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How do CDHPs affect Pharmaceutical Spending and Utilization

July 15, 2008 in Health Insurance, Pharmaceuticals | Permalink

Recently, health insurers have been more likely to offer a tiered copayment structure to enrollees. Patients face low co-payments for generic drugs, higher copayments for “preferred” name-brand drugs, and the highest for name-brand drugs on a “nonpreferred” list.

Consumer driven health plans (CDHPs) however offer a simpler payment system. The consumer generally places funds into an account which can be used to pay for medical spending of any kind (including pharmaceuticals). After the funds in the account are exhausted, the individual must pay for medical treatment out of pocket until the deductible is met.

A paper by Parente, Feldman and Chen (2008) takes data from a large, self-insured employer that had a CDHP and a POS with a 3-tier copayment structure and analyzes how CDHP affect pharmaceutical spending and utilization. The authors use a standard two part model:

  • P(Rx>0)=α0 + α1X + α2C + α3T + α4TC
  • Ln(covered expenditure|expenditure >0)=β0 + β1X + β2C + β3T + β4TC

Here, X are enrollee covariates, C is the choice of insurance, T is equal to unity after the CDHP is introduced, and TC is the interaction term. Thus, we have a difference-in-difference estimation strategy using a two part model.

The results of the study are as follows:

“CDHP cost sharing does not favor generic drugs to the extent found in three-tier benefits, which provide a substantial price reduction for generic drugs. However, we note differences among the three-tier designs where the PPO cohort used more brand name drugs and fewer generic drugs than the POS cohort”

The authors also hypothesized CDHP enrollees would utilize more mail order drugs to save on costs.

“Our third hypothesis that CDHP enrollees would use more mail-order prescriptions than other cohorts was supported in all 3 years, but the results were not statistically different from the POS cohort.”

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CDHPs and Small Business

May 7, 2008 in Health Insurance, HSA | 1 comment

Consumer directed health plans (CDHP) seem like an attractive option for small businesses. CDHPs utilize high deductible health plans (HDHP) making patients pay more money out of pocket. Because of this, insurance premiums are lower. These HDHPs can be linked to Health Reimbursement Arrangements (HRAs) or Health Savings Accounts (HSAs). Since small businesses do not benefit from economies of scale with respect to the purchase of insurance, HDHPs may be especially attractive for this group.

A paper by Gates, Kapur and Karaca Mandic (2008) find this not to be the case, however. Firms employing 3-49 people are no less likely to offer high deductible health plans than are large firms–conditional on offering insurance. Midsize firms employing 200-499 workers are less likely to offer HDHPs than larger firms.

If the firm offers a HD health plan, will they offer an HSA? One may guess that small firms are less likely to offer HSAs if there are fixed costs to implementing an HSA. Small firms will have higher average costs to offering HSAs, if offering HSA is a true fixed cost and its cost to the employer is not proportional to the number of employees in the firm.

It turns out that small firms between 3-49 workers and firms with 200-499 workers are less likely to offer HSAs–conditional on offering HDHPs–than large firms with 500 or more workers. Middle sized firms with between 50 and 199 workers are just as likely to offer HSAs as large firms.

Other findings of the study include that HSAs are most popular in the Midwest and the South and, surprisingly, firms with a higher proportional of low-income workers are more likely to offer HSAs.

All Firms Firms w/ 3-49 employees Firms w/ 3-199 employees Firms w/ 200+ employees
% offer Health Insurance 61% 58% 60% 99%
% offer HD conditional on offering 14% 14% 14% 14%
% offer HSA conditional on offering HDHP 17% 16% 17% 21%

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