Lessons from 401(k) Retirement Plans for Increased Consumerism in Health Care

Transcription

1 Lessons from 401(k) Retirement Plans for Increased Consumerism in Health Care Paul Fronstin, Ph.D. Director, Health Research & Education Program Employee Benefit Research Institute Washington, DC

2 History of Consumer-Driven Health Plans: Where Did They Come From? No accident Late 1990s: defined contribution health benefits Commonality to approach was a fixed-contribution that could be used in an exchange (i.e. FEHBP) or in non-group market 2001: Definity Health (United) & Lumenos (Wellpoint) offered HRAs. 2003: MMA allowed HSAs. 2008: ~~~15% enrolled in HSA or HRA Today, consumerism is bigger than CDHP 2

3 Percent of Adults Who Agree That Terms of Coverage Make Them Consider Cost When Deciding to Seek Health Care Services, 2008 (Percent of privately insured adults 21 64) 100% Somewhat Agree Strongly Agree 75% 69%* 61%* 50% 50% 25% 34%* 21% 25% 30% 35%* 35%* 0% Traditional HDHP CDHP Source: EBRI/MGA Consumer Engagement in Health Care Survey, * Difference between HDHP/CDHP and Traditional is statistically significant at p 0.05 or better. 3

4 Cost-Conscious Decision Making, by Type of Health Plan, 2008 (Percent of privately insured adults who received health care in last twelve months) Checked whether plan would cover care 55% 61% 63%* Asked for generic drug instead of brand name drug 50% 58%* 58%* Talked to doctor about treatment options and costs 45% 49% 46% Asked doctor to recommend less costly prescription drug 36% 41% 36% Traditional Checked price of service before getting care Checked quality rating of doctor/hospital 23% 23% 25% 25% 22% 23% HDHP Participated in wellness program offered through employer 20% 18% 26%* CDHP Used online cost tracking tool provided by health plan 12% 10% 20%* 0% 25% 50% 75% 100% Source: EBRI Consumer Engagement in Health Care Survey, * Difference between HDHP/CDHP and Traditional is statistically significant at p 0.05 or better. 4

5 Trends in Cost-Conscious Decision Making, Traditional Plan Enrollees, Checked whether health plan would cover care Asked for generic drug instead of brand name Talked to doctor about treatment options/costs Asked doctor to recommend less costly drug Checked price of service before getting care Checked quality rating of doctor/hospital Participated in employers wellness program Used online cost tracking tool % 46% 44% 30% 21% 20% 15% 8% %^ 50%^ 45% 36%^ 23% 25%^ 20%^ 12%^ 5

6 Percentage Extremely or Very Satisfied With Overall Health Plan, by Type of Health Plan, % 70% 60% 61% 67% 64%^ 63% % 47%*^ 49%* 40% 33%* 37%* 35%* 40%*^ 41%* 37%* 30% 20% 10% 0% Traditional HDHP CDHP Source: EBRI/Commonwealth Fund Consumerism in Health Care Survey, EBRI Consumer Engagement in Health Care Survey, *Difference between HDHP/CDHP and Traditional is statistically significant at p 0.05 or better. ^Difference from prior year shown is statistically significant at p 0.05 or better. 6

7 Why Lower Satisfaction? Plans are new Plans are confusing Half of the adult population is health illiterate Employers and insurers have done poor job educating workers about plans Tools and resources are not there yet Employers and insurers have ignored lessons from past experience 7

8 What are the Lessons from the Past? 25 years of experience with consumerism in retirement planning self-directed retirement plans Lessons related to The choices that people have The incentives and information provided to people Plan design 8

9 Choice: More Choice Can Lead to Poorer Decisions and Lower Satisfaction Between 1998 and 2006, average number of investment options in 401(k) plans increased from 10 to 18 (Source: Profit Sharing/401k Council). Response to worker requests Service providers introduced new products Research found that the greater the number of investment options offered the lower the likelihood of plan participation for every 10 funds added, participation dropped by 2% the higher the likelihood of investing all or most of one s assets in the most conservative options available allocations in money market and bond funds increased 3 percentage points Likelihood of no allocation in equities increased by 3 percentage points Sources: Iyengar, Jiang & Huberman, 2004; Iyengar & Kamenica, When presented with too many options, people disengage When they make a choice, people choose arbitrarily to complete the process 9

