--CONSULTATION REPORT-- HARVARD PILGRIM HEALTH CARE ETHICS ADVISORY GROUP. Health Insurance/Rapid Change: Developing a Framework of Values

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1 --CONSULTATION REPORT-- HARVARD PILGRIM HEALTH CARE ETHICS ADVISORY GROUP Health Insurance/Rapid Change: Developing a Framework of Values May 19, 2004 Customer for the Ethics Advisory Group The customer for the May 19 EAG meeting was Scott Polansky, Director of Product Management in the HPHC Department of Marketing and Sales. Background The US health insurance market is again in a period of rapid change. Here is how University of California health economist James Robinson describes the current transformation in his article on Reinvention of Health Insurance in the Consumer Era : The private health insurance industry in the United States has fundamentally changed its strategic focus, product design, and pricing policy as a result of the backlash against managed care. Rather than seek to influence the behavior of physicians through capitation and utilization review, the major health plans now seek to influence the behavior of patients through benefit designs that cover a broad range of services but with high copayments, tiered network designs that cover a broad range of physicians but with variable coinsurance, and medical management programs that provide incentives for patients to better manage their own health care. Premium prices are carefully adjusted to cover the expected costs of care for each type of product and each class of patient, with a commensurate willingness to abandon enrollment where insurance premiums cannot outrun medical costs. The contemporary product and pricing policies reflect a retreat by the insurance industry from previous efforts to transform the health care system and embody a delegation to individual consumers of responsibility for setting priorities and making financial tradeoffs. (JAMA, April 21, 2004, pages ) The May 19 meeting was focused on the future. Harvard Pilgrim Health Care has developed a new product - Primary Choice as part of the reinvention process Robinson describes. Primary Choice, which will be available to Massachusetts-based employers with 100 or more eligible employees, will create three tiers of primary care physicians (PCPs) based on risk-adjusted cost and performance measures. Premium will be lowest for Tier I, consisting of PCPs seen as providing the highest value or cost-effectiveness. Tier II adds a second group of PCPs to Tier I and incurs a higher premium. Tier III includes all PCPs in the HPHC network and has the highest premium level. Primary Choice members can receive care from any hospital or specialist in the HPHC network to which their PCP makes referrals. Primary Choice essentially overlays a tiering of primary care physicians onto existing HPHC HMO and POS ( point of service ) products. One set of questions the EAG on May 19 had intended to focus on, but which will be addressed instead at the July meeting, involves Primary Choice. Preparing for what turned out to be the focus at the May 19 th meeting required understanding another piece of background the new Health Savings Accounts (HSAs), established as part of the Medicare Prescription Drug, Improvement, and Modernization Act, which became effective January 1, 2004.

2 HSAs are tax-free accounts that allow employees to put aside money for medical expenses. HSAs can only be offered in conjunction with high deductible health insurance products. HSAs can be offered to individuals with plans that have a deductible of no less than $1,000 for individual coverage and $2,000 for family coverage. Employers and employees can contribute tax deductible funds up to $2,600 for an individual and $5,150 for a family in HSAs can be used to cover the deductible and copayments, as well as a variety of other health related expenditures. The HSA (including interest and investment earnings) is tax deductible, rolls over from one year to the next, and is portable for the employee. One writer described the HSA as a medical savings account on steroids. For a health insurance product to be eligible for an HSA, however, the deductible must apply to all benefits except preventive services. This means that office visits, for example, must be paid in full up to the deductible. Likewise, HPHC s three tier pharmacy coverage could not be offered with an HSA members would have to pay the full cost of pharmaceuticals until the deductible was met. In many ways, the high deductible health plans the new federal legislation encourages are like indemnity insurance from the pre managed care era. (An informative article about HSAs in Managed Care Magazine can be accessed via A second reading providing excellent background on HSAs can be found in Tax Notes at: %20Guide%20to%20health%20savings%20accounts.pdf. Questions for the Ethics Advisory Group a) Health Savings Accounts are on the horizon, but the horizon can move very fast in the current health care environment. On May 7, 2004 the Boston Business Journal carried an article headlined All eyes on Tufts Health as it brings HSAs to Bay State. The article reported that Tufts plans to start marketing an HSA plan to brokers this month, and that a national survey done by Mercer Human Resource Consulting found that more than half of the 991 employers they surveyed were likely to offer a high deductible plan with an HSA by As a second focus for anticipatory ethical analysis, Scott is asking the EAG to consider the following questions: Given the broad scope of the deductible under the HSA concept (Scott refers to it as a blunt deductible ), what does this mean to HPHC as a plan that has been committed to using managed care principles in pursuit of its mission? How might members perceive medical management when, under the deductible of HSA plans, they are paying the full cost for many treatments and services? What other ethical opportunities and risks does the EAG see in association with the HSA concept? b) Had the discussion of HSAs left time for considering Primary Choice as well, Scott had planned to ask the EAG to do what could be described as an ethics biopsy or ethics due diligence process for the new product. After ensuring that participants at the meeting understand how Primary Choice will work, Scott would have asked for feedback on how the EAG saw the new product through the lens of ethics. In what ways does the tiering of primary care practices interact with important values? While Primary Choice has been designed, it will not go live for 7 months, so EAG feedback can contribute to planning for its implementation. The EAG expects to return to this topic at its July meeting. Relevant precedents 2

