Health Care Agenda for the New Administration

While the credibility of exit polling in predicting the results of Presidential elections is being widely questioned, there seems to be little debate that many Americans identified health care as an issue that matters most to them - close on the heels of jobs and the economy, terrorism, and Iraq.¹

During the campaign, President Bush outlined his health care priorities - reducing health care costs and providing incentives for increased coverage to low-income families and children, small businesses, the self-employed, and people who do not get health care benefits through their employer. President Bush proposed several means of rendering health care more affordable. He touted the expansion of health savings accounts (HSAs), favoring a tax credit for low-income families and individuals to purchase health insurance or to purchase a high deductible health plan and an HSA. He also supports a tax credit for HSA contributions for individuals and families who work for small businesses, so that they can fund their HSAs more easily. President Bush has also proposed a tax deduction for health insurance premiums for individuals who purchase high deductible health plans, reducing their net costs and encouraging the use of an HSA. Finally, he supports the expansion of Association Health Plans, permitting small employers to band together, using their increased purchasing power to negotiate with health plans on behalf of their employees.

In order to better serve the needs of the uninsured, particularly low-income individuals, migrant workers, homeless individuals, and children, President Bush has promised to expand community health centers. He also supports initiatives to develop electronic health care records and promote medical liability reform. Finally, President Bush has proposed a tax deduction for long-term care insurance premiums, as well as a tax exemption for ill family members receiving care at home.

While campaign promises are often far-removed from actual policy, it is clear that there will be discussion, and likely Congressional debate, about the President's health care proposals, and there is significant HCFO work to inform the debate.

Assessments of Consumer Driven Health Care, Especially High-Deductible Health Plans

The HCFO work of Stephen Parente, Ph.D., and his colleagues focuses on the service use and adverse selection by consumers who select a high deductible health plan. In order to make contributions to a health savings account, an individual must be enrolled in a high deductible health plan. The researchers also examined the experience of "early adopters" of high deductible health plans (with an account to pay for first dollar coverage) from the employer and employee perspective. Parente and his colleagues determined that income is a consistent factor associated with the high deductible health plan choice, suggesting that those with the ability to easily fund the deductible, in the case of an emergency, are more willing to choose a high deductible health plan. Other survey results showed no apparent difference in consumer perceived quality between the high deductible health plan and other health plan options, leading to the hypothesis that, if higher income individuals choose to pay more for greater provider choice, it does not appear associated with an appreciable difference in perceived quality of care.²

Under another HCFO grant, Arnold Milstein, Ph.D., and his colleagues assessed the enrollment in and features of different types of high deductible health plans and the effects of these newly-introduced products. Their research provided insight about the longer-term prospects and impact of high deductible and other consumer-driven health plans, and derived policy recommendations aimed at maximizing their value. The researchers' work demonstrated that the initial effects reported by plans and employers suggest decreases in service utilization and total spending. For those plans that reported reductions in spending, it appears that some decreases in expenditures are due to service substitution rather than reduction of overall services (e.g. substituting generic for name-brand prescription drugs or office visits for emergency room visits). Also, enrollees in HRAs (health retirement accounts) tended to be given more information than enrollees in tiered networks. Information related to quality (e.g. physicians/medical groups, hospitals, nurse lines, self-managing a chronic condition) was more often given than information on cost (e.g. physicians/medical groups, hospitals).³

Additionally, Judith Hibbard, Ph.D., and colleagues are using both qualitative and quantitative methods to examine the key assumption underlying high deductible health plans: if consumers are given financial incentives, choices and information to support these choices, they will be more likely to take charge of their health and health care and make prudent health care decisions. Working with Definity Health Plan and a large employer (which offers their employees a choice of Definity and a PPO option), the researchers are following one cohort of employees who enroll in Definity and another cohort who enroll in a PPO plan to compare the knowledge, use of information, satisfaction with care, cost-effective utilization, and cost of care for persons enrolled in Definity and the PPO over time. In their preliminary analysess, the researchers have found that individuals who have enrolled in the high deductible health plan have more education, better health, fewer chronic illnesses, and lower utilization than PPO enrollees. High deductible health plan enrollees also have greater internet skills and are less likely to understand their plans. These findings suggest that high deductible health plans (combined with a savings account) may be more useful for specific groups of employees. The researchers continue their analyses to determine whether the preliminary findings hold.