10 Implications for Plan Sponsors (and Health Reform) Insurance choice Most employers do not offer choice When choice is offered, mainly 2 or 3 options that are very similar Health care services Choice of provider Choice of setting Choice of treatment option Ties back to comparative effectiveness research Health reform Insurance exchange would increase choice of health plan Eventually all workers would be in the exchange 10

11 Choice and Satisfaction More choice also leads to lower satisfaction levels and poorer decisions Source: Iyengar & Lepper, 2000; Schwartz et al, People always had choice, physicians tended to narrow choice CDHP pushes people towards more choice Implications for Plan Sponsors and Insurers How much choice is too much? How can choices be presented to reduce the likelihood of negative implications? 11

12 Expectations About Workers Abilities Most workers are not capable of making the most appropriate retirement planning choices, and need professional assistance. Optimal preparation for financial security at retirement requires knowledge Expenses in retirement Life expectancy Taxation Inflation Capital-market expectations Amount needed in retirement must be translated into appropriate savings rate and optimal investment portfolio 12

13 Expectations About Workers Abilities Survey results from 1990s 48% of retirement plan participants think money market funds include stocks. Participants responded that company stock is less risky than a diversified stock fund Not surprisingly, elaborate worker communication and education programs have not improved workers investment knowledge 13

14 Health Literacy 2003 National Assessment of Adult Literacy IOM 14% of adults lacked the most basic skills necessary to manage their health Nearly 50% of adult Americans (90 million) are health illiterate They have difficulty understanding and acting upon health information 40 mil. cannot read complex texts, 90 mil. have difficulty understanding complex text. Predicted inpatient spending for a patient with inadequate health literacy was $993 higher than a patient with adequate reading skills. $450 difference remained after controlling for health status. 14

15 Education of U.S. Adult Population, 2006 Less than High School 16% High School 57% College Degree 17% Advanced Degree 10% 15

16 Implications of Illiteracy for Plan Sponsors Complexities of adequately preparing for retirement pale in comparison to those associated with choosing health plans, providers, and treatments. Health-related decisions have greater consequences in some cases, life or death Strong evidence that workers simply lack the ability to successfully navigate these complexities on their own In cases of emergencies, time often prohibits careful considerations The perceived ineffectiveness of education in 401(k) plans resulted in legislation to add defaults to these plans so that they no longer relied upon positive employee action. In the health arena, CDH tries to get patient engaged in active decision making, not decisions via default. 16

17 Optimism and Overconfidence Workers chase hot-performing fund Self-predicted retirement security, despite modest savings and little or no preparation Implications for Plan Sponsors Workers may seek highly expensive care even when the probability of a positive outcome is low Optimism may cause some workers to make choices that have lower short-term costs because they do not anticipate their own long-term needs 17

18 Simplifying Complex Decisions Loss aversion and poor self-control are behavioral tendencies that drive decision makers toward alternative with the lowest short-term costs. People are much more sensitive to losses than gains. A potential gain must be times the potential loss for a bet to be appealing People want to make the right decision, but if the decision comes with a cost, they delay it. When people choose today between chocolate and fruit as a snack a week away, 74% choose fruit. When choosing a snack for right now, 70% choose chocolate. 18

19 Simplifying Complex Decisions Lessons from 401k Plans Loss aversion and lack of self-control help explain Why people have trouble saving for retirement, even when they want to Why some people avoid equities, even though they make sense for long-term retirement portfolios Why some people end up selling low after suffering a decline. Why people cash out plans prior to retirement Implications for Plans Sponsors Loss aversion is one of foundations of CDH as workers pay more for health care services, they become more cost conscious Can t ignore negative effects of increased cost sharing foundation for covering preventive care at 100% and for Value-Based Benefit Design 19

20 Framing; Decisions Based on How Choices are Presented 2 options, priced $ and $239.99: 50% purchase each 3 options, $169.99, $ & $469.99: 57% purchase $ option 401k evidence Increase in the number of equity options, increases equity allocation Implications for Plan Sponsors Presentation and framing of insurance and health care services options are critically important. When preventive services are presented with evidence of emphasizing the downside of not getting screened, compliance increases. 20

21 Tax Incentives Help to a Degree Lessons from 401k Plans 20% of eligible workers do not contribute 50% of workers under 59 ½ did not contribute enough to take full advantage of match Lessons from HSAs 42% of HSA-eligible workers did not contribute to account 80/20 Rule Do financial incentives affect the behavior of the 20% that use 80%? 21

