Legislature(2013 - 2014)BUTROVICH 205
01/30/2014 09:00 AM Senate STATE AFFAIRS
| Audio | Topic |
|---|---|
| Start | |
| Presentation: Indiana's Experience with Consumer Driven Health Plans | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
SENATE STATE AFFAIRS STANDING COMMITTEE
January 30, 2014
9:02 a.m.
MEMBERS PRESENT
Senator Fred Dyson, Chair
Senator Cathy Giessel, Vice Chair
Senator John Coghill
Senator Bill Wielechowski
MEMBERS ABSENT
Senator Bert Stedman
OTHER LEGISLATORS PRESENT
COMMITTEE CALENDAR
PRESENTATION: INDIANA'S EXPERIENCE WITH CONSUMER DRIVEN HEALTH
PLANS
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
MIKE BARNHILL, Deputy Commissioner
Alaska Department of Administration
Juneau, Alaska
POSITION STATEMENT: Provided an overview of Consumer Driven
Health Plans.
DENNY DARROW, Deputy Director-Chief of Staff
Indiana State Personnel Department
Indianapolis, Indiana
POSITION STATEMENT: Provided an overview of Indiana's Consumer
Driven Health Plans for state employees.
ACTION NARRATIVE
9:02:34 AM
CHAIR FRED DYSON called the Senate State Affairs Standing
Committee meeting to order at 9:02 a.m. Present at the call to
order were Senators Giessel, Coghill, Wielechowski, and Chair
Dyson.
^PRESENTATION: INDIANA'S EXPERIENCE WITH CONSUMER DRIVEN HEALTH
PLANS
PRESENTATION: INDIANA'S EXPERIENCE WITH CONSUMER DRIVEN HEALTH
PLANS
9:02:59 AM
CHAIR DYSON announced that the Alaska Department of
Administration (DOA) is considering a number of things to
improve the way the state delivers several kinds of benefits.
One of the places DOA has looked for help is the state of
Indiana. He stated that the committee will be hearing from Mr.
Denny Darrow, Deputy Director-Chief of Staff, Indiana State
Personnel Department. He noted from Mr. Darrow's syllabi that he
was a crucial part in Indiana's recent changes to their state
employee health programs. He noted that Mr. Mike Barnhill,
Deputy Commissioner from the Alaska Department of Administration
(DOA) will address the committee.
9:04:30 AM
MIKE BARNHILL, Deputy Commissioner, Alaska Department of
Administration (DOA), Juneau, Alaska; set forth that other
states can provide very helpful information and helpful models
for Alaska to follow. He asserted that if Alaska has a problem
then someone else has experienced the same thing at a scale that
much exceeds the state's problem. He said Alaska can benefit
from other states' expertise.
MR. BARNHILL disclosed that DOA had spent the last two years
really focusing on healthcare and specifically on how much the
state is paying for healthcare through its various programs. He
addressed the current payments for retiree healthcare and for
active healthcare, both the AlaskaCare plan managed by DOA and
the plans that are managed by the state's union health trusts.
He said the state of Alaska is spending in excess of $700
million per year in healthcare costs. He explained that the
healthcare costs are of sufficient magnitude that scrutiny is
warranted. He asserted that how the state was doing healthcare
can benefit by analyzing and potentially implementing other
healthcare models. He said DOA had been aware of Indiana's
experience with Consumer Driven Health Plans (CDHP). He noted
meeting Mr. Darrow at a health administrator's conference. He
said Mr. Darrow will share Indiana's experience with CDHP.
9:06:30 AM
CHAIR DYSON asked to clarify that the committee is not being
asked to make any decisions or take any actions.
MR. BARNHILL answered correct.
CHAIR DYSON asked if the intent is to have the committee and the
legislature begin to understand what DOA is considering.
MR. BARNHILL answered yes.
CHAIR DYSON asked what was the process that will lead from what
DOA is learning and what DOA decides to implement.
MR. BARNHILL replied that the Plan Administrator (PA) is the
Commissioner and the PA can make adjustments to plan design. The
process is somewhat different for "actives" versus "retirees."
He said the process is generally to first learn about what is
out there and then have some period of notice and comment if DOA
decides to make a change so that people can be apprised, ask
questions, and submit comments.
9:07:36 AM
CHAIR DYSON surmised that DOA's anticipation will not require
any legislative action to go forward.
MR. BARNHILL answered no.
CHAIR DYSON noted reading that DOA had lots of discussions with
the "bargaining units." He asked if he is right in assuming that
DOA's processes will be or is involving employee bargaining
units.
MR. BARNILL answered yes. He explained that the concept of a
CDHP, formally known as a High Deductible Health Plan, has been
on the radar within DOA since 2005. He said discussions have
occurred but there has not been a serious move towards a CDHP.
He said this year DOA intends to do more than simply talk about
CDHP and see what can be done to actually standup with an
optional or voluntary CDHP within the state's active plan.
CHAIR DYSON summarized that his intention is to have the
committee do all that it can to let DOA get through the review
process as a package. He said he wants to allow any questions
that clarify and try to steer away from the debate of CDHP
during the process. He asserted that his previous statement does
not mean the topic will not be debated.
9:09:40 AM
DENNY DARROW, Deputy Director-Chief of Staff, Indiana State
Personnel Department (ISPD), Indianapolis, Indiana; announced
that it was his privilege to share with the committee the
positive experience and opportunities learned from Indiana's
foray into the implementation of CDHP over the past several
years. He said he will set forth information for the committee
to draw some differences between memberships in Alaska's plan
versus the state of Indiana to provide an overview of how and
why Indiana attacked providing CDHP in the manner in which they
were delivered.