Pooled Purchasing Arrangements

Mila Kofman, JD, and colleagues examined the dynamics of pooled purchasing arrangements and association health plans. The researchers examined states' experiences with Multiple Employer Welfare Arrangements (MEWAs), which are self-insured associated health plans, often with less stringent licensing requirements than traditional insurers. As reported in a Commonwealth Issue Brief, MEWAs have "a troublesome history of financial instability." Kofman warns that policymakers must be aware of the need for consumer protections, particularly with respect to plan solvency.⁴ Under her HCFO grant, Kofman and colleagues are conducting a comprehensive examination of pooled purchasing arrangements by analyzing the various regulatory structures for both self-insured plans and traditional health plans. The researchers hope to provide guidance for both state and federal policymakers as they continue to debate the merits of group purchasing arrangements.⁵

Malpractice

HCFO grantee Randall Bovbjerg, JD and colleagues are studying: 1) how widespread liability insurance problems are and their potential impact on access to care; 2) the shortcomings of strong liability incentives in preventing avoidable injuries and in promoting patient safety; and 3) the advantages and disadvantages of models of increased transparency. In addition, Michael Morrissey and colleagues, also with HCFO funding, are conducting a rigorous analysis of the effects of malpractice reform on the current environment and identifying any savings consumers can expect to see as a result of reform. In particular, they are 1) evaluating the effect of tort reforms on physician (general practitioners and several specialty practices) malpractice insurance premiums; 2) determining the extent to which malpractice liability contributes to higher total health care costs, both by pass-through of physician malpractice insurance premiums and through "defensive medicine;" and 3) evaluating the effect that economic conditions and changes in the health care environment have exerted on malpractice premiums.

Assessments of the Safety Net

HCFO grantee Gloria Bazzoli and her colleagues examined the effects of the Balanced Budget Act of 1997 and other major trends (i.e., growth in the number of uninsured, growth in private managed care, and Medicaid managed care) on the US hospital safety net. The researchers found that voluntary safety net and non-safety net hospitals provided substantially less uncompensated care in 1996 and 2000. Overall, voluntary safety net hospitals provided an average of $7.0 million in uncompensated care in 1996 and $8.5 million in 2000 (an increase of 21.3 percent). Non-safety net hospitals overall provided an average of $1.9 million of uncompensated care in 1996, which increased by 32.2 percent to $2.5 million in 2000. Additionally, voluntary safety net hospitals in markets with substantial hospital competition and those in markets with high HMO market share had much lower rates of increase in uncompensated care between 1996 and 2000 relative to other hospital groups. Furthermore, core safety net hospitals on average experienced nearly break-even conditions for Medicare and Medicaid, whereas voluntary safety net hospitals and non-safety net hospitals experienced slight losses.

Under another HCFO grant, Anthony LoSasso, Ph.D., and his colleagues addressed how the structure and characteristics of safety net providers (i.e., hospitals and federally qualified health centers [FQHCs]) affect employees' decisions to accept coverage for themselves and their dependents and employers' decisions to offer coverage. The researchers' primary safety-net measures included total hospital uncompensated care derived from the American Hospital Association's annual survey of hospitals and uncompensated care provided by FQHCs. Their results provide mixed evidence on the extent of crowd out; hospital uncompensated care does not appear to crowd out coverage for children or adults, while health center uncompensated care appears to crowd out private coverage for childless adults.

HCFO Funded Projects Relevant to Potential Bush Reform Measures

Title: How Valid are the Assumptions Underlying Consumer-Driven Health Plans?
Institution: University of Oregon
Principal Investigator: Judith Hibbard, Ph.D.
Time: May, 2004- April 2007

How valid are the assumptions underlying consumer-driven health plans? The researchers propose to use both qualitative and quantitative methods to examine the key assumption underlying consumer driven health plans: if consumers are given financial incentives, choices and information to support these choices, they will take charge of their health and health care and make prudent choices. Working with Definity Health Plan and Whirlpool (which offers their employees a choice of Definity and a PPO option), the researchers are following one cohort of employees who enroll in Definity and another cohort who enroll in a PPO plan. The objective of the study is to compare the knowledge, use of information, satisfaction with care, cost-effective utilization, and cost of care for persons enrolled in Definity and the PPO over time.