3 On July 18, 2001, the EAG discussed Ethical Issues in [Affordable Products] and Defined Contribution. At that point there had not yet been actual market demand for products that sought to make premiums more affordable by shifting financial risk to members, but the handwriting was on the wall. David Cochran, Senior Vice President for Strategic Development, asked the EAG to help HPHC anticipate and plan for the potential new developments. The key EAG perspectives included: 1. The group strongly opposed creating affordable products by stripping out major benefits. [HPHC s new products, including Best Buy HMO, do not use the stripping out approach.] 2. The group endorsed products that align financial incentives with key values, citing the generally positive reactions to the three-tier pharmacy benefit as a successful example of aligning clinical and cost considerations in the right way. 3. Given the expectation that the new products would involve increased consumer choice, the group stressed the ethical imperative for HPHC and employers to make good information available to enrollees, to enhance the potential for truly informed choice. On July 24, 2002, in the context of readying new consumer-driven products for the market, the EAG discussed HPHC s new Affordable Products Enhancing Ethical Benefits/Minimizing Ethical Risks, with Scott Polansky, Director of Product Management as customer. The EAG again emphasized the ethical importance of good information and informed stakeholders. Here is the two-paragraph summary of the July 24, 2002 discussion: This was an intellectually and emotionally complex meeting. Some members were deeply unhappy about the national market trend reflected in the [concept of consumerdriven products]. Others were deeply hopeful about the potential benefits the new developments might foster. The consensus of the discussion was that the right ethical stance for HPHC to take is to see the new developments as part of a societal experiment, not as a solution whose efficacy should be taken on faith. The central importance of education came up again and again in the EAG discussion. To make [HPHC s Affordable Products] an opportunity for true consumer-directed health care and not simply a vehicle for shifting costs to consumers, consumers need the right information at the right time. Employers are key information sources when consumers are deciding which insurance choices to make. Providers are key information sources when consumers are deciding about treatment alternatives. The EAG felt that HPHC could act as an ethical leader by working with consumers, employers and providers to enhance the potential for meaningful consumer choice, and by documenting the full range of impact the new products have on central health care values. On March 27, 2003 the EAG discussed Implementing HPHC s Affordable Products Ethical Opportunities and Risks in Consumer-Driven Health Care. Scott Polansky and Dave Segal (Senior VP for Customer Service and Operations) asked the EAG to suggest a framework of values for considering how to provide information about costs to Best Buy HMO members. The EAG recognized that providing accurate and timely information about costs is difficult but emphasized that information about costs before enrollment and at the time of making healthcare decisions as a member is crucial. The EAG suggested that one sign that Best Buy products are achieving their goal will be if providers and patients have new kinds of conversations about cost and value. The group was concerned about low income Best Buy members, especially those with less sophistication about the complexities of the health care system. For this vulnerable subgroup the deductible could act as a barrier to needed care, not just as an incentive to consider the value of marginally important care. 3