MR. DARROW said the state of Indiana offers its employees and
eligible dependents health plans administered by ISPD. He said
authority is given by state statute to ISPD to administer and
design plans for the benefit of those members and eligible
employees. He said the state of Indiana currently offers three
self-funded health plans to its employees. As of late 2013,
enrollment in Indiana's self-funded health plans totaled 65,600
covered lives; 90.7 percent are represented by active employees
and their eligible dependents, remaining enrollees are a mix of
early retirees and those bridging to full retirement. He
revealed that Indiana does not offer health insurance to the
retiree population. He added that 5.7 percent of Indiana's
healthcare membership is made up of local school corps and
municipalities that have the option to choose join the state's
plans. He detailed that Indiana's average age of its member
population is 45 years; the average age of all employees in the
population is 37 years, not different from Alaska's average age
of 35 years.
9:11:52 AM
He addressed how Indiana reached its current point with CDHP and
how the state decided CDHP was a logical progression to pursue.
He explained that during the 2004 gubernatorial campaign, soon
to be elected Mitch Daniels began talking about CDHP and Health
Savings Accounts (HSA) as fundamental tools to the growth in
healthcare cost. The overall philosophy was simple, by allowing
consumers to have a larger financial stake when purchasing
healthcare services; they will make informed choices about their
healthcare and therefore spend those dollars more efficiently in
the most effective manner possible.
MR. DARROW said once elected in January 2005, Governor Daniels
tasked ISPD with design and implementation of the state's first
CDHP; at that point in time the challenges that Indiana faced
were not different from many state governments and private
corporations facing the same rapid rate of increase in
healthcare costs. He detailed that in 2005, Indiana's trends
were rising at unsustainable rates. He noted that the plans
Indiana's offered at the time included Health Maintenance
Organization (HMO), Personal Provided Organization (PPO), and
several regional HMO plans.
He set forth that Indiana's employees were insulated from the
true cost of healthcare. He noted that there were third party
insurance payments rather than personal payments to cover the
cost of healthcare, low deductibles, minimum co-pays, and first-
dollar coverage plans where no premiums were paid by the
employees. He added that co-pays were not subject to the
deductible over time. He explained that in the design of the
plans themselves, there was little or no emphasis on
preventative care, prescriptions were not subject to the planned
deductible, and there was no "skin in the game" for the
employee. He summarized that Indiana had provided a lot of
disjointed services without an overall outcome mission.
9:14:06 AM
He addressed why CDHP made sense for Indiana in 2005 as follows:
· Encouraged long-term improvement in health status of
employee population & their families;
· Inspired "consumerism mindset" by instilling responsibility
for efficient purchase of medical services;
· Increased personal stake in making informed health care
decisions and positive behavior changes;
· Allowed for Health Savings Account (HSA) portability versus
Health Reimbursement Account (HRA) where HSA can go with an
employee overtime while HRA contributions stays with the
employer;
· Triple-tax HSA advantages where employee savings and
employer contributions are made prior to taxation, funds
may be used tax-free for healthcare purposes in perpetuity,
and HSA growth and investment income is not taxed.
He noted that many HSA programs offer mutual fund and other tax-
free savings vehicles that allow a more meaningful way for
employees to invest. He said HSA fit into ISPD's overall
philosophy for employees to make their life-long decisions on
how to get and receive care.
MR. DARROW said ISPD wanted to communicate to employees that HSA
and CDHP was a partnership with the state of Indiana. He noted
that employees were taking more risk through higher deductibles;
however the state would make contributions to HSA accounts in
addition to employee contributions. He explained that HSA is a
savings vehicle over time that hopefully will address two
important aspects:
1. Addressing a consumerism mindset where employees have
more "skin in the game." Employees will save more
dollars, make wiser choices on where to get services and
how services are purchased. The best and most affordable
care will be offered due to the economic impact on the
medical delivery system.
2. Life-long investment savings vehicle that goes with
employees and grows over time.
9:17:05 AM
He said in 2005, ISPD took the rather large task of designing
plans for a launch of the state's first CDHP option in 2006. He
remarked that Indiana was the first state to have a foray into
designing a CDHP plan and offering it to their employees. He
explained that ISPD designed the CDHP plan with a standard 80/20
split coverage that included:
· Deductibles at $2,500 for single and $5,000 for family;
· Paid for in full by the employee's contributions;
· Employee was 100 percent responsible until he or she
reached 80 percent of costs with co-insurance kicking in
for the remaining 20 percent until the employee hit the
out-of-packet maximum at $4,000 for singles and $8,000
for families;
· Employees had the option to open an HSA that was
controlled by ISPD;
· Indiana's contribution to the HSA account was 60 percent
of the total deductible; $1,500 for singles and $3,000
for families.
He noted that Indiana faced a challenge in designing a large
scale HSA due to a lack of institutions that offered
commercially viable options. He said Indiana was fortunate in
finding an instate bank that was willing to partner with the
state that allowed ISPD to offer employees an HSA account
option.
9:18:49 AM
CHAIR DYSON asked if the contribution from the state was a one-
time contribution.
MR. DARROW replied that the first year offering was 60 percent
of the deductible and today the state offered 45 percent of the
deductible contribution to the employee HSA accounts.
CHAIR DYSON asked to clarify that every year the state puts in
$3,000 for a family in addition to the contribution on payroll
deductions.
MR. DARROW answered correct. He explained that the employer and
employee HSA account contributions are dictated by statutory
limits set by the Internal Revenue Service (IRS).
He explained that Indiana offered employees no premiums for the
first year. He specified that ISPD's intent was to offer a
meaningful event for employees coming from an environment where
there was not very much "skin in the game." Employees were
apprehensive coming from a little or no co-pay environment to
having a high deductible with first-dollar coverage
responsibility. He said ISPD felt that offering the CDHP at no
premium contribution with a generous HSA contribution would be a
very meaningful "carrot" for employees to consider. During the
first year approximately 1,400 eligible employees or 4 percent
of the state's employee population enrolled in CDHP. There were
two concurrent offerings as well with two PPO and one large HMO
offered to employees.
