“Cost Sharing Not Just About Sharing Costs”

Washington Business Group on Health

Helen Darling, President

December 3, 2003

The Problem

Employers’ most serious, immediate benefits problems:

• Rising health care costs and uneven quality.• Costs up to 50% through 2002; 14% in 2003; 12–14%

estimated in 2004.• Retiree medical costs (FAS 106 liability) worse due to

prescription drugs.• Prescription drug coverage will help some, but costs are still

high.

1

RAND Study Confirms Continued Quality Gap:

Need Cost Sharing to Get Attention

Condition Percentage of

Recommended Care Received Low back pain 68.5

Coronary artery disease 68.0

Hypertension 64.7

Depression 57.7

Orthopedic conditions 57.2

Colorectal cancer 53.9

Asthma 53.5

Benign prostatic hyperplasia 53.0

Hyperlipidemia 48.6

Diabetes mellitus 45.4

Headaches 45.2

Urinary tract infection 40.7

Hip fracture 22.8

Alcohol dependence 10.5

Source: Elizabeth McGlynn, et al, “The Quality of Health Care Delivered to Adults in the United States,” NEJM, Vol. 348:2635-2645 June 26, 2003 (No. 26).

2

• High costs, low economic growth hurt economy and living standard.

• Unsustainable business model. • Corporate America cannot make or sell enough in this

economy to keep absorbing these increases. • Must find new ways and new resolve to tackle these problems

head-on with leverage from combined purchasing power of large employers, health plans, insurance companies, and government as payers for care.

The Problem

3

Source: Kaiser/HRET Annual Survey of Employer-Sponsored Health Benefits, 2003 Summary of Findings.

Note: Data on premium increases reflect the cost of health insurance premiums for a family of four.

HEALTH INSURANCE PREMIUMS

OVERALL INFLATION

WORKERS’ EARNINGS

High Costs, Low Economic Growth Hurt

US Competitiveness

Increases in Health Insurance Premiums Compared to Other Indicators, 1988–2003.

4

Cost Sharing, Not Just About Sharing Costs…

• Consumers need meaningful financial stake in care decisions.

Coinsurance helps consumers get cost information and know benefit value.

Cost sharing indexed to rising value of employer-provided benefit.

• We need incentives to drive system toward efficiency/medically appropriate utilization.

• Consumers can reward/select quality, efficiency, and innovation.

Transparency is essential.

5

• Communication has to address “What’s In It For Me” questions.

• With cost sharing, utilization and overall costs will be moderated.

• All employees benefit from reduced increases by keeping their share of premiums down.

• Choice increases employee satisfaction and makes cost sharing more palatable.

6

Cost Sharing, Not Just About Sharing Costs…

• Employers and Employees Need

Decision Support Tools.

Data on Costs and Quality.

How to Control as Individuals.

Evidence-based Practices.

Efficiency/Effectiveness of Diagnostics, Treatment, Devices, and Prescription Drugs.

7

Cost Sharing, Not Just About Sharing Costs…

• Solutions must recognize important aspects of health status under individual’s control.

• Without any cost-sharing, consumers won’t pay attention to options or costs.

• Health coverage will become more affordable.

8

Cost Sharing, Not Just About Sharing Costs…

• Hospitals with better safety/quality records, forthcoming with data on procedures volumes, are better for employees and will save overall costs (e.g., infection rates affect length of stay and morbidity, mortality, are costly).

• Information must be accessible, all publicly reported information on hospital website.

• Employees need to learn: more costly care not necessarily better.

• Cost sharing gets people’s attention. 9

Cost Sharing, Not Just About Sharing Costs…