22 Behavioral Tendencies Not Easily Corrected with Information, Guidance, and Education 2006 study of one large company Campaign with onsite seminars, savings plan brochures, web site, calling center. At end of campaign, seminar attendees were interviewed. 100% planned to enroll in plan, 14% enrolled 28% planned to increase contribution rates, 8% did 47% planned to change a fund selection, 15% did 36% planned to change fund allocation, 10% did 22

23 Education and Health Insurance Active worker study, 2 groups 1) received plan information 2) received plan information & information on CAHPS and how to pick a plan Group 2 was less able to understand info and more likely to describe the benefits incorrectly Medicare study, 4 groups 1) Medicare & You (M&Y) 2) M&Y & quality scores on Medicare HMOs 3) Short M&Y 4) Nothing most likely to switch health plans 23

24 Education and Health Insurance Implications for Plan Sponsors It is likely that more information and more decision-support tools alone will not optimize decision making or be valued by workers. Engagement does not often occur until it s too late. Disengagement exists until an immediate need is perceived. Potential costs of disengagement and potential benefits of engagement are not readily apparent. Consider this: the obesity rate doubled from 15% in late 1970s to 33% in 2004, despite strong links to poor health outcomes such as diabetes and heart disease. 24

25 Lessons Learned About Effective Plan Design Good default choices improve outcomes Simplified decisions improve outcomes Requiring active decisions improves outcomes All information is framed, and framing can improve outcomes Commitments to future self-control can be effective 25

26 Good Default Choices Improve Outcomes Pension Protection Act of 2006 Automatic enrollment, automatic-contribution escalation, automatic investment in diversified portfolio. 90% of those automatically enrolled stay enrolled Projected replacement rates increased by more than 125% for participants in lowest-income quartile Worker reaction favorable 97% of auto-enrollees satisfied with being auto-enrolled 85% agreed that is allowed them to start saving earlier than planned 98% glad company offers auto enrollment Implications for Plan Sponsors Not necessarily clear how this applies to health benefits and services Auto-enrollment in health promotion and disease management programs Auto-enrollment into health coaching program 26

27 Simplified Decisions Improve Outcomes Lessons from 401k plans Bundling savings & investment decision into one default decision was much easier for workers than standard enrollment process Enrollment postcard: participation increases 10-20%. In one case it tripled. Implications for Plan Sponsors Health care decision making can be simplified by bundling multiple decisions. Study health care decision tree to identify decision points and bundling opportunities. Frame choices in simple ways Focus on more manageable subset of alternatives 27

28 Requiring Active Decisions Improves Outcomes Lessons from 401k plans Human nature is to procrastinate Require active decision making, failure to respond not permitted Increases participation rate by up to 28 percentage points Implications for Plan Sponsors Could be used in HSA-based plans Could be used in wellness and disease management programs 28

29 All Information is Framed: Framing Can Improve Outcomes Lessons from 401k Plans Choices vary depending on the context in which they are presented. Implications for Plan Sponsors Sounds irrational, but Simple, subtle framing differences can make the difference between someone having a mammogram or not, which may make the difference between someone surviving breast cancer or not. Other examples: colonoscopy, prostate exam, caloric intake at vending machines. 29

30 Commitments to Future Self-Control Can be Effective Lessons from 401k Plans Workers willing to improve their behavior tomorrow. Lessons from a Health Plan Workers given two choices 1 plan had more generous benefits than the other Enrollment in more generous plan conditional on: Requirement that worker use a care counselor when issues arise Wellness screening completion & health risk assessment Personalized educational training and health improvement activities Signed agreement acknowledging that failure of above will result in disenrollment from the more generous plan 93% of workers were able to remain with more generous plan after 16 months. 30

31 Empirical Analysis Needed to Analyze Worker Behavior Lessons from 401k Plans Better retirement plan design evolved only after workers retirementplan decision making was empirically studied and interventions tested with empirical rigor. 31

32 Key Lessons More choice can lead to poorer decisions and lower satisfaction Have realistic expectations about workers abilities Optimism and overconfidence impact choices Workers will find a way to simplify complex decisions, often by choosing the lowest-cost alternative Preferences not well defined worker behavior affected by framing Tax incentives help to a degree Behavioral tendencies not easily corrected with information, guidance, and education Plan design can be an effective tool 32