Consumer-driven healthcare

Consumer-driven healthcare (CDHC), defined narrowly, refers to third-tier health insurance plans that allow members to use health savings accounts (HSAs), Health Reimbursement Accounts (HRAs), or similar medical payment products to pay routine healthcare expenses directly, but a high-deductible health plan protects them from catastrophic medical expenses. High-deductible policies cost less, but the user pays medical claims using a prefunded spending account, often with a special debit card provided by a bank or insurance plan.

If the balance on this account runs out, the user pays claims just like under a regular deductible. Users keep any unused balance or "rollover" at the end of the year to increase future balances>or to invest for future expenses. CDHC plans are subject to the provisions of the Affordable Care Act, which mandates that routine or health maintenance claims must be covered, with no cost-sharing (copays, co-insurance, or deductibles) to the patient.

This system is referred to as "consumer-driven healthcare" because claims are paid using a consumer-controlled account versus a fixed health insurance benefit. That gives patients greater control over their own health budgets. According to economist John C. Goodman, "In the consumer-driven model, consumers occupy the primary decision-making role regarding the healthcare they receive."

Goodman points to a McKinsey study which found that CDHC patients were twice as likely as patients in traditional plans to ask about cost and three times as likely to choose a less expensive treatment option, and chronic patients were 20% more likely to follow treatment regimes carefully.^[1]

Consumer-driven healthcare received a boost in 2003, with passage of federal legislation providing tax incentives to those who choose such plans. Proponents argue that most Americans will pay less in the long haul under CDHC not only because their monthly premiums will be lower but also because the use of HSAs and similar products increases free-market variables in the healthcare system, fostering competition, which, in turn, lowers prices and stimulates improvements in service.

Critics argue that it will cause consumers, particularly those less wealthy and educated, to avoid needed and appropriate healthcare because of the cost burden and the inability to make informed, appropriate choices. "Consumer-driven healthcare is badly named, because it's certainly not driven by consumers," said Jonathan Oberlander. It is "really just shifting the cost of healthcare onto the backs of the patients". People with chronic illnesses, such as diabetes, will be hurt, because with a deductible of $3000 to $4000, such people will never be able to save anything in their savings accounts. "Employers like it because they're going to save money," but they're not going to fund these healthcare accounts adequately, he said. "Conservatives tend to support consumer-driven healthcare. They believe, as do a fair number of health economists, that people use too much healthcare, and use too much healthcare of little value. If you move to high-deductible plans, people will think twice. If I have a sore throat, instead of going to my physician, I'll have a cup of tea instead." ^[2]

Background

Consumer-driven healthcare plans had their origin in the U.S. in the late 1990s. It was developed as a business model for health ventures. They were designed to engage consumers more directly in their healthcare purchases. The initial conceptual model made cost and quality information available to the consumer, usually through the Internet.

HSAs are seen by proponents as a way to make healthcare more affordable and accessible in the U.S. The Medicare Prescription Drug, Improvement, and Modernization Act, which included provisions designed to stimulate the popularity of these plans, was passed by Congress in November 2003 and signed into law by President Bush in December 2003. The law expanded medical savings accounts, renaming them Health Savings Accounts and created tax incentives to encourage adoption of high-deductible health plans. Banks were empowered to create HSAs, which deliver tax-free interest to the holders, who can then withdraw money tax free to pay for qualified expenditures. To qualify for an HSA, the purchaser must also have a qualifying high-deductible health insurance plan. Over time, participants are allowed to contribute more (cumulatively) to the savings account than would be required to fulfill their annual deductible for a given year (although annual limits on pre-tax contributions [other than a 1-time IRA rollover option] are well below the annual deductible), and any unused portions of the account accrue without tax penalty so long as the funds are used only for qualified medical expenses.^[3]

Further enhancements to HSAs went into effect in 2007.^[4] The combination of tax breaks for premiums and the health savings account as well as a tax subsidy to pay for the catastrophic insurance premium of lower income individuals has boosted the popularity of these plans. By April 2007, some 4.5 million Americans were enrolled in HSAs; more than a fourth of those were previously uninsured.^[5]

Another model of consumer driven healthcare is Health Reimbursement Arrangements (HRAs), which are employer-funded, and in which employers receive the tax benefits.

By 2007, an estimated 3.8 million U.S. workers, about 5% of the covered workforce, were enrolled in consumer-driven plans. About 10% of firms offered such plans to their workers, according to a study by the Kaiser Family Foundation.^[6] In August 2008 the Atlanta Business Chronicle reported that enrollment in consumer-driven plans was increasing, accounting for 13% of all plans offered by employers.^[7]

In 2014, when major portions of the Patient Protection and Affordable Care Act are implemented in the United States, high deductible plans and the concept of consumer-driven healthcare may become more popular. Although new federal tax subsidies will help reduce health insurance rates for many consumers, individuals and families that do not qualify, are expected to consider Health Savings Accounts (HSAs) if they do not have employer-sponsored coverage.

Other countries with experience in this type of health insurance include China, Taiwan, Singapore and South Africa.