9:20:46 AM
SENATOR WIELECHOWSKI asked what ISPD's offerings and deductibles
looked like prior to the CDHP.
MR. DARROW answered that ISPD's offerings were all over the map.
He noted deductibles varied from $150 to $500 with some plans
having smaller deductible with very little co-pays. He asserted
that ISPD felt it was important to offer a choice rather than
mandating CDHP. He explained that CDHP had a learning curve for
everyone involved, including ISPD. He said it really is
incumbent upon ISPD as a state personnel department and state
government to educate employees about what their options are and
the impact on them.
SENATOR WIELECHOWSKI asked what the incentive was for the 4
percent of employees to go from a plan with a $300 deductible to
a plan with a $3,000 deductible.
MR. DARROW replied that there were multiple reasons. He noted
that the decision to change was dependent on an employee's
healthcare usage and services utilization. He said having the
benefit of a cash contribution provided by the state was done to
make sure that employees understood the investment meaning over
time. ISPD spent a lot of time during the first year educating
employees that the state's $3,000 contribution combined with
their contribution was going to help their HSA grow over time.
9:22:24 AM
SENATOR WIELECHOWSKI asked if HSA funds have to be spent within
one year or the funds go away.
MR. DARROW replied no. He explained that Flexible Spending
Accounts (FSA) are another vehicle provided by many governments
with a "use it or lose it" provision. He detailed that an FSA
contribution is made at the beginning of the year and funds have
to be used prior to April 15 the following tax year. He
specified that an HSA rolls over and grows over time.
He said ISPD introduced a second CDHP (CDHP-2) in 2007. Based
upon employee feedback, ISPD determined that $4,000 or $8,000
out-of-pocket max was a big leap for people to make. ISPD
offered CDHP-2 with lower deductibles and the risk perceived by
employees made it a little bit easier to tolerate a slightly
higher deductible than the initial offering. He specified that
CDHP-2 had a 55 percent state contribution to the HSA versus 60
percent in the 2006 CDHP (CDHP-1). He said the second year's
workforce marketing and education program increased enrollees
from 4 percent in 2006 to 18 percent in 2007 with 6,300
subscribers. He explained that significant benefit changes
precipitates a maturation period for plan administration and
education for employees to develop a comfort level.
9:24:56 AM
He said employee participation doubled in 2008 from 2007 where
enrollment reached 12,000 members or 35 percent of all
subscribed members. He noted that the state's sole HMO plan
exited the market in 2008 and that action facilitated movement
to other healthcare options. In 2008 there were two PPO options,
two CDHP options, and no HMO option.
CHAIR DYSON asked to clarify that the program's value ISPD put
into place enticed or convinced employees to voluntarily switch
plans without minimizing or taking away other choices other than
the HMO provider that quit.
MR. DARROW answered yes. He explained that the HMO provider was
no longer financially viable and closed the plan voluntarily.
CHAIR DYSON asked to clarify that there was no manipulation on
Indiana's part to drive people into the new system.
MR. DARROW answered no. He specified that Indiana marketed the
HSA on the aspect of saving for costs that are more predictable
and more known. He asserted that when employees have HSA funds
saved to pay for medical procedures, the burden on an individual
is reduced if a catastrophic event happens. He said word-of-
mouth spread, comfort level grew, education efforts increased,
and membership continued to grow. The state of Indiana focused
its education on maximizing the use of employees' HSA accounts,
using preventative care, and cost transparency of information
provided by the insurance carriers to understand what is the
best price and best quality of care for the individual as well
as alternative service lines. He pointed out that one of the
things that consumers just are not used to doing, and it is
still an evolution for the state of Indiana today, is asking
their provider:
Doctor, I understand that you are recommending this
particular procedure, however I am part of a consumer
driven health plan. What would you recommend would be
the most quality, lowest cost service that I can
undertake?
He said physicians are not necessarily educated to answer
questions on a cost perspective. On the quality side, physicians
are very resolute, either through their network or through their
practice about where the quality service should lie. He
emphasized that ISPD is really trying to educate employees that
making a medical procedure decision by knowing costs prior to
making a choice is a long term way to affect the marketplace
price point of healthcare delivery.
SENATOR GIESSEL addressed price transparency and noted that Mr.
Darrow may have said the insurer provides cost options to
employees and not the healthcare provider. She asked if it is
the healthcare provider that is transparent about their cost.
9:28:04 AM
MR. DARROW replied that one of the long standing challenges for
ISPD was to provide enough cost information to allow employees
to shop for healthcare just like with any other consumer
product. He detailed the cost transparency initiative as
follows:
At the time, our insurance carrier, which was Anthem,
their parent company being Well Point Health Carriers,
did provide cost of care procedures for state of
Indiana employees through their web-portal, so they
could say if I'm shopping for a hip replacement, this
is the average cost at this facility; it was a limited
tool, it did not serve by any means the breadth and
depth of information that we wanted. However,
providers, and still today this is a challenge for us
in Indiana, providers are limited in their knowledge
about what the true cost of healthcare is for the
individual, because heath plans vary, insurance plans
vary, the actual individual impact could be widely
different based upon where the employee is provided
coverage for. That being said, we have introduced
transparency tools in recent years, most notably last
year a significant investment in a transparency tool
that is very personalized and tailored to the
individual that shows the entire claims history of
Indiana's experience available to the individual. So
if I wanted to go online, I would search for the
procedure I want to look for, I could search by
doctor, by hospital; it would list the average price
paid by the state of Indiana over the last three years
for those services at that provider and this has
really opened up an entire window of opportunity for
our employees to really know the quality procedures as
well as the cost of that care.
9:29:52 AM
SENATOR WIELECHOWSKI commended Mr. Darrow for his presentation.
