Choosing: Policy Application

Marian V. Wrobel

November 2007

• A little bit about me….

• A little bit about you….– How did you choose your lap-top?

– What makes choices easy or hard?

Plan for Today

• Focus on one policy application– New Medicare drug benefit

• Focus on one piece of current research– See some tradition and less traditional methods…

– See a powerful effect from a simple intervention• And, WHY???????????

– Ask for comments at end

HOW WE CHOOSEMEDICARE DRUG PLAN SELECTION

Jeffrey R. Kling, Sendhil Mullainathan, Eldar Shafir,Lee Vermeulen, and Marian V. Wrobel

November 2007

BACKGROUND: Incorporating choice into government services

E.g. Social security, school selection, prescription drug insurance

• Individuals have heterogeneous preferences over many services

• Choice self-sorts to services best matching preferences– Competition facilitates services provided at cost efficiency

• Relies on consumers choosing well– Picking services that best match their preferences and needs

Psychology of choice

• In some contexts, a proliferation of alternatives may be detrimental

• Experiments increasing the number of choices for consumers – Individuals tend to defer choices or do not choose at all

• One example, physicians prescribing for osteoarthritis– Physicians were more likely to decline prescribing medication when they had

to choose between two comparable medications than when only one of those was available

• With large number of choices varying on many dimensions psychology could operate such that people do not choose well

Outline

• Background on Medicare and prescription drug insurance

• Context for how people choose plans, and switch to new plans– New survey data, new audits of information sources

• Analysis of experimental intervention– Provides information and changes psychology of choice

About Medicare

• Federal health insurance program – for almost all Americans age 65 and older

– for many adults with permanent disabilities

– 40 B people

• Part A – Hospital inpatient care– some skilled nursing facility, home health, and hospice care

• Part B – Doctors’ services, outpatient hospital care and home health visits

• Part C – (Medicare Advantage, alternative to Parts A and B)– A, B and drug benefits from private health plans (often HMOs)

– Choice-based program

About Part D

• “The Biggest New Domestic Policy of the Decade”

• Voluntary outpatient prescription drug benefit

• Available to 44 million on Medicare

• Either via Medicare Advantage plan or as stand-along private drug plan

Stand-alone plans

• Each state had at least 45 stand-alone plans offered in 2007

Part D Financing

• Cost of $50 billion in 2007

• Premiums averaged $27/month

• Medicare payments averaged $80/month

Choosing plans

• To choose 2006 plan: for 1/3 with no coverage – Open enrollment from November 15, 2005 – May 15, 2006

• To choose 2007 plan: Open enrollment Nov. 15 – Dec. 1, 2006

Complexity of choice

• Choosing from among 54 plans

• Variety of dimensions upon which they differed, including– Amount paid every month (premium)

– How out-of-pocket expenses vary with expenditures • (Co-insurance and copayments)

– Coverage of drugs and dosages (formulary tiers)

– Utilization management tools

– Pharmacy accessibility

– Mail order discounts

– Customer service

– Financial stability of insurer

Question

• If you wanted to find out about the demand for information – how would you do it?

Survey Methods

• Phone survey – 351 seniors enrolled in Part D

– 35 questions on choice process and knowledge

– Conducted Spring 2007

• Written survey – 4646 seniors enrolled in Part D

– 7 questions on choice process and knowledge• Appended to existing written survey

– Conducted January 2007

Choice of plan

Phone Mail #1 Features reviewed to choose plan

69% 86% 44% Cost and coverage of current drugs

58% 80% 19% Premium

57% 50% 9% Trusted company

46% 62% 4% Access to preferred pharmacy

30% 41% 5% Coverage of drugs possibly needed in future

– 34% had ever compared plans side-by-side

– 18% had ever reviewed personalized comparisons

– 37% know only some plans (not all) have a deductible

– 55% know co-payments for generics are different in different plans

Open enrollment period, 2006

Phone Mail Sources of information

47% 67% Mailings from plans

27% 26% Mailings from Medicare

14% - In-person contact

7% - Phone calls

4% - Internet

• Annual Notice of Change from each plan explained changes– 27% Read thoroughly

– 30% Read some parts

– 17% Did not read

– 26% Do not recall receiving

Satisfaction and plan switching

• Phone survey– 86% rated their 2006 plan “good” or better

– 73% did not consider switching for 2007

– 14% considered switching for 2007 but did not

– 10% switched plans from 2006 to 2007

Question

• If you wanted to find out about the supply of advice– How would you do it?

