Health Savings Accounts: Assessing their impact on Insurance and Coverage Costs Stephen T Parente

Roger FeldmanJean AbrahamJon B Christianson

Funded by the Robert Wood Johnson Foundation Health Care Financing and Organization Initiative (HCFO) and the Department of Health and Human Services

Presentation Overview

Consumer Driven Health Plan Overview

Research Questions Data & Analytic Approach Plan Choice Estimation Results Policy Simulation Results Implications Next Steps

‘Classic’ CDHP Model – Definity Health

Definity Definity HealthHealthCareCare

AdvantageAdvantage

Web- and Web- and Phone-Phone-Based Based ToolsTools

Health ToolsHealth Toolsand Resourcesand Resources

Health Tools and Resources• Care management

program• Internet enabled

Health Coverage• Preventive care covered

100%• Annual deductible• Expenses beyond the

HRA

Health Reimbursement Account (HRA)• Employer allocates HRA1

• Member directs HRA• Roll over at year-end • Apply toward deductible2

Annual Annual DeductibleDeductible

Annual Annual DeductibleDeductible

Pre

ven

tive

Care

10

0%

Pre

ven

tive

Care

10

0%

Health Health CoverageCoverage

An

nu

al

Ded

uct

ible

1 Employer selects which expense apply toward the Health Coverage annual deductible.2 Paid out of employer’s general assets.

HRAHRAHRAHRA

$$

The Health Savings Account (HSA) Model

HSAs legislated in

MMA 2003.

Pretty similar to

Definity Health HRA

Design except

the consumers owns

the account.

Annual Annual DeductibleDeductible

Annual Annual DeductibleDeductible

Pre

ven

tive C

are

P

reven

tive C

are

1

00

%1

00

%

Health Health CoverageCoverage

An

nu

al

Ded

uct

ible

HSAHSAHSAHSA

$$

Economic Analysis Motivation ‘Donut hole’ and savings account are new

‘prices’ to consider in the demand for health insurance with expected negative and positive responses, respectively.

Price sensitivity to different benefit options (i.e., premium, account, donut, coinsurance) could significantly affect take-up of CDHPs.

Builds on existing literature of high deductible health plans (HDHPs) (Keeler, Newhouse, Phelps, 1977). HSAs introduce a new kink in the budget constraint.

Conceptual Model of CDHPMoney

Medical Care

CDHP Budget

CoinsurancePlan Budget

b

a

c

Low Use Medium Use High Use

Data Sources

2002 health plan choice data from 3 large employers participating in a Robert Wood Johnson Foundation funded study on CDHPs Employee premium, deductible, coinsurance,

worker’s age, gender, wage income, single/family coverage

2001 Medical Expenditure Panel Survey (MEPS) Household Component Linked Insurance Component

eHealthinsurance.com Individual HSA plan information

Plan Choice Model Analytic Approach Plan Choices: HMO, 3 PPOs (low, medium, high), 2

CDHPs with Health Reimbursement Accounts (low and high)

Utility-maximization assumption where Uhj = j + Zj + Xhj + ehj

Estimate a conditional logit model of plan choice using the pooled, employer data

Explanatory variables Plan attributes (Z)

Annual tax-adjusted employee premium ($1000s dollars) Savings/reimbursement account size ($1000s dollars) Donut hole: difference between annual deductible and

account size ($1000s dollars) Coinsurance rate (i.e., .10 = 10% coinsurance)

Interactions between employee and plan attributes (X) Age, female, wage income, family contract

Plan-specific constants (j )

Plan Choice – Descriptive Statistics

Total Low HRA* High HRA HMO Low PPO Med PPO High PPO

Observations 28,737 821 2,734 9,254 1,685 8,276 5,967

Employee Premium in $1,000 0.627 0.591 0.489 0.164 0.973 0.499 1.491

Health Account in $1,000 0.169 0.859 1.513 -- -- -- --

Donut Hole in $1,000 0.336 1.507 0.983 -- 0.797 0.326 0.284

Coinsurance 0.084 0.074 0.021 0.033 0.200 0.108 0.128

Female, 1=female, 0 else 0.514 0.474 0.413 0.540 0.500 0.532 0.504

Age (scaled in 100 years) 0.419 0.426 0.415 0.419 0.426 0.417 0.407

Income in $1,000 47.81 55.91 83.28 40.98 36.21 45.35 47.73

Family contract=1, else 0 0.528 0.481 0.681 0.435 0.595 0.541 0.571

* We use a Low HRA in our simulations for approximating an HSA benefit design.

