The COVID-19 pandemic and the mitigating actions in response by citizens and governments alike have precipitated unprecedented economic disruption in the United States. The second quarter of 2020 marked the largest single-quarter economic contraction in modern U.S. history, driving unemployment rates from historically low levels in February to peaks last seen during the Great Depression.
The unraveling and recovery of the U.S. economy have had and will continue to have a similarly disruptive influence on the enrollment in and composition of U.S. health insurance markets. These impacts will be felt throughout the health system, including in state Medicaid budgets and hospital, physician, and pharmaceutical margins, as well as in the financial performance of commercial and Medicaid health plans.
To understand the interconnected nature of economic changes and health insurance coverage and to project impacts to U.S. health insurance markets, Milliman built a tool referred to as the COVID-19 Advanced Population Shift model. This model combines detailed information on the economic status, health insurance coverage, and health status of each state’s population prior to the COVID-19 pandemic with emerging information on the economic impact of the pandemic response. It allows forecasting the resulting shifts in enrollment and population morbidity across the healthcare markets while providing insight into the key factors driving change. Milliman’s Fritz Busch, Lindsy Kotecki, and Jeff Milton-Hall summarize the findings in this paper.
The Direct Primary Care (DPC) practice model is relatively new and still evolving; there is no single accepted definition of what constitutes a DPC practice. The most commonly used definition is as follows:
DPC physician practices:
Charge patients a recurring membership fee, typically monthly, to cover most or all primary care-related services.
Do not charge patients per-visit out-of-pocket amounts greater than the monthly equivalent of the membership fee.
Do not bill third parties on a fee-for-service basis for services provided.
The Society of Actuaries commissioned us to develop a study on DPC practices with the goal of providing a comprehensive description of DPC and evaluating certain claims that are made about its effectiveness. In particular, our study published in May 2020 sought to provide an actuarial perspective to the robust debate about the impact of this model of primary care on overall levels of healthcare utilization and cost.
We procured a longitudinal claims data set from an employer’s health benefits plan where covered employees and dependents can choose to enroll in a traditional preferred provider organization (PPO)-style plan option or they can choose to enroll in an option that includes a DPC practice membership and waives the medical deductible for all services.* We compared utilization and cost outcomes for about 900 patients enrolled in DPC to outcomes for about 1,100 patients not enrolled in DPC during a two-year period, and risk-adjusted the results to control for differences in health status between the DPC and PPO cohorts.
What did we find out?
What does this mean for the debate about DPC?
Controlling for patient selection in DPC studies is imperative For the group that we analyzed, DPC patients were expected to have lower overall healthcare costs than PPO patients due to differences in age, gender, and health status (i.e., mix and severity of medical conditions). We expect that other employers similarly offering DPC as an option will see similar selection patterns; that is, we expect that on average those electing to enroll in DPC in a healthcare plan choice setting will have lower average costs than those electing to remain in their prior plans. It is imperative to control for patient selection in DPC studies; otherwise, differences in cost due to underlying patient differences may be erroneously assigned as differences caused by DPC.
Enrollment in DPC can result in using less downstream healthcare services After accounting for differences in health status between DPC and PPO patients, we observed lower utilization of healthcare services for those enrolled in the DPC option, driven primarily by reductions in utilization rates for certain facility services including emergency department services. This result was consistent with claims made by proponents of DPC; namely that the model’s enhanced patient access and continuous primary care resulted in reduced need for downstream healthcare services relative to traditional primary care.
The financing and structure of the total benefits package matters While we estimate that patients enrolled in this employer’s DPC option used less healthcare services, our midpoint estimate is that the employer’s net non-administrative costs for patients enrolled in the DPC option were 1.3% higher than if the patients had been enrolled in the traditional PPO option. Our estimate of the change in employer net costs per patient ranged from a 5.2% reduction to a 7.8% increase. However, it is noteworthy that, for this particular employer, there were additional plan costs associated with the DPC option—covering the DPC membership fee on behalf of the employee and waiving the medical deductible for all services (not just primary care).
Two key tenets of the DPC model are increased provider payments per patient for primary care and reduced patient out-of-pocket costs. Both increase net plan costs for self-funded employers or other payers (by paying comparatively more for primary care services and covering more of the cost for patients). The extent to which the DPC model will result in lower net plan costs will depend on whether the model can drive sufficient reduction in the use of downstream healthcare services (i.e., those not provided by the DPC practice) to cover the larger up-front investment in primary care. Employers reducing patient out-of-pocket costs through the reduction of copays or deductibles—such as was the case for this particular employer—will require even greater reduction in the usage of downstream services.**
Qualitative considerations should not be ignored We believe that the consideration of a DPC option for many employers will go beyond purely financial factors. Other considerations may—and likely should—include the impact of DPC on patient access to care, patient out-of-pocket costs, employee absenteeism rates, and employee retention, among other factors. We believe that, for many employers, introducing DPC on a cost-neutral basis while positively affecting these qualitative considerations would represent a sufficient return on investment.
Our employer case study is the first of its kind in many respects but there are some key limitations that readers should keep in mind:
Our case study focused on a single DPC provider and a single employer; outcomes for other DPC providers and other employers will vary from the outcomes that we observed. Additional data from other sources, for more patients, and over longer durations is necessary to assess the broader impacts of the model.