Title: Monitoring the Early Experience with Federal Health Insurance Tax Credits
Institution: Georgetown University
Principal Investigator: Karen Pollitz, M.P.P.
Time: February, 2004 -January, 2005

As part of the Trade Adjustment Assistance Act of 2002, Congress created a new, refundable, advance-payable health care tax credit. This tax credit can be viewed as a small-scale demonstration of health insurance tax credits as a way to expand coverage more broadly. This project is examining five aspects of the tax credit: (1) it will describe the qualified coverage options established in every state; (2) it will explore the reasons why states decide to establish different coverage arrangements; (3) it will examine enrollment statistics to determine the impact of state coverage decisions; (4) it will explore the availability of data on state-based coverage programs for evidence that premium subsidies reduce adverse selection; (5) it will review available data on people who claim the tax credit and the premiums they pay. The purpose of this study is to provide policymakers with objective and timely information that will help them monitor and understand the early operations of this program.

Title: An Early Portrait of Consumer-Directed Health Benefits: Design, Integration, Penetration, and Effects
Institution: Mercer Human Resources Consulting
Principal Investigator: Arnold Milstein, M.D.
Time: May, 2003-December 2003

What is the prevalence of consumer driven health benefits (CDHBs) in the market and what is the early evidence about how the movement toward CDHBs has affected cost and quality? The analyses included three categories of CDHBs: health retirement accounts, tiered or flexible benefit design products, and tiered network or treatment option models. Specifically, the researchers 1) assessed the enrollment in and features of different types of CDHBs, 2) assessed the effects of these newly-introduced products, 3) generated hypotheses about the longer term prospects and impact of CDHBs, and 4) derived policy recommendations aimed at maximizing the value of CDHBs. This study provides purchasers and other private and public decisionmakers with early information about what consumer driven health benefit plans are and how they affect cost and quality.

Title: Private Insurance Markets: The Missing Link-Association Health Plans and Other Pooled Purchasing Arrangements
Institution: Georgetown University
Principal Investigator: Mila Kofman, J.D.
Time: April, 2003 - September, 2004

What are the dynamics of pooled purchasing arrangements? In this study, the researchers are: (1) identifying and describing different types of pooled purchasing arrangements, identifying examples of each type, and discussing how such arrangements are regulated by states and the federal government; (2) describing how coverage sold through such arrangements is regulated, focusing on key market reforms and consumer protections as well as applicable federal standards; (3) providing estimates on the prevalence of such arrangements; (4) summarizing how self-insured arrangements are regulated, identifying weaknesses in the law, discussing recent insolvencies, and identifying successful oversight approaches; and (5) discussing market failures focusing on the recent influx in health insurance scams promoted through pooled purchasing arrangements. The objective of this study is to inform state and federal policy discussions on expanding the role of association health plans and other pooled purchasing arrangements. In addition, it will help policymakers address current problems that consumers face such as insolvency and fraud.

Title: Liability Problems and Transparent Disclosure to Patients as a Solution
Institution: The Urban Institute
Principal Investigator: Randall Bovjberg
Time: March, 2003 - November, 2004

How can the understanding of the liability climate for safety reform and of differing theories and implementation of transparency be improved? The researchers are addressing the following three questions: 1) How widespread are liability insurance problems that may threaten access to care and can heighten practitioner concerns about disclosure of problems? What evidence exists on the root causes of problems? 2) What are the shortcomings of even strong liability incentives in preventing avoidable injuries and in promoting patient safety? 3) What models of increased transparency exist, with what theoretical advantages and disadvantages? What are the opportunities and obstacles to their implementation? Has enough innovation occurred in disclosure and safety methods that an assessment is feasible and pre-testable? The objective is to assess two problems and one emerging solution: The problems are that malpractice insurance is perceived to be in crisis and that liability fears have not curbed high rates of medical injury but have undercut cooperation with patient safety initiatives. The solution is more "transparent" disclosure to patients of their injuries, to ease malpractice fears, increase fairness, and facilitate systemic improvements.

Title: Evaluation of Defined Contribution Plans on Health Insurance Choice and Medical Care Use
Institution: University of Minnesota
Principal Investigator: Stephen T. Parente, Ph.D.
Time: November, 2002- October 2004

What is the service use and adverse selection of consumers who select a consumer-driven health plan (CDHP) and what is the experience of "early adopters" from the employer and employee perspective? The researchers are conducting a two-part evaluation of Definity Health, a consumer-driven plan. The following research questions comprise the framework of the evaluation: 1) Who chooses to join CDHPs? 2) Do these plans attract the healthier employees in an employer's health insurance risk pool? 3) How do cost and use differ among people in CDHPs versus other plans? 4) Do patterns of service use and medical care change for enrollees in CDHPs after enrollment? 5) How do employees and employers assess their experience in the plan? The objective of the study is to provide private and public decisionmakers unbiased information on the effects of CDHPs in their early stages.