Price elasticity estimates from the plan choice model

PriceVariable Elasticity

Tax adjusted Employee Premium in $1,000 -0.9213

Employee's Health Account in $1,000 0.0885

∆ Between Deductible and Health Account in $1,000 -0.2430

Coinsurance (e.g., 15% = .15) -0.5405

Policy Simulations Baseline take-up of HSAs from the Medicare Modernization Act

of 2003 Simulation (1): Bush Administration’s proposal

Refundable tax credit up to 90% of premium; maximum of $1000/adult, $500/child (up to two)

Subsidy for singles with no dependents phased out at $30,000 adjusted gross income and $60,000 for families

Simulation (2): Low income buy-in subsidy

Simulation (3): Full subsidy of HSA premium

Simulation (3a): Full subsidy of HSA premium for “generous” HSA policy

Simulation (4): Full subsidy of HSA premium for the non-working, non-public insurance population

Cross price-elasticity* of uninsured take-up with respect to HSA premium subsidy

*Calculated as the MEPS survey-weighted average of each person’s:

-(pr uninsured|status quo - pr uninsured|Δ HSA premium) * (HSA premium @status quo/pr uninsured|status quo)

Single Adults withIncome Quartile Adults Dependents

0 to 25 0.080 0.039

25 to 50 0.138 0.107

50 to 75 0.498 0.250

75 to 100 0.754 0.378

All 0.205 0.107

Cross price-elasticities of uninsured take-up with respect to “donut hole” and account

with respect to a with respect to a Income Quartile decrease in donut increase in account size

0 to 25 0.070 0.039

25 to 50 0.147 0.076

50 to 75 0.408 0.179

75 to 100 0.587 0.233

All 0.175 0.082

Cost per newly insuredEstimated

reduction in uninsured

Total EstimatedAnnual Cost

Per CapitaCost

Administration’s Proposal (Sim#1)

2,924,949 $8,075,081,354 $2,761

Low-income Buy-In (Sim#2) 4,495,887 $12,219,668,960 $2,718

Full subsidy (Sim#3) 12,819,856 $69,214,319,880 $5,399

Full subsidy Generous HSA (Sim#3a)

23,507,540 $211,118,893,800 $8,981

Full subsidy Non-working (Sim#4)

3,143,487 $11,234,374,714 $3,574

Policy Implications Take-up elasticity comparisons

-.3 to -.4 in the non-offered population (Marquis et al, 2004) – Ours are similar.

Take-up elasticity increases as income increases. This contrasts with the literature. Why? Probability of HSA take-up is positively correlated

to income (as opposed to an HMO, which is usually negatively correlated).

Implication is that lower income population need more inducement to take-up an HSA

Plan design matters. Greater take-up from a reduction in the donut

hole than an increase in the account size.

Summary Premium, coinsurance and Donut can

and ALL should be modeled when looking at CDHPs.

They different effects Policy proposals will need to consider

price effects to develop effective welfare improving social policy.

Next Steps Refine the model to account for the

following: Individual-level vs. Household-level Premium inflation assumptions

Examine impact of other policy proposals and/or HSA plan designs on take-up.

Look at HSA take-up versus retirement saving choice.

Thank You

For more information go to:www.ehealthplan.org

or email sparente@csom.umn.edu

Backup

Price-Sensitivity Estimates from the Literature

Take-Up Non-offered population [Marquis and Long, 1995;

Marquis et al. 2004] -.3 to -.4

Offered population [Chernew et al., 1997; Shiels et al., 1999; Blumberg et al., 2001; Gruber and Washington, 2005] -.01 to -.2

Impact of the Simulations by Income

Income Quartile Sim1 Sim2 Sim3 Sim 3A Sim40 to 25 1,231,485 2,093,439 5,633,439 12,408,567 2,715,25325 to 50 952,335 1,081,301 3,451,260 6,247,978 273,80350 to 75 492,181 941,634 2,027,674 2,737,325 105,55975 to 100 248,948 379,513 1,707,484 2,113,671 48,872All 2,924,949 4,495,887 12,819,857 23,507,540 3,143,487

Income Quartile Sim1 Sim2 Sim3 Sim 3A Sim40 to 25 $1,819 $2,228 $3,264 $3,736 $3,42725 to 50 $2,021 $2,026 $3,421 $3,740 $3,52850 to 75 $2,967 $3,096 $5,544 $5,644 $6,41275 to 100 $5,123 $2,799 $6,363 $6,405 $5,876All $2,359 $2,409 $4,080 $4,199 $3,574