SENATOR GIESSEL asked that it is not that Indiana is asking
healthcare providers, physicians, nurse practitioners, or
physician assistants to post their prices for the general
population; ISPD is confining cost transparency to state
employees who are beneficiaries.
MR. DARROW answered correct. He explained that the price
quotation is something that is highly protected between the
insurer community and the provider community; those contractual
relationships are intellectual property in some cases that are
based upon the contracts. He specified that ISPD has a software
tool that provides employees with password protected access to
research claims history prices and procedures from the state's
plan.
9:30:59 AM
CHAIR DYSON noted his cynicism about cost and healthcare
systems. He addressed the challenge with ascertaining the honest
cost of healthcare services due to crossed-subsidies within
hospitals. He noted that hospitals are forced to take everybody
that staggers into emergency rooms and cost recovery is less
than 60 percent; that cost gets subsidized by other services and
profoundly distorts the system. He asked how ISPD gets down to
knowing that the actually costs are.
MR. DARROW replied that Chair Dyson's inquiry is a larger issue
about the true cost of healthcare than what Indiana addressed in
their delivered system tool. He said Indiana purchased a
transparency solution called Castlight Health; they are a
private third party company that provides a vehicle for ISPD to
report the price paid by the state of Indiana for those services
at that location, at that provider, for that procedure, over a
period of three years. He remarked that Indiana is actually
giving its employees a look at the actual cost paid, not only
what the total cost of the procedure is, meaning the employer
portion plus the employee portion, but also the employees
expected procedure cost. He explained that employees can access
information year-to-date deductibles, how much more has to be
spent to reach co-insurance, and additional data.
CHAIR DYSON asked to verify that the service provided by
Castlight Health includes non-hospital delivered services where
a private standalone radiology lab's cost was clear as well as
the hospital cost for the same service that might have included
the cross-subsidization.
9:33:14 AM
MR. DARROW answered yes.
CHAIR DYSON remarked being outraged when he was able to walk
into a physical therapist and pay $85 an hour versus $125 an
hour when using his state insurance plan. He asserted the
insurance reimbursement practice is almost a shell game. He
noted that the therapist said everybody does it and the business
is allowed to bill up to an amount that is 40 percent more than
what is paid walking off the street.
MR. DARROW replied that Indiana shares Chair Dyson's
frustration.
CHAIR DYSON asked how to solve the billing issue.
MR. DARROW replied that Indiana's CDHP cannot solve the larger
issue Chair Dyson addressed. He explained that the CDHP
philosophy allows individuals to make informed decisions to ask
the right questions to use lower cost procedures.
CHAIR DYSON remarked that he learned in high school biology that
diseases grow in the dark.
9:35:01 AM
MR. DARROW set forth that 2009 was a reaffirmation year for the
state's investment and belief that CDHP was starting to make a
difference. He said Indiana made the decision to begin
prefunding half of the employer contribution in the HSA account
at the first paycheck of the year and allocating the remaining
contribution over the course of the year. He explained the
reason to prefund half of the employer contribution as follows:
You may have the employee who has the catastrophic
healthcare incident right at the beginning of the year
and they do not have funds built up because they drew
them down the previous year; this allows them a little
piece of mind if you do have an out of normal event to
be able to have some funds to pay for that cost out-
of-pocket. The state's contribution in 2009 remained
at 55 percent of the plan of the total HSA
contribution. The CDHP enrollment in that year climbed
to 47 percent, almost 15,500 employees.
He said Indiana was super-charged in its growth during 2010. He
detailed that the previous HMO plan exit coupled with the
closing of a southern region PPO plan left state employees with
three options: two CDHP options and one PPO option. He explained
that Indiana redesigned the current PPO in 2010 to more
approximate the delivery of the consumer driven plans to include
an 80/20 split as well. The state contribution to the HSA
remained at 55 percent and enrollment climbed to 20,000 members,
or 70 percent of the state's participation overall.
MR. DARROW addressed the advent of the Affordable Care Act (ACA)
and noted that Indiana has remained largely unchanged in its
plan design at the current time. Indiana is currently at 96
percent total participation in the state's CDHP plans. He said
the state believes some of the things the state set out to do
have evolved into positive consumer behaviors with employees
making more informed decisions. He noted that Indiana currently
contributes 45 percent of the total deductible in employees' HSA
accounts on an annual basis.
9:38:09 AM
He said Indiana sought out third party validation in 2010 to
assess the true financial impact and meaning to the state. He
explained that the Governor Daniel's administration commissioned
the state's actuary to do a study on the savings and impact of
CDHP offerings for the first three years of the plan, 2006-2009.
He reported that the total cost savings versus traditional PPO
plan were evident. The annual average cost per member was $9,444
in CDHP-1; $5,462 in CDHP-2; and $12,317 for the state's PPO
plan.
CHAIR DYSON asked if the cost savings encompassed all of the
delivered medical services or just to the state.
MR. DARROW replied that the report showed the actual cost paid
by the state for offering coverage to the employees in each of
the three plans. He noted that cost in the traditional PPO plan
is higher with higher utilization and costs that are not as
sustainable. He added that the two CDHP models showed that the
state's cost of coverage was significantly less.
CHAIR DYSON asked to verify that the state's costs were less.
MR. DARROW responded yes.
9:39:59 AM
He explained that the differences between the CDHP plans and the
PPO plans fell into five categories:
1. Plan Design: obviously by structuring the PPO plan like
Indiana in 2010 to have more of an 80/20 split, put the
plans on par and made them comparable.
2. Demographic Differences: Age, gender, and family size
were noticeable between the three plans; however they
were more normalized than what the state thought.
3. Health Status Differences: Early CDHP adoption
individuals tended to be younger individuals rather than
individuals who have been on the PPO or HMO plans for
quite some time.
4. Consumerism and Behavior Change: Quite evident that was
the most striking impact.