Given the largely grassroots nature of the DPC model there is no standard DPC model of care nor a template for physicians to follow. In fact, there is disagreement among some DPC providers as to what exactly constitutes a DPC practice. Therefore, results among providers practicing this new model may vary more than results would among other providers practicing other more standardized models.
Due to the nature of the data set provided for our analysis we were unable to assess the validity of claims that DPC improves the quality of care and patient satisfaction.
The DPC model of care is somewhat unique in that it has both direct-to-consumer and direct-to-employer offerings, and the patient selection pattern for each of them is likely to vary materially. Individuals choosing to enroll in a DPC membership on their own are likely to have more healthcare needs than patients not choosing to enroll on their own. Conversely, employees and dependents choosing to switch from a traditional plan option to a DPC plan option are likely to have less healthcare needs than patients not choosing to switch to DPC. Thus, results observed for DPC patients enrolled via an employee benefit, such as those in our employer case study, may not be representative of results for DPC patients enrolled as individuals.
* We are not affiliated with either the employer group or their DPC provider.
** In addition to increasing an employer’s share of costs, benefit changes can also affect how much care members utilize. This affect is commonly referred to by actuaries as induced utilization, and should be considered by employers when structuring DPC options and by those evaluating the impacts of DPC. For our case study, the benefit design under the DPC option was slightly richer in aggregate than the PPO option, meaning that based on benefit design differences alone, members would be expected to use slightly more services in aggregate when enrolled in the DPC option than when enrolled in the PPO option. This is due to the employer waiving cost sharing for primary care services as well as the medical deductible for all services under the DPC option. Since the difference was relatively small, we conservatively did not apply an induced utilization adjustment in our estimates. If we had, the reduction in demand corresponding to enrollment in the DPC option would have been slightly greater.
In October 2017, the Trump administration issued the “Executive Order Promoting Healthcare Choice and Competition Across the United States.” This sought to provide additional health insurance coverage options for small groups and individuals outside of the Patient Protection and Affordable Care Act (ACA) market. One option the executive order addressed directly is the association health plan (AHP) for small groups and certain individuals.
In January 2018, the proposed rules for AHPs were issued, and in June 2018, the final rule was released.
Prior to the release of the final rule, associations did not have a well-defined pathway to being determined bona fide. Instead, each association’s facts and circumstances were evaluated against three broad issues:
• Does the association exist for a purpose other than providing benefits?
• Do employer members of the association have a close enough relationship to be essentially a single common entity?
• Do employer members control the health plan in form and substance?
With the new pathway identified in the June final rule, the second criteria is made much more explicit and can be satisfied by demonstrating that association members share a common industry or geography.
Many, if not most, of the currently existing associations, including local and national chambers of commerce, local or national industry groups, professional groups, and regional interest groups, could fairly easily fulfill all the conditions to become a bona fide association under the latest rules and thereby offer a large-group health plan as an employer. This was not the case prior to the president’s executive order.
In this article, Milliman consultants Fritz Busch and Jason Karcher examine the final rule released in June, evaluate considerations for sponsors of AHPs, and briefly assess the final rule’s impact on the small-group health and individual markets.
The requirement that every American have healthcare coverage or pay a financial penalty was one of the key provisions of the Patient Protection and Affordable Care Act (ACA). Known as the individual mandate, it was one of the most controversial provisions of the ACA. Some questioned its legality and others questioned its effectiveness at driving insureds into the insurance pool.
The U.S. Supreme Court settled the issue of the mandate’s legality in 2012, ruling that attaching a financial penalty to a failure to purchase health insurance did not run afoul of the U.S. Constitution. This decision, though, did not settle the issue of its effectiveness. And in late 2017, Congress enacted the Tax Cuts and Jobs Act, which reduced the financial penalty to $0 beginning with the 2019 mandate year, effectively eliminating the individual mandate.
Understanding the impact of this change on the health insurance risk pool is important to both insurers offering ACA-compliant products and state policy makers evaluating alternatives to the individual mandate. Health insurers—now in the process of setting rates for 2019—need to understand how elimination of the individual mandate penalty will affect future enrollment rates, which have a significant impact on rate projections. Some states are considering implementing state-based individual mandates, in some cases in conjunction with a Section 1332 State Innovation waiver.
The individual mandate is one leg of the “three-legged stool” of the Patient Protection and Affordable Care Act (ACA). During the crafting of healthcare reform, insurers and other market experts contended that the mandate was absolutely necessary for a functional individual guaranteed issue market. With the passage of the Tax Cuts and Jobs Act of 2017, there are renewed concerns related to the stability of the individual market.
Milliman consultants Fritz Busch and Paul Houchens believe that the individual mandate’s financial penalties at face value are high enough to induce high insurance participation rates, but that the enforcement of these penalties has not been strict enough to fully achieve the mandate’s policy aims. They say that available premium assistance in the insurance marketplaces may provide sufficient financial incentives to prevent a collapse of marketplace enrollment rates resulting from the mandate’s repeal. In their paper, Busch and Houchens examine available empirical data to arrive at this conclusion.
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