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Health Care Costs and Financing

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Up to 23 percent of elderly Americans could be rejected for private long-term care insurance at age 65

Private insurance is one strategy for financing the large and growing cost of long-term care. Currently, insurance premiums are based on individuals considered to be average risks, and medical underwriting is used to reject those insurers fear may represent above-average risks. Little is known, however, about how much this practice limits the potential for private insurance to cover nursing home care or how well underwriting criteria identify high-cost groups.

New research from the Agency for Health Care Policy and Research indicates that under current medical underwriting practices, between 12 percent and 23 percent of Americans would be rejected if they applied for this insurance at age 65. These figures rise to between 20 and 31 percent at age 75, according to the study by former AHCPR researchers Christopher M. Murtaugh, Ph.D., and Peter Kemper, Ph.D., and Brenda C. Spillman, Ph.D., of AHCPR's Center for Cost and Financing Studies. They arrived at these conclusions by simulating underwriting criteria using a nationally representative sample of elderly decedents.

Based on these criteria, the study simulates probable exclusion of persons who are current or recent nursing home residents, are unable to perform basic activities of daily living (ADLs), have cognitive disabilities such as Alzheimer's disease or other forms of dementia, or major illnesses such as cancer, cirrhosis of the liver, long-term diabetes, or chronic obstructive pulmonary disease. Underwriters possibly also would exclude persons who are obese or heavy drinkers and those who have had a stroke or recent heart attack with complications.

These criteria successfully identify persons who represent poor financial risks to insurers, although the extent to which that is true depends on policy characteristics. For a "low option" policy lacking inflation protection and nonforfeiture benefits, all the simulated criteria identify groups with insurance benefits exceeding the premiums they paid into the policies. For example, the simulations suggest that insurance benefits for those who are cognitively impaired at age 65 would be more than seven times their expected premium collections, and benefits for those unable to perform ADLs at age 65 would be three times premium collections. Under a more generous policy with inflation protection and nonforfeiture, however, only those with cognitive impairment, limitations in ADLs, and those who had suffered stroke would have benefits exceeding premiums paid.

Based on the study results, the researchers suggest that policymakers may want to consider options such as high-risk insurance pools for those who are uninsurable. Insurers could offer higher premium policies to those believed to be higher risks or follow the life insurance practice of offering dividends when experience is more favorable than expected. Both of these options would allow insurers to gather more information about actual risks represented by those now considered poor risks.

See "Risky Business: Long-Term Care Insurance Underwriting," by Drs. Murtaugh, Kemper, and Spillman, in the Fall 1995 issue of Inquiry 32, pp. 271-284.

Preconception care for diabetic women results in cost savings

Preconception care for women with diabetes saves $1,720 per delivery by preventing adverse birth outcomes such as congenital malformations. Even in the short term, preconception care saves $480 per enrollee during the initial hospitalization.

Third-party payers can save money by paying for intensive medical care to control the blood glucose levels of diabetic women before they become pregnant. This preconception care avoids the high costs of maternal and fetal complications associated with uncontrolled diabetes during pregnancy, concludes Anne Elixhauser, Ph.D., of the Center for Delivery Systems Research, Agency for Health Care Policy and Research. She and her colleagues used literature review, consensus development among an expert panel of physicians, and surveys of medical care personnel to gauge the costs and consequences of providing preconception and prenatal care compared with prenatal care only to a hypothetical group of women with established diabetes mellitus.

The researchers found that the cost of preconception plus prenatal care was $17,519 per delivery, compared with $13,843 per delivery for prenatal care only. However, the combined care actually resulted in a savings of $1,720 per delivery over prenatal care only, after accounting for the maternal and neonatal adverse outcomes prevented by preconception care. The adverse outcomes included in the analysis ranged from spontaneous abortion to congenital malformations. Since women receiving only prenatal care tend to seek care after the critical period when their fetuses' organs are forming (5-8 weeks gestation), achievement of good glycemic control after this period would not reduce the rate of diabetes-related congenital anomalies such as hydrocephalus and certain heart defects, which originate very early in pregnancy.

To determine the generalizability of these findings to a short-term perspective, such as third-party payers who may be responsible only for costs associated with pregnancy and the initial hospitalization of mother and infant, the researchers recently recalculated the cost-benefit analysis excluding postdischarge and long-term-care costs. According to Dr. Elixhauser, preconception care for diabetic women still results in cost savings of $480 per enrollee. Thus, long-term care costs are not the determinants of the cost savings associated with preconception care.

Details of the initial study are in "Cost-benefit analysis of preconception care for women with established diabetes mellitus," by Dr. Elixhauser, Joan M. Weschler, B.S.N., M.A., John L. Kitzmiller, M.D., and others, in Diabetes Care 16, pp. 1146-1157, 1993. It was republished in Diabetes Spectrum 8(5), pp. 271-280, 1995. (The reanalysis will be reported in a Letter to the Editor, Diabetes Care, April 1996).