5. Consumers Making Better Decisions: Appropriate care, not
necessarily avoiding care, but whether that care was
appropriate and what is the right vehicle to receive that
care.
9:41:06 AM
MR. DARROW said the study showed that Indiana had greater use of
cost effective treatments. He asserted that there is no evidence
employees were avoiding care since they were paying a higher
share of first-dollar coverage. He explained greater employee
use in CDHP as follows:
· Generic drugs versus brand name drugs;
· Fewer hospital admissions with shorter stays than the PPO
plan;
· Less frequent use of the emergency rooms, a long standing
problem issue for using as a primary care vehicle;
· Use of outpatient versus inpatient procedures visits
dramatically increased in CDHP versus PPO;
· Visiting primary care physicians instead of specialists
when possible and appropriate seemed to be a trend that was
growing in CDHP.
He summarized that under an annual cost basis, the study
estimated that the state saved 10.7 percent through the CDHP
adoption with approximately $28 million in total healthcare
savings from 2006 through 2009. He noted that in 2010, since the
enrollment was growing close towards 70 percent participation,
the study estimated that the state would annually receive $17
million to $23 million in savings by the adoption of CDHP on an
ongoing basis.
9:42:57 AM
CHAIR DYSON called an "off the record" with Mr. Barnhill.
9:43:14 AM
CHAIR DYSON called the committee back to order.
MR. DARROW said from the employee perspective there was also
savings. He pointed out that the study determined employees
realized $7 million to $8 million in savings by making the
switch from the PPO option to the CDHP options. He noted two
ways the employee savings are realized as follows:
1. Payment of lower premiums.
2. More efficient use of healthcare.
MR. DARROW said the consumerism effect from reduced or more
efficient utilization of healthcare also reduces an employee's
out-of-pocket expenses. He explained that consumers had started
to make better decisions and utilized the most efficient way to
spend healthcare dollars.
He reiterated that employee savings are significant. He revealed
that as of 12/31/2013, state employees have $59 million invested
in their HSA accounts with the average employee balance of
$1,728; a balance that is growing about 5 percent per year. He
said the equity accumulation that HSA participants receive from
the state contributions in 2013 is estimated to be between $5
million and $6 million annually. The state refers to a group
called "super savers" with 1238 employees having invested over
$10,000 in their HSA accounts. He pointed out that employees are
really showing a determined mentality in trying to save for
future healthcare expenses.
9:45:15 AM
He addressed different ways in which ISPD measures progress and
success with regards to healthcare's "spend and trend" growth.
He asserted that a CDHP will not slow the growth in healthcare
on its surface. What CDHP can do is offer a very predictive
model based on ISPD's experience about how that cost increase
will portray. He noted that for many employers, having an
indication about growth and projection is just as important in
the planning stages as the projected future expenses. He
explained that Indiana measures its expenses from multiple
viewpoints and overall cost trends are measured on a Per-Member-
Per-Month (PMPM) cost basis. He noted a 2008 through 2013 chart
that shows PPO growth in PMPM versus the growth in the two CDHP
options. He noted that the PPO growth has been priced
accordingly with the appropriate price plans and premiums
correlated to the health risk of the group that remains in the
plan. He said the PPO plan does tend to have individuals that
are higher utilizers with less discipline and the costs reflect
dramatic growth as a result. He pointed out on a diagram that
even as a significant employee migration from the PPO and HMO
plans into the CDHP plans occurred, Indiana has experienced a
very moderate and measured growth in costs from 2008 through
2013.
SENATOR COGHILL asked if there was a barrier or were employees
allowed to go from the CDHP-1 to CSHP-2. He addressed the
employee migration and inquired if employees wanted to settle
out in a high deductible, prefer to go out, or could they go
out.
MR. DARROW answered that each employee has a choice of going
between one of the three plans during an annual open enrollment
period. He said other than outside of qualifying events during
Indiana's open enrollment, the state markets all three plans and
the prices accordingly.
9:47:40 AM
He called attention to a belief that because the employee is
paying higher first-dollar cost coverage; HSA is expressly just
a cost shift from the state to the employee for the additional
growth in cost and the cost burden. He referenced a chart that
shows why the state of Indiana chose to make HSA contributions
and the impact of those contributions on the employees' out-of-
pocket spending. He pointed out that the chart shows
unrestrained costs in the PPO plan have increased significantly
each year for the members on their out-of-pocket spending. Once
the state's HSA contributions are subtracted, $20 to $25 per
month more is being spent by the individual in a CDHP
environment versus $52.75 to $100 more in the PPO option. He
pointed out that the monthly out-of-pocket difference is another
example that a much more measured, defined, and predictable
growth benefits employers and employees as well.
He addressed the state's perspective on a PMPM trend and noted a
graph that shows the impact CDHP has had on employer's cost of
coverage over the last six years. He said the cost of coverage
is very predictable and stable due to a combination of both
planned design as well as consumerism taking effect. He remarked
that Indiana has found out that an informed consumer making
better decisions with an appropriate amount of risk and bearing
the healthcare cost burden leads to a very predictable
structured cost for the state to live by.
9:49:46 AM
He said Indiana is also very proud of increased preventive care
by employees. He noted that significant coverage is free for the
individual on preventative care. He pointed out that key
utilization categories are up for the following: preventative
care, Well Child visits, immunizations, appropriate mammogram
screenings, cholesterol screenings, and PSA screening rates. The
participation offered in Indiana's disease management programs
for individuals with chronic conditions is also above the
benchmark. He said ISPD believes that employees are aware that
maintaining current health status is a viable way of controlling
costs in the future.
