On induced utilization in direct primary care, Milliman replied. I rebut.

In a prior post, I suggested that Milliman’s use of downstream claims data in assessing utilization in Union County’s employee health plans may have been distorted in favor of DPC because that downstream data had not been adjusted to reflect the effects of the County’s cost-sharing design on utilization.

In a footnote to a recent comment on a Milliman web forum, two Milliman actuaries addressed similar concerns for the first time.

In addition to increasing an employer’s share of costs, benefit changes can also affect how much care members utilize. This affect (sic) is commonly referred to by actuaries as induced utilization, and should be considered by employers when structuring DPC options and by those evaluating the impacts of DPC. For our case study, the benefit design under the DPC option was slightly richer in aggregate than the PPO option, meaning that based on benefit design differences alone, members would be expected to use slightly more services in aggregate when enrolled in the DPC option than when enrolled in the PPO option. This is due to the employer waiving cost sharing for primary care services as well as the medical deductible for all services under the DPC option. Since the difference was relatively small, we conservatively did not apply an induced utilization adjustment in our estimates. If we had, the reduction in demand corresponding to enrollment in the DPC option would have been slightly greater.[Emphasis supplied.]

What our study says about Direct Primary Care

I thank Milliman for putting a proper actuarial name on my concerns. I am not an actuary.

Even so, I dare say that the argument of that footnote looks a bit unsound.

As near as I can tell from a public document by CMS actuaries and some other sources, induced utilization adjustments in actuarial calculations, such as AV calculations for the ACA, are quite granular. The ACA methodology looks at various benefit design components (deductibles, coinsurance, copays, HRAs, mOOPs) and uses historical data to evaluate their impact on population cohorts at varying overall utilization levels. Induced utilization adjustments to the AV calculation emerge from that detailed analysis.

To see the fundamental wisdom of this granular approach, consider some variations on one known feature of the employer PPO discussed in Milliman’s study: a $750 HRA benefit. In the actual plan, a PPO member first pays a $150 general deductible; then is excused by the employer though an HRA from paying the next $750; and then faces a second “major medical” deductible of $600. Now consider moving the attachment point of the $750 HRA benefit down to $0 or up to $750. These three variations all have different effects on overall utilization. If the $750 HRA kicks in at $0, every claims-incurring member will benefit from it. If the $750 does not kick in until claims have-reached $750, certainly many and probably most PPO members in that particular employer’s plan would never have had access to that benefit. Just where “the rubber hits the road” matters, even though “in aggregate” there is the same amount of “rubber” in each of these three options.

The methodology of the Milliman footnote does not have this level of granularity. Instead, the authors deploy an unstated methodology to conclude that “the benefit design under the DPC option was slightly richer in aggregate than the PPO option”. It is not clear what “richer in aggregate” even means. What is clear is that the “in aggregate” model gives no account of exactly where the rubber DOES hit the road.

Consider adding just one bit of granularity. A key tenet of the direct primary care movement is that relatively cheap primary care is key to avoiding relatively expensive downstream care. For the PPO employees in the Milliman study, cost-sharing was applied to both primary care and downstream care. Although more modest “in the aggregate”, every penny of the cost-sharing burden for the DPC employees was directed at downstream care.

Then, too, we also know that at any level of overall utilization within the HRA window, the PPO group will face a zero marginal cost for upcoming increments of utilization of primary care or downstream care services. DPC members, at exactly the same levels of overall utilization, will have a marginal cost of zero for primary care needs but a twenty percent marginal cost for downstream care. We also know that the mean and median of overall utilization probably falls near the middle of the HRA window.*

Seemingly, a lot of cost-sharing rubber strikes right where it would be expected to lower relative utilization of relatively costly downstream services by mean and median members of the DPC group.

My instinct is that a disproportionate share of the pay-dirt of an induced utilization analysis is likely to be found in the most heavily populated utilization level cohorts — those near mean and median use. What does your gut say?

Given the complexities of each of two plans, and the sharp differences between them, determining an appropriately granular and valid adjustment for induced utilization might not be simple. Still, Milliman should have either performed that granular adjustment or, at least, it should have explained exactly how its aggregation model permits fair estimation without granularity. One or the other should have been done before the Millimian team insisted that it knew which direction an induced utilization adjustment would point.

*By Milliman’s own computations at Figure 12, lines H and I, almost 40% of the $750 HRA benefit went unused by the average PPO cohort member, while the average DPC member used less than half of the $750 value of the DPC-member deductible waiver.

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