Risk segmentation related to the offering of a consumer-directed health plan: a case study of Humana Inc

Health Services Research, August, 2004 by Laura A. Tollen, Murray N. Ross, Stephen Poor

Claims Data. To address the issue of health risk more directly, we analyzed enrollees' use of services and spending prior to the introduction of SmartSuite. Specifically, we characterized the health risk of enrollees in study year two according to their use of services and spending during study year one (in whichever plan they were enrolled at that time). We tracked people according to their unique enrollment number and examined claims experience for people continuously enrolled in both years. Because the prior year's use and spending reflect both health risk and benefit design, we also examined pharmacy use, which was less likely to be influenced by benefit design, as all enrollees' pharmacy benefits were similar in year one.

Figure 2 shows that Coverage First enrollees' use of services in study year one was unambiguously lower than that of their counterparts in other plans. For each of five services, usage in year one by people who subsequently enrolled in CF1 was less than 60 percent of the average for all people in year one (represented in Figure 2 as 100 percent). Hospital and maternity admissions per thousand were less than 30 percent of the overall average; length of stay per hospital admission (a crude measure of case complexity), physician office services per thousand, and prescriptions per thousand were all between 50 and 60 percent of the overall average. The CF2 subscribers' prior use of services was somewhat higher than CF1 subscribers', but it was still below average in every category. Interestingly, CF2, the Coverage First plan that might appear to provide less protection against risk (as reflected in its lower premium and larger deductible), attracted the relatively higher-use group of enrollees. (8)

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The disparity of Coverage First enrollees' prior-year service use is seen clearly by noting that enrollees in each of the other three plans exceeded the average in at least one category of prior use, while neither of the Coverage First plans exceeded the average in any category. For example, HMO members had the highest previous rate of hospital admissions (including maternity admissions), and Tiered PPO members had the highest use of physician-related services (including prescriptions per thousand). (9) The higher rate of maternity admissions among HMO enrollees is unsurprising given their younger age, greater likelihood of being female, and relatively larger families; it is less clear why HMO enrollees also had a higher rate of hospital admissions overall, particularly because HMOs have traditionally been known for keeping members of out hospitals by substituting outpatient for inpatient care.

Figure 3 shows prior spending as measured by paid claims, which reflect both Humana's and the member's share of costs. As with prior use, these data suggest that Coverage First subscribers were healthier than average, as evidenced by lower prior total claims. Their claims spending was, on average, less than 50 percent of the group total. (As in Figure 2, total spending by the whole group is shown as 100 percent.)