4 EAG DISCUSSION/RECOMMENDATIONS The case that was circulated prior to the meeting anticipated that the EAG would consider both HSAs and Primary Choice as two aspects of the topic of new insurance products. The discussion of HSAs, however, occupied the entire two-hour meeting. I have summarized the very active discussion in bullet form under three headings that are intended to highlight the values-related dimensions of HSAs. 1. Potential risks to important HPHC values created by HSAs: HPHC s mission is to improve the health of the people we serve Several participants at the meeting felt that the broad deductible that must be offered with HSAs could interfere with health improvement in two ways. First, financial risk is a blunt instrument. Although the intended purpose of the high deductible is to encourage individuals to seek service providers offering good quality at a lower cost and to omit services of marginal or no benefit, financial risk leads people to forgo services of significant importance to health as well. Second, the tax-free status of HSAs provide an additional inducement to treat the HSA as an investment vehicle rather than to spend it on health services. In these ways HSA products create an incentive to avoid spending that could interfere with the HPHC mission of improving health. HSAs are especially appealing to the healthy (who do not expect to make extensive use of health insurance) and wealthy (who are not deterred by the risk of the deductible). As such HSAs contribute to further fragmentation of the risk pool and to the potential for driving up the cost of insurance products that appeal to those who are less healthy and less affluent. HSAs could create confusion and administrative burdens for providers in the HPHC network who may not know whether services they render will be paid for by the patient or the patient s HPHC insurance. As insurees take on increasing financial risk, HPHC becomes more like an indemnity insurer with less opportunity to add value for members as it hopes to do. As one participant commented under HSAs HPHC is not likely to matter as much to members! 2. Potential enhancements of important HPHC values offered by HSAs: If successful, HSAs could slow the trend of premium increases. Clearly HPHC cannot improve the health of members if members cannot afford insurance! And, since income and financial security correlate with better health, reducing the cost of health insurance in itself contributes to health promotion. It is reasonable to hope that some HSA enrollees will become highly discerning purchasers of health service. Given that the public has turned against having insurers manage care, a cadre of sophisticated, value-oriented individuals intent on managing their own care could become a force for positive change. The marketplace HPHC operates in wants a range of health insurance products to choose from. While health insurance with substantial deductibles pose risks, in the current US health care system the alternative may be no insurance, not insurance with less financial risk attached. HSAs encourage people to save for health care needs. If used to pay for important health care purposes HSAs can contribute to health improvement, thereby supporting the HPHC mission. 3. Potential ways to align values to reduce risk and increase opportunity from HSAs: 4

5 HPHC has devoted substantial effort most recently in its own implementation of the Best Buy HMO product to providing information and decision support tools to employers, brokers and enrollees. HPHC could again apply its skills as a knowledge organization to assist stakeholders in understanding HSAs, making informed decisions, and using the product well. This would reduce the risk that HSAs would be chosen by those for whom it is not the right product and would increase the potential for HSA enrollees to become skilled care managers on behalf of their own health. Several participants in the discussion commented that insofar as employers contribute to the HSA the risk that the deductible will impede important health care is reduced. Others responded, however, that substantial employer contribution seems unlikely. A major appeal of HSAs is the hope that they will bend the trend of premium increases and employer costs. Expecting employers to increase their costs by offsetting the deductible is unrealistic. However, HPHC could work with employers to find ways of minimizing the risk that employees will elect deductibles that are more substantial than they can handle. HSAs and other products with substantial deductibles give enrollees incentives to seek good value. Ideally provider incentives would point in the same direction, as in capitation payment or in systems that reward high value producers the way a well functioning market system would do. HPHC could seek ways to further align provider incentives with the incentives that HSAs create for members. One participant suggested that if the HSA were a medication it would be seen as experimental, needing research on its risks and benefits before wide dissemination. The fact that it is being introduced so rapidly speaks for the intense national concern about health care cost trends. This participant suggested that HPHC could take a research-like approach to new products like HSAs by carefully tracking their impact and using these findings to reduce risks and augment positive impacts. HSAs ask enrollees to make decisions about the importance of recommended health care services and the relative value of alternative approaches or providers. One participant commented that this advisory role is one that many primary care physicians want to fill. As a knowledge organization, the decision support tools that HPHC creates could be adapted for use by primary care physicians who want to assist their patients in navigating the decisions high deductible products call for. Summary The US health care system continues to seek a silver bullet that will moderate cost trends and improve value for money. The current policy candidate is having individuals put skin in the game by creating financial incentives for seeking good value. HSAs by creating the potential for portable, tax-free savings offer the strongest inducement to date for participating in high deductible health insurance. Many of the risks and benefits are similar to those the EAG identified for other new products involving deductibles. The distinctive features come from the heightened appeal of the HSA itself and the blunt deductible that applies to all services other than a limited number of preventive categories. At the end of the meeting several participants noted that as the insurance market has evolved the EAG has had a series of meetings each focused on single new products. The group suggested that a future meeting look at a range of products in light of a grid of values derived from the series of EAG product-centered meetings. This will be the agenda of the EAG s meeting on July 21. Jim Sabin 5