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CPB Netherlands Bureau for Economic Policy Analysis. Erasmus University Rotterdam. An application of Albert Wong's simulated lifecycles to health savings accounts Rudy Douven (CPB, iBMG). Today is Celebration time. Albert Wong’s simulated life cycles will be approved!!.

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slide1

CPB Netherlands Bureau for Economic

Policy Analysis

Erasmus University Rotterdam

An application of Albert Wong's simulated lifecycles to health savings accountsRudy Douven(CPB, iBMG)

Health Savings Accounts

today is celebration time
Today is Celebration time

Albert Wong’s simulated life cycles will be approved!!

Health Savings Accounts

slide4

What is so special about these cycles?

  • Itsnew!
  • We getbetterinformationabouthealth care costs
    • How are health care costsdistributed over the lifecycle?
    • Howlarge is the variation in costsamongindividuals?
    • Howlarge are ourfuturehealth care costs, given the past?
        • if we are 5, 45, 60, 90 yearsold?
      • Howlarge are the differencesfor different types of care?

Health Savings Accounts

application health savings accounts
Application: Health savings accounts
  • Current research project by Rudy Douven (CPB, EUR), Remco Mocking (CPB) and Albert Wong (RIVM, UvT).
  • Idea project:

Are health savings accounts more efficient than annual cost sharing mechanisms?

Health Savings Accounts

year 1 mandatory annual deductible of 220 euros
Year 1: Mandatoryannualdeductible of 220 euros

Ifyouneedhealth care

Pricelargerthan 220 euros

youpay 220 euros

Ifyouneedlittleorno care

Price =P < 220 euros

yousave 220-Peuros

whichyou put onyour bank account

Health Savings Accounts

year 2 exactly the same rules apply
Year 2: exactly the samerulesapply

Ifyouneedhealth care

Price > 220 euros

youpay 220 euros

Ifyouneedlittleorno care

PriceP < 220 euros

yousave 220-Peuros

whichyou put onyour bank account

Health Savings Accounts

idea of individual mandatory deductible
Idea of individualmandatorydeductible
  • Advantage: lessmoral hazard
    • Health care becomes more efficient
  • Disadvantages: lesssolidarity
    • Chronicillpayeveryyear 220 euros,
    • Healthypeoplepay (much) less
  • Mainquestion:
    • Can we improveonbothaspectswithhealthsavings accounts?

Health Savings Accounts

how does a health savings account work
How does a healthsavings account work?

Ifyouneedhealth care

Price > 220 euros

youpay 220 euros

Ifyouneed few healthorno care

PriceP < 220 euros

youpayX=220-Peurosinto

healthsavings account

Health Savings Accounts

year 2 rules change
Year 2: Ruleschange!

Youpaid 220 euros in firstyear

Ifyouneedhealth care

Pricelargerthan 220 euros

youpay 220 euros

Youpaidlessthan 220 euros in firstyear

Ifyouneedlittleorno care

PriceP < 220+Xeuros

totalsavings: 220+X-Peuroswhichyou put onyour bank account

Health Savings Accounts

idea of health savings accounts
Idea of healthsavings accounts
  • More solidarity
    • Relativelyhealthypeoplepay money intotheirsavings account touseitiftheybecomeill later
  • More efficiency
    • Relativelyhealthypeople face higherdeductiblewhenbecomingill

Health Savings Accounts

slide13

Expandidea of healthsavings accounts

  • Length of savingperiod
    • not 2 years, butfrom 18-65, from 0-end of life etc.
  • Maximum deductiblefor Health Savings Account
    • Whenilluseall money upon the account to a maximum amount

Health Savings Accounts

however life is not that easy
Howeverlife is notthat easy!
  • Consumerswillreacton HSA´s and formexpectations
  • HSA´s are less efficiënt than a deductible
    • Ifhealth shock in period 2 is large and knowntoconsumer

Idea:

Consumersknowthey have tospend money in period 2 and

thereforewillspend more money in period 1 as well.

Health Savings Accounts

slide15

Crucialforevaluation HSA´s

  • How do individualsrespondto (large) deductibles?
    • someevidencefromfamous RAND experiment in the US

(Newhouse, 1997)

  • Are consumerforwardlooking?
    • someevidencesaysyes:

(Aron-Dine, Einav, Finkelstein, Cullen, NBER, 2012)

Health Savings Accounts

how do individuals form their expectations on future health care costs
How do individualsformtheirexpectationsonfuturehealth care costs?
  • etremelycomplicatedbut?

WehAVE

ALBERT WONG´S

sIMULATED

life cycles!!!

Health Savings Accounts

simulate expectations with aw s life cycles

0

Simulateexpectationswith AW´s lifecycles
  • Individuals have perfect informationaboutfuturecosts
  • Individualsknow distribution of futurecosts
  • Chronicallyill have different expectations

etc. etc.

  • Allowfor time preferenceforconsumerchoice
    • futurepayment is lessvaluablethancurrentpayment

Health Savings Accounts

some first experiments with our simulation model
Somefirstexperimentswithoursimulation model
  • Setup model
    • Consideronlyindividualsbetween 18-65
    • Perfect informationaboutfuture, time preference is 0
    • Fixed premiums foreachindividual

Model 1: AnnualDeductible

• Deductible: 150 euros

Model 2: Health Savings Account

• HSA fromage 18-65

• Payment out of HSA toconsumer at age 65

• Annualpayment in HSA: 150 euros

• Maximum deductible: 1000euros

• Youpay OOP onlywith money in HSA

Health Savings Accounts

a first example
A firstexample

Full Insurance Deductible Health Savings Account

(150 euro) (maxdeductible 1000 euro)

% fixed premium = 100% 90.9% 88.0%

% out of pocket payments = 0% 8.3% 11.8%

% lesshealth care = 0% 0.8% 0.2%

First Example:

• Health savings account model lessefficientthanannualdeductible model

• Solidarityunclear

Health Savings Accounts

future research continue search for the holy grail
Future research: continue search for the holygrail:
  • Varywithsize of annualpaymentinto HSA
  • Varywith maximum deductiblesizefor HSA
  • Allowfornegativesavings in HSA
  • Vary time span of HSA
  • Varywithpricesensitivity effect forconsumers
  • Apply HSA for different agegroups
  • Varywith different types of care
    • General practicitoners
    • Pharmaceuticals
    • Hospital care
    • Physiotherapy etc.

Health Savings Accounts