Title: The Safety Net and Employer-Provided Health Insurance
Institution: Northwestern University
Principal Investigator: Anthony T. LoSasso, Ph.D.
Time: October, 2001 - March, 2004

What is the relationship between the safety net and private insurance? The researchers specifically examined how the structure and characteristics of the safety net (i.e., hospitals and federally qualified health centers [FQHCs]) affect employees' decisions to accept coverage for themselves and their dependents and employers' decisions to offer coverage. The researchers posited that a stronger safety net may lead employees to accept jobs without health insurance or to refuse coverage if offered. At the same time, they suggested a stronger safety net may prompt employers not to offer coverage, especially for smaller employers with many low-wage, low-skill workers. The researchers used Current Population Survey (CPS) data from 1988 to 1999 and Medical Expenditure Panel Survey (MEPS) data from 1996 to 1999. This study informs policymakers about the decisions of employees to accept and employers to offer health insurance coverage and how the safety net influences those decisions.

Title: Effects of the Balanced Budget Act and Market Forces on the Health Safety Net
Institution: Virginia Commonwealth University
Principal Investigator: Gloria J. Bazzoli, Ph.D.
Time: September, 2001 - August, 2004

How has the Balanced Budget Act of 1997 and other major trends (i.e., growth in the number of uninsured, growth in private managed care, and Medicaid managed care) affected the US hospital safety net? Researchers at Virginia Commonwealth University are examining the structural, operational, and outcome-related impacts of the changing environment. Specifically, they are studying four research questions: 1) How are recent changes in hospital reimbursement through BBA 97 and the Balance Budget Refinement Act of 1999 (BBRA) interacting with other market and policy forces to affect the role and involvement of hospitals in local health safety nets? 2) How are current financial pressures affecting the operational decisions of safety net hospitals related to patient care staffing and the intensity of services provided? 3) How are current financial pressures and operational decisions in response to these pressures affecting the quality of patient care within safety net hospitals? 4) As BBA and BBRA provisions are reassessed and revised over the next two years, what potential effects would these revisions have on hospital involvement in safety net care, their operational decisions, and ultimately the quality of care that patients receive? The objective of the project is to provide information to policymakers and hospital administrators about the effects on the safety net of changes in reimbursement to help them formulate policy that addresses potential unintentional consequences of the BBA.

Title: Controlling Risk Segmentation under Employment-based Medical Savings Accounts
Institution: University of Pennsylvania
Principal Investigator: Mark V. Pauly, Ph.D.
Time: April, 1997- October, 1998

How do employers decide whether to offer medical savings accounts (MSAs) to their employees? Researchers at the University of Pennsylvania's Wharton School addressed the question of how employers in medium- and large-group firms think about MSA-induced risk segmentation in the health insurance market. They: 1) conducted a simulation analysis under different levels of premium reduction or employer contribution to the MSA account to analyze the financial impact of these different thresholds; and 2) surveyed employee benefit specialists and consultants and ask them whether, under various "realistic circumstances," they would choose to offer MSAs as an option and whether they would adjust the premium reduction/employer contribution to control the amount of risk segmentation. The objective of the study was to help inform the policy debate as to how medium and large-group employers say they would implement MSAs under various conditions.

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¹ Getler, Michael, "Seeing Red, or Maybe Not," Washington Post, November 7, 2004.

² Parente, Stephen T., Roger Feldman and Jon B. Christianson, "Employee Choice of Consumer-Driven Health Insurance in a Multiplan, Multiproduct Setting", Health Services Research 2004 Aug; 39(4 Pt 2):1055-70.

³ Rosenthal, Meredith and Arnold Milstein, "Awakening consumer stewardship of health benefits: prevalence and differentiation of new health plan models", Health Services Research 2004 Aug;39(4 Pt 2):1055-70.

⁴ Kofman, Mila, Eliza Bangit, and Kevin Lucia, "MEWAs: The Threat of Plan Insolvency and Other Challenges", The Commonwealth Fund Issue Brief, March 2004.

⁵ Kofman, Mila, "Group Purchasing Arrangements: Issues for States", State Coverage Initiative Issue Brief, April 2003.