– What if you wanted to find out about the supply of personalized advice?

Audit methods

• 12 calls to Medicare

• 5 calls to State Health Insurance Programs – Medicare’s network of local counselors

• 12 calls to other telephone helplines– (RA: “I’m helping my aunt choose a plan. Can you offer advice?”)

• 88 visits to pharmacies

• 7 visits and 1 call to local senior centers– Auditor, ~age 65, eight question script. – “I’d like advice in choosing a plan….”

• Lists of prescription drugs

Information and advice from Medicare

• Medicare’s website tool, the Prescription Drug Plan Finder– Allows input of information on prescriptions

– Also, preferences about pharmacy location & mail order use

– Generates an estimated annual out-of-pocket cost for each plan

• What do you think of this website tool?

Information and advice from Medicare

• In all calls to Medicare, the representative:– Gathered inputs for personalized plan suggestions

– Read back two or three choices (sometimes with plan features)

– Then, offered to enroll the beneficiary.

• Lowest cost plan was named in 8 of 12 calls– Often named one zero-deductible plan and one non-zero

– Other cases offered no rationale for plans named

Information and advice from pharmacies

• 4 of 88 made personalized suggestions using Plan Finder or similar

• 5 of 88 (all one chain) offered personalized information on all plans

• 16 of 88, commented on drug list, e.g. “All the plans cover these”

• 16 of 88 named sponsor with general reference to coverage or popularity

• 38 of 88 vague help such as “Review premiums”

• About one in five received clearly discouraging comments

Information and advice from other sources

• State health insurance program reps similar to 1-800-Medicare

• Senior center visits– General discussions about the drug benefit

– Some demonstrations of Medicare website

– But not personalized comparative info to take home

• Among 12 other sources located through search and referral– Only 1 offered personalized suggestions, and mailed a report using

technology similar to Medicare

– 2 used a single sponsor plan finder

– 1 offered help with the Medicare website

Print materials, Question

• If you wanted to find out about information contained in written materials– How would you do it?

Print Materials, Cont

• 69 of the 88 pharmacies had print materials– Facts about eligibility, enrollment, and benefit variation

– 38 explained personalized help was available from Medicare.

• Tested print material, with 20 minutes to study– 39 seniors, each with four sample items

– 5 correct out of 12 pre-test; 6.6 of 12 post-test.

– .4 correct out of 3 on cost items pre-test; .5 of 12 post-test

Question

• Demand for information is weak.

• Supply of advice is weak.

• Knowledge is weak.

• Setting appears fertile for…– Weak choices

• But, how do I know a weak choice when I see one?

• Or, If you wanted to research weak choices, how would you do it?

Information Experiment: Concept

• A small intervention– Simple, clear information

• Not new information

• Not information that is hard to get

• Experimental Design

• If response to information is large– Then, initial choices likely to be weak

Information experiment - methods

• Participants: patients of University of Wisconsin Hospital, over 65– Enrolled in Part D

– Excluded if receiving subsidies or not resident of WI

• Interviewed by School of Pharmacy students in fall of 2006– Elicited drug utilization, etc. prior to randomization

– Cost of time plus materials was about $40 per participant

• After 2007 follow-up and exclusions, analytical sample size of 406

Distribution of plan costs

Wisconsin sample Medications as of 2000

0-3 4-6 7+

Least expensive plan 553 898 3396

27th least expensive 933 1439 4593

(median) plan

14th least expensive 789 1232 3818

(26th pctile) plan

Average cost of $784 $1256 $4189

plan selected

Not choosing lowest cost plans. Possible that choice was weak…..

Information intervention

• Both groups:– Letter on university stationery

– Standard introductory and concluding paragraphs

– Brochure on using the Medicare website

• Intervention group: address of Medicare website only

• Comparison group: personalized information– Current plan and estimated annual cost,

– Lowest cost plan and its estimated annual cost

– Potential savings from the lowest-cost plan

– Also, Medicare website address & Plan Finder printout on all plans

Comparison letter, text

…As you were told, you can find additional information regarding the plans available to you by accessing the Medicare Prescription Drug Plan Finder web site at:

http://www.medicare.gov/MPDPF/Public/Include/DataSection/ Questions/SearchOptions.asp.