9:51:28 AM
MR. DARROW addressed lessons learned and things Indiana felt
were meaningful along the way for the state. He declared that
Indiana could not have achieved as wide spread adoption amongst
the provider community, healthcare delivery system, and employee
education without the consistent support by Governors Daniels
and Pence; both men are extremely adamant in their beliefs that
a more informed and stronger consumer will drive market forces
appropriately in the delivery of healthcare. He continued to
address ISPD's focus as follows:
We talk about positive communications. We look at the
advantages and opportunities in the new plans with our
employees. We don't focus on, "Yes your healthcare
costs have gone up this year versus last year, but how
have they truly gone up." If you look at the education
and information we give today, they are starkly
different conversations than they were in 2006; it was
the basic conversations reeducating our employees on
about what to ask your doctor, about how you should
receive care. Now employees are asking about how to
save and finance for their healthcare. Now employees
are asking about specific preventative care and should
this be covered and where should I go to get this type
care; those types of conversations are much more fun
to have once we have come through the learning and
ramp-up phase in understanding for our employees. We
believe that honest dialogue on cost, trends, and
future impact are vitally necessary for the employee
to understand this. From a health administrator's
standpoint, from every conference you will attend, the
average health literary is around 11 percent. When you
add a consumer driven environment, it does put a
bigger burden on the employee to understand exactly
how they should act. We have very deliberate
conversations about the impact on you and the impact
on us. If we work together, these are some of the
impacts we can have through a concerted effort between
the two. I think there needs to be a commitment to
execute comprehensive education amongst the employees,
it is not an eleventh-hour decision to suddenly offer
CDHP; it does require extensive education, learning
opportunities. To our chagrin, we did not have the
opportunity to get out in front of Indiana's employees
as much as we want. When we first launched the plan in
2006, we learned that in 2007 as we educated folks and
had more of a concerted effort amongst our staff to
get out to the local facilities, locations, far
reaching area of that state and really hold face-to-
face meetings and talk about it; that really began to
make a difference for us.
9:54:21 AM
MR. DARROW said some of the internal challenges that Indiana
faced that many organizations will face included lack of
committed support from executive agencies and directors. He
explained the need for appropriate education resulting from a
cultural mind shift where employees go from a little or no stake
to a major stake in the healthcare environment. He revealed that
Indiana found it very helpful to market actively to middle
managers and those that had most face-to-face contact with
employees on a day-to-day basis. He specified that depending
upon the adoption rate a state chooses to achieve, a state will
have a slower migration to CDHP by offering plans with low
deductibles, co-pays, and premiums for traditional PPO and HMO
plans.
He pointed out the importance for a state's administration and
leadership in allowing members to have a choice. He revealed
that Indiana believed in not mandating CDHP as the only
healthcare option and allowing migration to occur naturally. He
noted that Indiana's employees have always had choice. He set
forth that Indiana educates employees on the pros and cons from
choices in relationship to out-of-pocket healthcare expenses and
premiums paid for plan participation.
9:56:14 AM
SENATOR COGHILL noted that providing education, wellness
choices, and multiple plans are important in healthcare. He
asked if Indiana's information was web-based and showed dollars-
out. He inquired how Indiana begins the healthcare conversation
with employees to weed through the initial confusion.
MR. DARROW replied that ISDP starts with the unknown commodity
of health savings accounts, addresses risks, and points out IRS
guidelines for using an HSA in a CDHP. He said ISDP addresses
the misconception that the state is not offering options beyond
a contribution to an HSA. He explained that ISDP's intent is to
educate employees on the dollar risk, HSA use, healthcare
coverage's true cost, the state's payments, employee's out-of-
pocket expenses, and the difference between a traditional plan
and a CDHP. He detailed that the initial employee education is
very methodical with the process starting from the HSA
perspective in order to show the risks, rules, and regulations.
He noted that many websites are available that provide the pros
and cons for CDHP.
9:58:17 AM
SENATOR COGHILL noted the confusion and work involved in Alaska
when healthcare offerings are addressed. He pointed out the
difference between wellness and illness management in addition
to the shift occurring in society. He asked how wellness versus
illness was addressed in Indiana.
MR. DARROW replied that Indiana honestly did not have wellness
conversations when CDHP was first addressed because the state's
wellness offerings were little to nonexistent. He said ISPD made
a real emphasis on the preventive care side by offering coverage
for free. He said it pays for employees to know the risks,
conditions, and costs so that plans can be made for healthcare
costs over time. He revealed that ISPD is now undertaking the
next evolution on the wellness side by making a significant
investment in keeping employees healthy rather than managing
conditions when they are sick.
SENATOR GIESSEL remarked that there is a significant difference
in something Mr. Darrow said at the beginning regarding Indiana
not providing healthcare coverage for retirees. She surmised
that Indiana employees are thinking long term and addressing
healthcare during the aging and retirement process. She pointed
out that Alaska's healthcare scenario differs significantly
where the state picks the tab and who really cares what it
costs.
MR. DARROW confirmed that Indiana does not have a retiree plan.
He noted that a retiree may use their CDHP plan as long as they
follow the IRS guidelines that an individual over 65 and
Medicare eligible cannot have an HSA account. He said Indiana
employees are educated upon what options are available to them.
10:00:51 AM
CHAIR DYSON asked to clarify that an HSA can or cannot be
persevered past retirement.
MR. DARROW answered that HSA can exist in retirement, but a
Medicare eligible individual cannot make HSA contributions.
CHAIR DYSON replied that the IRS ruling seems suboptimal.
MR. DARROW explained that employees can burn-down their HSA
account and use those funds to pay for expenses in perpetuity,
but contributions cannot be made.
CHAIR DYSON asked would have happened to Indiana's costs if the
shift was not made to CDHP.
MR. DARROW referenced a previous diagram which shows cost
projections between the PPO and CDHP options. He said Indiana's
cost would have continued to skyrocket unsustainably and the
state would not have been able to realize the annual savings of
$17 million to $23 million.
CHAIR DYSON asked if Indiana's system includes public school
teachers.
