Copayments

You are currently browsing articles tagged Copayments.

What most reduces adherence: increasing copayments or decreasing prescription lengths?

July 20, 2011 in Pharmaceuticals | No comments

According to this article, the answer is:

“Both policies decreased medication adherence. The days’ supply policy [decreasing the days supply of each prescription from 100 to 34 days] had a much larger effect on adherence than did the copayment increase. Total Medicaid spending declined from the days’ supply policy, but the copayment policy resulted in a net increase in Medicaid expenditures.”

If someone is very sick, the time/inconvenience cost to refill a prescription seems to be a more important factor than the out-of-pocket cost.  This is true even for the Medicaid population, which is of course made up of exclusively low income individuals.  Many economists measure the elasticity of demand with respect to price, but health economists may need to start constructing a demand elasticity measure with respect to inconvenience.

 

Tags: , , , , ,

MedPAC’s Home Health Recommendations

June 2, 2011 in Home Health, Medicare | 1 comment

  • The Secretary, with the Office of Inspector General, should conduct medical review activities in counties that have aberrant home health utilization.  The Secretary should implement the new authorities to suspend payment and the enrollment of new providers if they indicate significant fraud.
  • The Congress should direct the Secretary to begin a two-year rebasing of home health rates in 2013 and eliminate the market basket update for 2012.
  • The Secretary should revise the home health case-mix system to rely on patient characteristics to set payment for therapy and nontherapy services and should no longer use the number of therapy visits as a payment factor.
  • The Congress should direct the Secretary to establish a per episode copay for home health episodes that are not preceded by hospitalization or post-acute care use.

See this post to review MedPAC’s earlier home health recommendations.

High Margins and CMS Response
Home health agencies’ (HHAs’) have high Medicare margins, averaging 17.4 percent between 2001 and 2008 and averaging 17.7 percent in 2009.  Much of these high margins may be due to an increase in the reported number of visits per home-health visit (since more visits per episodes leads to higher Medicare payments per episode). Payments per episode increased 7 percent from 2008-2009.  MedPAC believes that Medicare is currently overpaying for home health services.  To reduce both the margins and the expansion of HHAs, the Patient Protection and Affordable Care Act of 2010 (PPACA) includes the following provisions:

  • 2011—The base rate for a home health episode is reduced by 2.5 percent, and the market basket update is reduced by 1 percent.
  • 2012 and 2013—The market basket update is reduced by 1 percent.
  • 2014 to 2017—A phased rebasing of an episode payment is implemented to lower payments to a level equal to the costs of the average episode. The Secretary may lower payments by no more than 3.5 percent a year, for a cumulative reduction in payments of 14 percent by 2016. These reductions will be offset by the payment update for each year (under PPACA, the update in 2015 and following years will be equal to the market basket adjusted for productivity).

Other PPACA provisions include:

  • The Secretary has authority to halt the enrollment of new HHAs in areas deemed at high risk of fraud.
  • The Secretary also has the authority to suspend payment when unusual patterns are observed for providers or geographic areas.
  • The Secretary now has the  authority to require additional background checks for new providers of services deemed to be at high risk of fraud.
  • Physician review: Beneficiaries will need to have an encounter with a physician or nurse practitioner through an office visit or “telehealth” session when receiving home health care
  • The law passed a 3 percent rural add-on for episodes delivered in rural counties.

Quality

Quality is measured using the Outcome-Based Quality Monitoring (OBQM) data set, collected via the Outcome and Assessment Information Set (OASIS). At the Commission’s direction, the University of Colorado is examining two areas for more clinically focused measures: the amount of improvement in walking for beneficiaries who receive home health care after a hip or knee replacement and the hospitalization rate for causes that are potentially preventable.

Including therapy visits as part of PPS

An analysis by the Urban Institute found that the current case-mix system predicted 55 percent of episode-level costs for all non outlier episodes, but the explanatory power dropped to 7.6 percent if the number of therapy visits received was excluded as a case-mix grouping.  The steep decline in explanatory power indicates that the case-mix adjuster is highly dependent on the inclusion of therapy visits provided and that patient characteristics are less important in the predictive power attained by the current case-mix system. This reliance on the amount of services provided is counter to the goals of prospective payment, as the number of therapy visits provided is not a prospective attribute of a patient, but a factor under the control of the provider…The current case-mix system predicted about77 percent of the variation in episode-level therapy costs but less than 1 percent of the variation in non-therapy costs.

Beneficiary Cost Sharing

Adding a beneficiary cost sharing for home health care could be an additional measure to encourage appropriate use of home health services. The health services literature has generally found that beneficiaries consume more services when cost sharing is limited or nonexistent, and some evidence suggests that these additional services do not always contribute to improved health outcomes. Cost sharing may be appropriate for home health care because there are no clear clinical standards for many uses of the benefit…Adding a cost sharing requirement would give beneficiaries some incentive to weigh the value of home health services before accepting them and would dissuade beneficiaries from using it when it has minimal value. Cost sharing would also mitigate incentives in the home health PPS that reward volume.  One drawback, however, is that copayments encourage beneficiaries to use higher cost post acute care settings, such as skilled nursing facilities or inpatient rehabilitation facilities.  Thus, limiting copayments to community-admitted beneficiaries seems more reasonable.

Tags: , , , ,

Do higher copayments decrease health care costs?

