals, employees, and employers Employee, self-employed person or small business employer (50 or less employees) – both employee and employer cannot contribute in a tax year EmployeeEmployer How is it taxed? Above-the-line deduction (employer contribution not taxed as income) Above the line deduction (employer contribution not taxed as income) Not taxed as income

8. Mila Kofman January 26, 2006 HSAs are not proposals for uninsured (except healthy & wealthy uninsured) HSAs and HRAs – tax deductions and non-taxable benefits (to soften the blow of cost-shifting) –$0 help to working poor and moderate income wage earners –No help to uninsurable people Sales pitch: consumer empowerment, choice, consumer in the drivers seat, cost-sharing etc.

9. Mila Kofman January 26, 2006 Flawed Assumptions about Consumer Behavior Patients can make difficult decisions (MRI v. x-ray) –Information gap –90 million Americans are health illiterate (IOM 2004) Choose cheapest option (cheapest heart surgeon) skin in the game –Name brand only drugs, no generics –Catastrophic conditions (even small co-pays = $1000s/month) –Personal bankruptcy Rational decisions –Prescription drug ads & $$ on marketing –Lack of information

10. Mila Kofman January 26, 2006 Secrets revealed: Health coverage is expensive because medical care is expensive Cost drivers: provider costs, hospital costs, higher utilization, prescription drugs, etc. Chronic illness: 125 million Americans 80-20 rule

11. Mila Kofman January 26, 2006 Consumer Driven Health Plans Do NOT address real cost (medical inflation) Hurts people who need medical care and moderate and low income people and families Have adverse long term implications for all CDHPs are a way to divert attention from real reforms

12. Mila Kofman January 26, 2006 Implications for people –Access to medical care: less care/delays in necessary care (RAND 2004) –No financial security & bankruptcy (Warren 2004) –For others: higher premiums (family premiums included $922 to pay for uncompensated care) (Families USA 2005) Implications for system –Higher long-term spending –Cost shifting to people with comprehensive coverage: uncompensated care paid for by privately insured people ($43 billion in 2005)

13. Mila Kofman January 26, 2006 Recent research: 2005 California HealthCare Foundation survey Employers: –75%+ (surveyed in CA) believe cost-sharing causes consumers to forgo needed medical care and has a negative impact on people with chronic conditions –40%+ believe that it reduced workers productivity Consumers: –1 in 7 adults forgo medical care –especially a problem among low income and people with fair/poor health (skipping check-ups, tests or procedures, not going to a doctor for a problem, etc.)

14. Mila Kofman January 26, 2006 Recent research: 2005 EBRI/Commonwealth Fund Survey Less satisfied with Consumer Driven Health Plans than comprehensive coverage Higher out-of-pocket (OOP) costs:

15. Mila Kofman January 26, 2006 Cost Shifting Ensure continued high profits for insurers Short reprieve for employers from double- digit cost increases 73% in the last 5 years Just because its good for Wall Street doesnt make it good for working families, for people with medical needs, and for our communities

16. Mila Kofman January 26, 2006 Consumer-Driven Health Plans (high deductible plans, HSAs, etc): Erode job-based health care financing Erode comprehensive health insurance Move us to a model of self-financing our medical care (from community …sharing risk and helping each other … to personal responsibility)

17. Mila Kofman January 26, 2006 Back to the basics: Why do we care about health insurance? Access to medical care and services Financial security

18. Mila Kofman January 26, 2006 VALUES: moral and ethical –Its un-American to let 18,000 people die/year ECONOMIC INTERESTS –Productive communities and society –Healthy people = productive (economically, socially, politically) –Uninsured: $65 to 130 billion/year is cost to economy (Inst. Of Medicine) –U.S. companies in a global economy (GM $1500/car to pay for health care) Public policy goals –Consumer-driven health plans and HSAs do not help us achieve