What you need to know about consumer-driven health plans

August 2, 2011

A mid-career engineer, Michael Eckman, 37, bounced back from a year of unemployment by recently landing a new job about 15 miles northwest of Philadelphia. It happened quickly. He sent the initial application on a Wednesday, heard back that Thursday, interviewed Friday and received an offer a week later.

Once employed, his benefit choices emerged quickly, too.

For health insurance, he had two options: He could access a traditional preferred provider organization, which would organize every aspect of his healthcare.

Or he could enter a “consumer-driven health plan.”

The latter option, he said, would give him an annual cash allotment earmarked for heath expenses.

It was intriguing. But one element of the plan made him nervous: The annual cash allotment wouldn’t roll over yearly. He’d have to spend it or lose it each year.

“I felt like it was asking, ‘Do you plan on being sick or healthy this year?’ ” he says. “What kind of a question is that?”

Eckman is healthy; he said he’s been to a doctor only a few times since college.

“Life is complicated enough,” he says. “The PPO was just simpler. Everything was taken care of without my having to think about it. It was worth the extra few bucks per month.”

A recent Employee Benefits Research Institute study seems to indicate that people with high annual earnings are making similar decisions. The study found that the average household income of CDHP enrollees had significantly decreased: In 2005, CDHP enrollees were more likely to have a household income of $150,000 or more, according to the study, but by 2010, CDHP enrollees were more likely to have household income between $50,000 and $100,000.

Are high-income earners dropping consumer-driven health plans?

No, says Roger Feldman, a professor of health insurance at the University of Minnesota who has co-authored various scholarly reports on consumer-driven healthcare plans. The EBRI study is more an indication that these plans are becoming mainstream, he says. High wage earners aren’t dropping these plans; lower wage earners are signing up for them.

In 2001, when a handful of employers began offering CDHP plans, educated folks enrolled; they had degrees in higher education, they were wealthy and they were able to take on risk, Feldman says. That meant they could easily pay costs above their healthcare account balances if necessary.

Now, he says, education is less of a factor. More institutions offer CDHPs, so the number of enrollees has increased. The EBRI study confirms this to an extent; it shows that in 2010 about 12 percent of the healthcare market was represented by CDHPs – up from that handful of employers in 2001.

The increase shows that CDHPs have a broad appeal, Feldman says, to “people who want to have a low premium and preserve some kind of coverage against high-cost events.”

But some expert say the issue isn’t quite so simple.

“Ideally, people will sit down, do the algebra and consider everything they should when making healthcare spending decisions but in most cases they don’t,” says Daniel Shostak, a health policy analyst who runs management consulting firm Strategic Affairs Forecasting. “So they choose, increasingly, the plans that look cheaper.”

CDHPs often involve low maintenance costs and high deductibles for major personal health troubles.

The big question, Shostak says, is how to help individuals make better health decisions.

“Would giving people some kind of chart or an online tool make the difference? Maybe,” he says. “But the Internet’s been around for how long. While a great deal of people perform many web searches on healthcare it’s not clear that’s resulted in better access or deeper knowledge about health issues.”

That’s why some have advocated for governmental committees to oversee what health insurers and companies are offering the public.

Regina Herzlinger, a professor of business administration at the Harvard Business School, has written many books on healthcare and was dubbed the “Godmother” of consumer-driven health care by Money magazine. First of all, she says, the EBRI study said more about the economy than it did about healthcare.

“It indicates recession, recession, recession,” she says. Employers are reducing the amount of money they contribute to health insurance and limiting the types of health insurance they offer, she says. So, because high deductible plans are perceived to be cheaper than more traditional plans, they’re offered by more companies and adopted by more employees who want to reduce basic healthcare costs.

That’s why she advocates for a healthcare equivalent to the Securities and Exchange Commission – a federal agency that would force transparency and disclosure among health insurance providers and employers who provide health benefits to their employees.

“There needs to be a force that shows consumers how to be less passive and how to get information,” she says. There’s a perception among health providers that “it’s churlish and rude to seek data” about the effectiveness of healthcare providers. “But, sorry, I have an abundance of information about the cars and yogurt I buy, so I really would like to see some data about, for example, a mastectomy.”

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