January 20, 2010 in Health Insurance | No comments

Merrill Goozner of GoozNews writes the following:

The share of health care costs borne by individuals has remained fairly steady over the past several decades, and that is the prime argument behind conservative and economist claims that making patients have “more skin in the game” will drive health care costs lower. That ignores the fact that most people (except those in some union plans) have experienced fast rising co-pays and deductibles for years. As health care inflation skyrocketed, employer-paid premiums skyrocketed. But so did individual payments in equal proportion. Where’s the evidence that the skyrocketing co-payments of the past decade held down health care costs?

Do higher copayments hold down health care costs?  In general, the answer is YES.  As Mr. Goozner has mentioned, there has been much evidence by economists that when patients pay more money out of their own pocket, they consume less medical care.  The RAND health insurance experiment finds this to be true in the strongest terms.

However, there are exceptions. For instance, higher co-payments on pharmaceuticals will decrease drug use, but lower pharmaceutical adherence may increase hospitalization rates thus increasing healthcare spending. This is a problem of how to design the insurance contract, not a violation of the central tenet of moral hazard (i.e., when someone else pays for a good, you will consume more of it).  In fact, I have written extensively on the issue of moral hazard.

Additionally, on a macro level, the majority of health care costs come from serious, end-of-life care. In these situations, the physician has much more control over the services provided than the patient.  Further, once a person has reached this stage, the copayments are likely small as the deductible has already been met.

The major problem with Mr. Goozner’s argument is that he does not distinguish between correlation and causation.  In recent history, copayments have increased and so have costs, but this does not mean that higher copayments caused the increased costs or even that they did little to stem the tide of cost increases.  Health care has changed on many dimensions including medical technology, how doctors treat patients, hospital and provider consolidation, etc.  The counterfactual against which one should measure the impact of higher copayments is the following scenario: what if all the exact same changes took place in recent history but copayments did not change over time.  How different would costs be from our current state?  Likely, healthcare care costs would have risen even faster than without the increased copayments.  Nevertheless, since one can never redo the past, this exercise is simply a thought experiment.

Logically, however, it makes sense that higher copayments and deductibles decrease medical costs.  If you go to the dentist and they want you to pay a few hundred dollars for an x-ray, you will be much more likely to acquiesce if your insurance is paying for the x-ray rather than it is coming out of your own pocket.

Higher copayments do decrease medical utilization, but they are just one of many factors that influence aggregate healthcare costs.

Tags: , , ,

Does Free Health Insurance increase the poor’s access to medical care?

June 4, 2008 in Health Insurance, International Health Care Systems, Public Policy | Permalink

As mentioned in previous posts, most health insurance in the France public health care system involves significant copayments. While this helps to reduce the moral hazard problem, it may prevent poor individuals from utilizing the care they need. In 2000, France introduced free complementary health insurance plan which covers most out-of-pocket payments for the poorest 10% of French residents. Did this policy change increase utilization?

This is the question analyzed by Grignon, Perronnin and Lavis (2008). The authors note that three groups are effected by this change. This first is the very poor who already paid very few copays due to the existing means tested program (Aide Médicale Générale). The second group of individuals who were eligible for the complementary insurance program previously had commercial insurance, which in France is often used to finance the copayments of the national health insurance system. For the first two groups, we would expect little change in medical utilization. The third group, however, had no commercial or means tested complementary insurance and thus becoming eligible for the new French program likely will have a significant impact on access to care.

Results

The authors do not find a strong positive effect of being eligible for the the free complementary insurance plan, but this is likely because 87% of the sample was previously eligible for means tested benefits. There was some evidence that the utilization of specialist care did increase for the population eligible for the free complementary insurance program. Individuals who enrolled voluntarily into the free plan had significantly higher probability of using all types of care.

The authors summarize their findings concerning the increased utilization of those previously not covered as follows:

“This impact of the free plan on health-care utilization of those previously not covered has three causes: (1) a true price elasticity of demand for health care among the poor: faced with a lower (indeed zero) price, individuals use more care, mostly specialist visits and drugs than when faced with a variety of co-payments averaging 23%; (2) pent-up demand: the change in utilization among those previously not covered reflects the slope of their demand as well as the stock of past unmet needs and can therefore overestimate the longer-run elasticity of demand; and (3) enrolment bias: those who voluntarily enroll may be those who expect to use health care more. “

Tags: , , ,

Increased Copays for high priced drugs

April 14, 2008 in Health Insurance, Medicaid/Medicare, Pharmaceuticals | Permalink

Consumers are starting to pay a larger share for high priced drugs.  According to the N.Y. Times (“Co-payments“), insurance companies “…are charging patients a percentage of the cost of certain high-priced drugs, usually 20 to 33 percent, which can amount to thousands of dollars a month.”  Medicare’s drug plans have introduced new fee schedules where patients pay larger copayments for Tier 4 and Tier 5 drugs.  Private insurers now followed Medicare’s lead.

Should consumers bear a larger burden of their health care costs?  On the one hand, moving towards more out-of-pocket costs will reduce premiums.  Further, higher co-payments will reduce moral hazard (i.e., the use of unnecessary medical care simply because insurance pays for it).  Also, this moves us closer toward insurance as a policy to insure people against catastrophic risk and not as a mechanism to pay for all medical care.

Still, health economist James Robinson from UC-Berkeley states that “It is very unfortunate social policy.  The more the sick person pays, the less the healthy person pays.”

Tags: , ,