Reduction in the Uninsured

Average subsidy for take-up by previously uninsured

SIM Prep3 - Simulation Calibration

Applied CDHP employer plan choice model estimates to predict probabilities of plan choices for MEPS sample respondents

Model Calibrations % of adults who turn down employer offers

by income quartile % of adults in the individual market who are

uninsured by income quartile Applied national weights to the calibrated

model to represent the population 19-64, excluding full-time students, those enrolled in public insurance, and non-offered dependents with employer coverage through their spouse

Approximately 121.5 million adults

Baseline Impact of MMA 2003

NOTE: Population is 19-64, non public insurance

Baseline Baseline(unsubsidized) (unsubsidized)

Plan Choice Population % Project Pop.

HSA-Full Price 9% 3,155,982PPO_High $$ 13% 4,651,023

INDIVIDUAL PPO_Low $$ 1% 310,041MARKET PPO_Medium $$ 4% 1,426,040

Uninsured 74% 27,273,018

HMO 31% 26,295,237HRA 2% 1,811,281

EMPLOYER HSA-Shared Prem 1% 530,882INSURANCE HSA-Full Price 0% 332,249OFFERED PPO_High $$ 7% 5,930,246MARKET PPO_Low $$ 2% 1,571,384

PPO_Medium $$ 41% 34,949,793Turned Down 16% 13,298,512

Sim#1: Administration’s* Proposal

NOTE: Population is 19-64, non public insurance. *Proposal as interpreted fromFebruary, 2004 U.S. Treasury Blue Book.

Unsubsidized Simulation Unsubsidized Simulation %Plan Choice Population % Population % Project Pop. Project Pop. Change Subsidy CostINDIVIDUALHSA-Full Price 9% 19% 3,155,982 6,971,694 120.9% 6,900,791,439$ PPO_High $$ 13% 11% 4,651,023 4,017,191 -13.6% -$ PPO_Low $$ 1% 1% 310,041 263,278 -15.1% -$ PPO_Medium $$ 4% 3% 1,426,040 1,215,872 -14.7% -$ Uninsured 74% 66% 27,273,018 24,348,069 -10.7% -$

OFFEREDHMO 31% 31% 26,295,237 26,232,550 -0.2% -$ HRA 2% 2% 1,811,281 1,803,079 -0.5% -$ HSA-Shared Prem 1% 1% 530,882 528,590 -0.4% -$ HSA-Full Price 0% 1% 332,249 861,387 159.3% 1,174,289,915$ PPO_High $$ 7% 7% 5,930,246 5,921,970 -0.1% -$ PPO_Low $$ 2% 2% 1,571,384 1,569,135 -0.1% -$ PPO_Medium $$ 41% 41% 34,949,793 34,627,195 -0.9% -$ Turned Down 16% 16% 13,298,512 13,175,679 -0.9% -$

Sim #3A: Full Subsidy for Generous HSA

NOTE: Population is 19-64, non public insurance

Unsubsidized Simulation Unsubsidized Simulation % Subsidy CostPlan Choice Population % Population % Project Pop. Project Pop. ChangeINDIVIDUALHSA-Full Price 9% 88% 3,155,982 32,413,500 927.0% 98,708,233,232$ PPO_High $$ 13% 1% 4,651,023 458,476 -90.1% -$ PPO_Low $$ 1% 0% 310,041 29,904 -90.4% -$ PPO_Medium $$ 4% 0% 1,426,040 148,745 -89.6% -$ Uninsured 74% 10% 27,273,018 3,765,478 -86.2% -$

OFFEREDHMO 31% 24% 26,295,237 20,117,174 -23.5% -$ HRA 2% 1% 1,811,281 1,165,656 -35.6% -$ HSA-Shared Prem 1% 0% 530,882 327,143 -38.4% -$ HSA-Full Price 0% 37% 332,249 31,603,493 9412.0% 112,410,660,595$ PPO_High $$ 7% 6% 5,930,246 4,722,256 -20.4% -$ PPO_Low $$ 2% 2% 1,571,384 1,281,803 -18.4% -$ PPO_Medium $$ 41% 22% 34,949,793 18,528,647 -47.0% -$ Turned Down 16% 8% 13,298,512 6,973,413 -47.6% -$