MR. DARROW replied that Indiana's system does not include public
school teachers. He explained that teachers' healthcare is
separately negotiated by the school systems. He noted that
school systems may offer joining the state's health plan if they
so choose. He said a limited number of schools participate in
the state's health plan.
CHAIR DYSON asked what Mr. Darrow's experience was in dealing
with the public employee bargaining units.
10:02:59 AM
MR. DARROW answered that Indiana was represented by several
public employee bargaining units prior to 2005. He said in 2005,
Governor Daniels took office, removed the previous executive
order, and the bargaining units were disassembled. He specified
that employees still had the ability to make contributions to
their represented units if they wished, concessions were made,
and ISPD met with union representatives to address the pluses
and minuses if the union wished to educate their employees. He
noted that dealing with the disassembled bargaining units
occurred during the initial CDHP process and ISPD was learning
on the fly.
CHAIR DYSON noted that Alaska's public employee unions have
medical funds that often have significant amounts of money with
better healthcare plans and coverage than what the state offers.
He said there is a real pushback from the bargaining units and
membership asking not to be included in the state's plan. He
asked if Mr. Darrow had the same experience when dealing with
bargaining units in Indiana.
MR. DARROW responded that the reaction Senator Dyson noted from
the bargaining unit members is a normal line of thinking. He
asserted that one thing that is sure to stir conversation
amongst employees is changing paychecks and benefits. He said
feedback is going to happen and feedback is welcomed. He
remarked that Indiana's results speak for themselves with 96
percent of employees participating in the CDHP option. He said
employees realize that CDHP is a much more viable vehicle not
only for them, but for the state's sustainability over time.
CHAIR DYSON noted Governor Daniels' front-end action on
bargaining units and their leverage went away.
MR. DARROW answered yes.
CHAIR DYSON added that Indiana did not have a willing
participant in the discussions. He asked if there are any
classes or demographic groups of employees in Indiana that CDHP
is not attractive for.
10:06:11 AM
MR. DARROW answered that he did not believe so. He explained
that CDHP covers all of Indiana's government, legislators, and
judges. He said there are separately elected bodies of
government in the plan as well that are not part of the
executive branch that make up the 65,000 members. He asserted
that CDHP enrollment has pretty wide diversity.
CHAIR DYSON called attention to prior discussions that addressed
the Affordable Care Act (ACA) as not really impacting what
Indiana is doing.
MR. DARROW responded that CDHP is a much more viable option for
employees and employers to control the cost of healthcare going
forward. He said there are no [ACA] stipulations which impact
Indiana's administration of the state's healthcare plans.
CHAIR DYSON replied that the ACA impact on Indiana is both
surprising and intriguing. He noted that Idaho's former Governor
Dirk Kempthorne mentioned that 70 percent to 80 percent of his
state's budget was controlled by formulas and the administration
literally controlled approximately 20 percent. He remarked that
Alaska is below 70 percent and the formula trend continues to
increase. He surmised that Indiana has reduced healthcare cost
acceleration with significantly more predictability.
MR. DARROW agreed with Chair Dyson's assumption and noted
contributing factors as follows:
We were very interested in the socio-economic impact
of how enrollment manifested itself over the years.
The average state employee salary in Indiana is
somewhere around $37,000. The average salary of the
employees in CDHP options is actually less than the
PPO plan. So the notion that more affluent, higher
income individuals have a propensity to adopt the CDHP
did not bear out in our example.
Secondly, the rate of growth at which we've seen in
our cost had been significantly below our trend and we
use a national benchmark to measure our trend, we
actually have a metric to measure our performance that
we post on our portal for state government that we
want to be a certain percentage below that trend due
to our consumer driven options. Last year, which was a
very mild year weather wise, in 2012's plan year we
were at negative 1.5 percent medical trend for our
plans and that is almost unheard of. This year we were
at 5 percent trend which is below the national average
of 7.5 percent.
10:09:58 AM
SENATOR COGHILL explained that one of the things Alaska
struggles with that Indiana probably does not is its provider
community. He said Alaska has a small population with vast
areas. He inquired how CDHP was received by Indiana's provider
community. He noted Indiana's state employee enrollee numbers
was a good chunk of the state's population finding services. He
surmised that Indiana's hospitals and clinics are probably two
different animals that would respond differently.
MR. DARROW answered that provider adoption was initially slow in
2006. He noted that having a very large scale employer adopting
and marketing CDHP was an education for everyone. He addressed
the adjustment challenge for providers pertained who were used
to collecting co-pays at the point of transaction and service
rather than when the claim is adjudicated. He noted a study
launched last fall by the Robert Wood Johnson Foundation and
cited the following findings:
The study showed the provider mentality in adoption
towards CDHP. While 70 percent of physicians say that
CDHP is a good deal and approved, 43 percent believe
that they just don't understand enough on the cost
side of things to be that much of a benefit to their
employees. So that has really been our education from
the employee side of view that you need to be one to
say, "This is what I can afford to spend and this is
what my plan pays for, what's the option for me in
your network and then if I can't find a viable
economic option, would you write the order for me to
go the out-patient clinic or the non-hospital based
clinic?"
I will say from Indiana's perspective obviously we
have, especially in the metro Indianapolis area, very
good provider network with lots of choice for our
employees that is meaningful to the marketplace. I
know you are facing a far different decision in Alaska
as far as the selection the state has for selecting
healthcare, but over time with that consumer base
growing and more informed consumers joining consumer
driven plans, it has affected the marketplace. We have
had our hospital based systems take a very strong,
hard look at their healthcare costs and announced
major restructuring just in the past year due to CDHP
growth and the advent of transparency.
10:12:44 AM
SENATOR GIESSEL noted her observation as a healthcare provider
that the healthcare industry is not a free market. She asserted
that the steps Indiana is taking does in fact create more of a
free market, which allows competition and cost transparency. She
applauded what Mr. Darrow has done.
