In February 2017, I sent the op-ed piece below to the Charlotte Observer. It was not selected for publication. But it has been proven accurate in a detailed, independent study by team of health care actuaries from a firm of highly regarded actuaries known widely for its health care work. The study was prepared for the Society of Actuaries. See discussion below my op-ed.
Union County, scene of an 1865 dust-up involving General Sherman’s troops, is now the site of a skirmish in the national civil war over health care policy. Katherine Restrepo, Director of Health Policy at North Carolina’s John Locke Foundation, has been calling attention across the South, and in Forbes, to the county’s experience with a health care delivery vehicle known as direct primary care, or DPC.
In the Union County employee health system, all enrollees have insurance to cover most types of medical services other than primary care. For the latter, they have a choice between receiving primary care from hundreds of traditional insurance-based physicians, subject to deductibles and copayments, or receiving primary care exclusively from a small closed panel of physicians at a pre-paid insurance-free direct primary care clinic with no deductibles or copayments. According to its supporters, the primary clinic’s savings in insurance overhead allows its providers more time for patient care, which in turn curbs the need for expensive specialists, emergency rooms, hospitals, and costly medications.
When Union County created a direct primary care option for its employees and their dependents in 2015, a bit under half of them elected the DPC. When compared with the traditional plan, according to Ms. Restrepo, the direct care plan saved the county as much as 28% in medical expenses, an impressive $1500 per insured per year.
With claimed savings like that, she and other small-government advocates are eager to bet the health of every state and local government employee on DPC. They seem particularly eager to promote direct primary care as the core model for Medicaid.
But there are problems.
Unless asked directly, DPC advocates withhold the fact that the enrollees in the direct primary care group are five years younger than those in the traditional care group.
Age matters though, and it matters a lot. Age-cost curves for health care are steep. In tirades against the Affordable Care Act, many conservatives insist that the costs for 64-year-olds are five times higher than costs for 21-year-olds; that insurance premiums should reflect this 5:1 ratio; and that the 3:1 curve mandated by the Affordable Care Act penalizes the relatively young.
As an interim step pending ACA repeal, the Trump administration recently floated the idea of moving to an age-premium curve of 3.49:1. On that curve, a five-year gap in age would explain every penny of the difference between the health costs of the two Union County populations.
The 5:1 curve would imply that offering the direct primary care program actually cost Union County well over $600,000.
Furthermore, DPC advocates make no adjustments for prior health experience. For example, patients with multiple health issues of long standing might choose to avoid the direct primary care clinic’s small, closed panel so they can keep an established relationship with their traditional primary care physician; it makes medical sense.
There are rigorous ways of evaluating whether Union County’s costs savings reflect some innate superiority of direct primary care or merely that the relatively healthy preferred a different plan than their less healthy counterparts. Restrepo compares group costs, but fails to carefully assess whether health status differences between the groups might be driving the “savings”.
Let’s not bet the health care of county enrollees, Medicaid recipients, or anyone else on the idea that little Union County won big savings by offering direct primary care. A far safer bet is that Union County’s decision makers managed only to segment their enrollee population by health status, then proclaim an unjustifiable win for a still-unproven health care concept.
An mistaken presumption in my op-ed
The calculations in the op-ed were based on there being a five year age difference between the two groups, my best estimate at the time. Later in 2017, the County advised me that the difference was almost exactly four years. Accordingly, my estimate of net County loss under a 5:1 curve should have been closer to $400,000.
Milliman’s study conclusion
Here’s the core conclusion from the Milliman firm:
[T]he introduction of a DPC option increased total nonadministrative plan costs for the employer by 1.3% after consideration of the DPC membership fee and other plan design changes for members enrolled in the DPC option.https://www.soa.org/globalassets/assets/files/resources/research-report/2020/direct-primary-care-eval-model.pdf at page 7.
Milliman’s total cost computation was based on estimates monthly DPC of $75 per adult and $40 per child; using those numbers, the 1.3% increase corresponds to $7 per member per month, a net loss to the County of $6,000 vs a claimed savings of about $1.3 million.
As recorded in the quotation just above from page 7 of Milliman report, Milliman found that introduction of a DPC option increased the employer’s expenses by 1.3%. Page 7 is part of the report’s executive summary. In a discussion section at page 46, however, the same report states that the introduction of a DPC option reduced costs by an unstated amount. How can this contradiction be resolved?
The data and computations for computing over all costs are presented in Figure 12 on page 32, its key on pages 33 and 34, and a discussion on 35. These make quite clear that the average ROI estimated by Milliman was indeed a loss of 1.3%. Figure 12 is set out below.
Milliman’s one major error: its estimates of monthly fees were far too low.
Apparently Milliman’s team did not realize that, instead of estimating the month fees, they might have simply looked in the public record. The contract between the County and the provider set monthly fees at $125 per adult and $50 per child. Direct primary care cost Union County, not $7, but $41 per member per month — about $430,000 per year.
The deepest significance of the high DPC fees in Union County is not that the county lost a lot of money. Rather, it is that it took a very large investment to gain the downstream cost reductions, which were largely driven by reduced ED visits. $430,000 a year will easily fund an additional PCP to simply do phone calls and housecalls intended to intercept unnecessary ED visits, effectively attaching a glorified doc-in-the-box to the clinic. In fact, all care in the Union County DPC was provided by Board Certified Family Physicians. Without that extra money, i.e., with a $75/adult budget, it seems doubtful that a DPC clinic could accomplish ED visit reduction at even the modest standard at Union County.