You can use the enclosed document from AARP to assist you in using the web site….

Intervention letter, text

….Please find enclosed a summary of the information that you received during the interview. As you can see from the Medicare web site, you may have an opportunity to save on your prescription drug costs by changing plans for 2007.

The plan you reported being in for 2006: «M_06_PLAN»

The estimated cost of that plan for 2007: $«ANNUAL__OF_PTS_CURRENT_PLAN_06»

The lowest cost plan available to you for 2007:

«LEAST_EXPENSIVE_PLAN_07»

The estimated cost of that plan for 2007: $«ANNUAL__07»

Your potential savings for 2007 if you choose the lowest cost plan:

$«POTENTIAL_SAVINGS»

Note that even if you have already chosen a plan for 2007, you can still change your mind and choose a different plan until December 31, 2006! If you do choose to change plans, you can access the Medicare web site at: http://www.medicare.gov

ETC.

Impact on switching

• 28% of intervention group switched plans – vs. 17% of comparison group

• 31% of intervention group switches were to lowest cost plan – versus 12% of comparison group switches

• About 25% of both groups considered changing plans but did not

Impact on cost

• Realized savings– Difference in cost between 2007 plan & 2006 plan

• Zero if don’t change plans

– Computed by the Medicare Plan Finder

• Realized savings (all)– Intervention: $132

– Comparison $16

– Difference $116

– Regression-adjusted $104

• Realized savings, potentially affected – Regression-adjusted $230

Impacts by potential savings

• Robustness check: Who should be more affected– High potential savings or low potential savings?

Switching Probability Lower bound impact on estimated cost

Comp Int Diff Dollars

(1) (2) (3)

A. Dollar potential savings

≤ $400 .135 .215 .08 -84

(44)

> $400 .195 .353~ .158 -355*

(106)

Speculation….

• Suppose people chose a low-premium plan at baseline– What might I assume about them?

– How might the intervention affect them, relative to others?

• Suppose people chose a popular plan at baseline• Like the AARP’s Medicare Rx plan

– What might I assume about them?

– How might the intervention affect them, relative to others?

Impacts by premium and sample shareSwitching Probability Diff Lower bound

impact on estimated cost

Comparison

Intervention

Dollars

(1) (2) (3)

C. Monthly premium in 2006

≤ $30 .085 .292~ .212 -184*

(75)

> $30 .243 .274 .031 -163*

(74)

D. Sponsor sample share 2006

≤ .15 .141 .333~ .192 -489*

(115)

> .15 .180 .252 .072 -45

(61)

Summary

• Most people did not seek personalized information about options• Message of “choice among drug plans has significant cost implications,

and personalized help is available from Medicare” was not clearly and widely disseminated

• Less than 1/6th of individuals switched plans from 2006 to 2007

• In intervention indicating least expensive plan– Switching increased by 11 percentage points– Potential cost savings of $200+ in one year

• Surprising that our small intervention had such a substantial impact – Essentially consists of publicly available information

Potential explanations

• Compensating differentials:– Cost differences almost completely offset by non-cost features

• High subjective costs of information acquisition (rational or not)

• High valuation of information from “University of Wisconsin”– As opposed to Medicare or other potential source

• Misunderstanding of potential gains from information-seeking– We asked individuals how much they thought they could save

– More than 70% of comparison group gave an underestimate

– Average underestimate being more than $400

Explanation of psychological decision difficulty

• Psychological tendency to inaction when choices proliferate – Quite possible that individuals, especially in this elderly population are

intimidated by the complexity of the many choices• Simply decided not to think about changing plans even though doing so

could be financially advantageous

– Would also be consistent with the widespread disinclination to consider switching

• But there is a large impact on switching from intervention

• Getting accurate, simple, personalized information could help

Cost-benefit analysis

• Study shows potential value to wide, pro-active distribution of simple, personalized information

• Intervention cost ~ $40 (time and materials)– With Medicare administrative data, lower costs

• Impact on seniors’ costs of $104

• Potentially lower costs to govt progam– And benefits to government bottome line.

– Implies impact on Medicare expenditures of ~ $52

So, should the government do this?What are the issues?

So, should the government do this?What are the issues?

• Privacy

• Over-weighting of cost

• Support

• Ability to edit initial drug list

• “Responsibility”

• Role of public and private sector

Comments on research

– What is missing?

– How could we fill it in?