CHAIR DYSON addressed Alaska's difficulties with not having a
free market for healthcare. He noted learning that medical
specialists in a major Alaska city set their annual net income
at $700,000 and structure pricing accordingly. He said the state
also has lots of folks saying that they cannot make a living on
their services based on the reimbursement rates. He asserted
that Alaska has done a fairly good job on limiting medical
liability cases and awards, noting the state as being one of the
better ones in the nation. He asked if medical malpractice
liability exposure is an issue for Indiana.
MR. DARROW replied that Indiana has not addressed medical
liability nor have been asked to. He commented that due to the
availability and broader range of services that Indiana's
marketplace offers, medical malpractice liability has not been
something that Indiana has addressed or been asked to address.
CHAIR DYSON addressed Senator Giessel's statement that in
addition to not having a "real marketplace," Alaska has a few
major suppliers of services in the state who seem to be looking
for vertical integration and crowding out the other folks
sometimes with the aid of government. He asked if Indiana is
facing the same challenges with major suppliers.
MR. DARROW answered yes. He explained that with the advent of
ACA and especially as the regulations came out in 2010, Indiana
saw the increased formation of what ISPD calls Accountable Care
Organizations (ACO) within the marketplace. He said larger
Hospital Based Systems (HBS) bought specialists and practices
that allowed HBS to charge the rate of service for their
hospital rather than what the provider previously receives and
the end result increases the state's costs. He asserted that the
provider market dynamics is something ISPD is very concerned
about and is talking to insurance carriers. He said ISPD is
leaning on insurance carriers to make sure fair prices for
services are negotiated and not allowing that costs are just
passed along by employers.
10:15:47 AM
CHAIR DYSON noted a physician friend who found a heart
medication that was approved on most third party payers and
could not be covered. He explained that the physician's ethics
drove him to using a far better product. He said the physician
was outraged at non-knowledgeable medical experts were
practically controlling treatment that the doctor could deliver.
He asked if Indiana dealt with situations similar to what he
previously described.
MR. DARROW replied that Indiana's philosophy is to make sure
that the primary care physician is front and center in making
the decision that is best for that individual. Indiana then
allows its insurance carrier to negotiate for the state the best
and most affordable price for that physician in the network of
services offered. The advent of price transparency and putting
prices out there has raised awareness in the medical community
in Indiana to be more aware of about what the impact of that
price is on that employee and the long term ability of that
employee to pay for prices going forward. He said at least the
conversation is started and most appropriately the conversation
is between the health plan member and the physician. He pointed
out that no one else is controlling exactly what service a
health plan member should get and the physician determines what
the most appropriate care for the health plan member is and then
the contractor rate based upon with the health plan offers is
the outcome.
10:17:49 AM
CHAIR DYSON clarified his example of a physician who prescribed
a very helpful heart medication and there was no reimbursement
from a third party payer with no discussion with the patient or
doctor and no mechanism for the particular heart medication to
be reimbursed for. He expressed his hope that his previously
noted example did not happen often and noted the barrier for
drug reimbursement authorization must be removed.
MR. DARROW answered that Indiana works with its insurance
carrier and Pharmacy Benefits Manager (PBM). He noted that the
PBM is separate for the insurance carrier. He explained that
Indiana negotiates and looks at the insurance carrier and PBM to
provide the best advice on what is medically appropriate care.
10:19:19 AM
SENATOR GIESSEL asked if Indiana has a "Certificate of Need"
requirement for healthcare facilities.
MR. DARROW replied that he was not certain.
CHAIR DYSON asked Mr. Barnhill where DOA goes from here.
MR. BARNHILL explained that DOA is taking the first step with
CDHP this year. He said DOA is using the balance of the year to
investigate CDHP more thoroughly and how CDHP could be
implemented within the context of Alaska's employee healthcare
plan, "AlaskaCare." He said DOA is giving everyone a heads-up
that the CDHP discussion is starting now. He declared that DOA
will have meetings with Mr. Darrow to address CDHP transition
logistics. He noted that Indiana is an entirely different
context than Alaska, but the belief is the state can learn from
Indiana. He explained that Alaska's costs on a PMPM basis are
upwards of 50 percent higher than what Indiana experiences. He
remarked that higher costs are attributed to a lack of free
market dynamics happening in Alaska's healthcare market. He
summarized that the CDHP process is mostly thinking, designing,
and possibly deciding to implement in calendar year 2015. He
noted that an important communication and education effort would
occur prior to CDHP implementation.
CHAIR DYSON recalled ten years ago that he was able to insert
language into the budget bill that said all future contracts
have to be negotiated so that there is a HSA option. He said he
is quite sure that nothing ever happened.
MR. BARNHILL replied that DOA was now paying attention.
CHAIR DYSON said he is impressed with both Indiana's CDHP system
in addition to continuing to give employees several options. He
remarked about the possibility of Alaska providing an employee
option of continuing with their bargaining unit plan or choosing
to migrate to the state's CDHP. He said the process of shifting
to a CDHP option for employees is quite a hill to climb.
MR BARNHILL agreed with Chair Dyson.
CHAIR DYSON asserted that Alaska does significantly more for
their retired employees. He noted that Alaska has a huge
liability for retired employees. He remarked that he feels like
Indiana left their retirees "out in the cold." He asked what
Indiana retirees had before CDHP implementation.
10:22:46 AM
MR. DARROW replied that he cannot comment on retirees. He
explained that during his tenure in Indiana, the state has never
offered retiree health coverage.
CHAIR DYSON thanked Mr. Darrow for his presentation.
10:23:13 AM
There being no further business to come before the committee,
Chair Dyson adjourned the Senate State Affairs Committee at
10:23 a.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| CDHP Presentation STA 1-30-14.pdf |
SSTA 1/30/2014 9:00:00 AM |
Consumer Driven Health Plans |