Researchers examine the costs of primary coronary angioplasty

Recent studies have found that the initial use of coronary angioplasty instead of thrombolytic therapy as the primary treatment for patients with acute myocardial infarction (AMI) is equally or more effective in opening up blocked (infarct-related) arteries and may reduce the bleeding usually associated with thrombolytics. In this study, researchers who were supported in part by the Agency for Health Care Policy and Research (Ischemic Heart Disease Patient Outcomes Research Team [PORT], HS06503), examined the economic outcomes from a prospective multicenter registry of primary coronary angioplasty.

The investigators found that the baseline hospital cost (not charge) of primary coronary angioplasty was $13,113 with mean physician fees of $5,694. Six-month mean hospital followup costs for repeat angioplasty or bypass surgery were $3,174, with mean physician fees of $1,443.

These costs were strongly influenced by complications related to the AMI and/or the procedure but only modestly influenced by patient selection factors. For example, a 10-year difference in age was associated with a 5 percent increase in adjusted hospital costs, whereas recurrent ischemia was associated with a 53 percent average increase in costs; the need for bypass surgery after angioplasty was associated with a 142 percent increase in hospital costs.

In a population of patients at higher risk, patient selection factors could be more strongly related to cost, explain the researchers. They based their analysis on data derived from the Primary Angioplasty Registry of 270 AMI patients treated at six centers between 1990 and 1992.

See "Baseline and 6-month costs of primary angioplasty therapy for acute myocardial infarction: Results from the Primary Angioplasty Registry," by Daniel B. Mark, M.D., M.P.H., William W. O'Neill, M.D., Bruce Brodie, M.D., and others, in the Journal of the American College of Cardiology 26(3), pp. 688-695, 1995.

Hospital-based managed care plans reduce costs and shorten stays for c-section patients

A managed care approach for cesarean-section (c-section) patients reduces costs and shortens hospital stays by 13 percent, according to a recent study supported by the Agency for Health Care Policy and Research (HS07402). These savings were achieved without sacrificing quality of care and while increasing patient satisfaction, notes Mary A. Blegen, Ph.D., R.N., of the University of Iowa Hospitals and Clinics, and her colleagues.

The investigators compared patient outcomes and costs of care for women undergoing c-sections before and after implementation of a hospital-based managed care plan. The plan calls for a nurse case manager and a CareMap, which organizes and sequences obstetrical care and outlines expected problems, needed tests, medications, discharge planning, and so forth. The average length of stay for women managed according to this regimen decreased by 13.5 percent—from 5.35 days to 4.62 days—and average postoperative costs declined by 13.1 percent—from $3,950 to $3,432. Also, women's perceptions of the overall quality of care they received rose significantly from 4.26 to 4.41 on a 1-5 scale, perhaps because they felt they had greater participation in their own care, suggests Dr. Blegen.

Medical outcomes were similar for women who underwent c-sections before and after implementation of the plan, and there were no significant differences in their physical recovery scores at hospital discharge or number of complications following surgery. However, patients' scores for physical recovery 1 month after discharge were lower in the managed care group, suggesting that patients experiencing early discharge may need supplemental care, concludes Dr. Blegen.

Details are in "Outcomes of hospital-based managed care: A multivariate analysis of cost and quality," by Dr. Blegen, Robert C. Reiter, M.D., Colleen J. Goode, Ph.D., R.N., and Richard R. Murphy, M.B.A., in the November 1995 issue of Obstetrics & Gynecology 86, pp. 809-814.

Medicare patients enrolled in HMOs receive fewer home health care visits than those in fee-for-service plans

The average Medicare patient enrolled in a health maintenance organization (HMO) receives about two-thirds as many home health care visits (13 vs. 20) over a 3-month period as a Medicare patient with traditional fee-for-service (FFS) coverage. When national average costs per home visit are used to translate visits into resource use, home health care also costs about two-thirds as much for HMO patients as for FFS patients ($877 vs. $1,305, respectively, in 1991 dollars). Adjusting for case-mix differences and other variables reduces the cost difference only slightly, from $428 to $393. But this savings may be achieved at the cost of poorer outcomes for HMO patients, according to a study led by Peter W. Shaughnessy, Ph.D., and colleagues at the University of Colorado Health Sciences Center. The study was jointly supported by the Health Care Financing Administration (HCFA) and the Agency for Health Care Policy and Research (HS08031).

For example, with home health care 56.5 percent of FFS patients improved in their ability to perform activities of daily living (ADLs), such as eating, bathing, and toileting, compared with 43.4 percent of HMO patients. The overall pattern—based on many outcome measures—suggests that HMOs may provide too few home health care visits, assert the researchers.

The researchers attribute this difference in care in part to the capitation payments (a set fee per person) provided to HMOs by Medicare. Any expenses beyond this set fee must be absorbed by the HMO, thus providing a strong incentive for HMOs to constrain overall home health care use and costs.

The researchers examined the patient-level outcomes and costs for a national sample of 1,260 Medicare patients receiving home health care from 38 home health agencies over a period of 12 weeks. The Medicare-covered home health services studied were skilled nursing care; physical, speech, and occupational therapy; medically related social services; and home health aide services.

More details are in "Patient-level cost of home health care under capitated and fee-for-service payment," by Robert E. Schlenker, Ph.D., Dr. Shaughnessy, and David F. Hittle, Ph.D., which was published in the Fall 1995 issue of Inquiry 32, pp. 252-270.

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