Impact

Researchers at the Carlson School of Management at the University of Minnesota (Stephen T. Parente),^[8] Harvard University (Meredith Rosenthal), University of Illinois at Chicago (Anthony LoSasso) and RAND Health Insurance Experiment have examined results of these plans. Health insurers, Aetna, Wellpoint, Humana and UnitedHealth Group have all provided their own independent analyses as well.

In general, most studies, starting with the RAND study, conclude that increasing the costs (co-payments and deductibles) to the patient reduces the consumption of healthcare, but it reduces the consumption of both appropriate and inappropriate care, and the reduction is greater for low-income patients. For example, Joseph Newhouse, in summarizing the RAND study, reported that visits to doctors and hospitals decline with higher cost sharing, "although for low income families such cutbacks reduced their use of beneficial as well as unnecessary services and was estimated to have increased rates of death from preventable illness."^[9] However, proponents counter these findings with studies indicating that CDHCs have broad appeal, provide a new option for the uninsured, and are leading to new incentives for people to be more engaged in managing their health. One study found that the levels and trends of use of preventive and screening services by enrollees in consumer-directed health plans (CDHPs) was similar to that of enrollees in Preferred provider organization (PPO) plans. The authors concluded that "[p]eople enrolled in CDHPs such as those we studied do not underuse preventive services to any greater degree than do those in traditional PPOs."^[10]

The Kaiser Family Foundation studied how consumer-driven health plans cover pregnancy. They found wide variations in cost sharing. Pregnant women could face exposure to high out-of-pocket costs under consumer-driven health plans, particularly when complications arise. In one scenario, a complicated pregnancy, with gestational diabetes, pre-term labor, cesarian section and neonatal intensive care, would cost $287,000. Under some consumer-directed health plans, the cost to the family would be $6,000, less than some traditional policies. But under other consumer-directed health plans, the cost to the family would be as high as $21,000.^[11]

Information needs and providers

Key to CDHC's success is ready access of plan users to information about health products, services, and pricing. Critics of CDHC argue that the system will only saddle consumers with more expenses because free-market variables can never exist in healthcare due to lack of pricing transparency. "Despite the theory (as expressed in the Economic Report of the President) that health insurance with higher deductibles will lead to consumers shopping around for health services (based on price and quality), the reality of...inadequate information in the marketplace about health care quality and prices precludes the workability of a 'consumer-choice' type of model," Gail Shearer, director of health policy analysis for Consumers Union, told the Joint Economic Committee of the U.S. Congress in February 2004.^[12]

Jessie Gruman, who interviewed 200 patients and families about how they used scientific information after devastating medical diagnoses, said, "I fear that the trend toward consumer-driven healthcare will disproportionately damage the health of the less educated and less wealthy, and that the net effect on the nation's health has already proved negative." She concluded that most patients are unable to make critical decisions about their healthcare in the consumer-driven model. Some people, called "monitors," track down detailed information, while other people, called "blunters," don't want information. One blunter, a theoretical physicist, said he would be "insulted" if someone read 15 papers on theoretical physics and asked him to help design an experiment; he pays his doctor to explain his choices. A "monitor," a lawyer, applied her legal research skills but couldn't think clearly enough to decide. People turn to the Internet, become overwhelmed, or don't understand the significance of the information. "Most health information is bad news," is stressful, and makes decisions even more difficult.^[13]

According to Robert Reischauer, president of the Urban Institute and vice chairman of the Medicare Payment Advisory Commission, "Accessible information on the quality, price, effectiveness and efficiency of healthcare services and providers is developing rapidly, but is nowhere near the minimum standard assumed by well functioning CDHC. And employers, bound in part by Treasury Department regulations, do not vary deductibles, catastrophic caps or contributions to HSAs and HRAs to workers' family incomes or health status as equitable CDHC would call for....Many things we buy in health care are pieces of larger packages which are undefined when the decisions are made concerning whether to purchase and where to purchase. For example, when one goes to the doctor because of a particular set of symptoms, the doctor ask a number of questions which leads to a series of recommended tests whose results then determine an appropriate treatment regime. One could select the doctor to visit on the basis of price and quality but that is no guarantee that the package of tests and treatments that resulted would be the lowest cost or highest quality....The costs of the really expensive treatments would be largely unaffected."^[14]

But proponents of CDHC, such as former House Speaker Newt Gingrich, have pointed to the rise of the Internet and online comparative shopping health services as one reason they believe the CDHC model is viable.^[15] In 2006, several technology firms, such as Vimo, HealthSouk and My Health Direct, emerged to take advantage of what they believe will be a new market for comparative health care shopping with the rise of CDHC plans and with the goal of leveraging the Internet to increase price transparency in the health care market.^[16]

Consumer satisfaction

Consumer satisfaction results have been mixed. While a 2005 survey by the Blue Cross and Blue Shield Association found widespread satisfaction among HSA customers,^[17] a survey published in 2007 by employee benefits consultants Towers Perrin came to the opposite conclusion; it found that employees currently enrolled in such plans were significantly less satisfied with many elements of the health benefit plan compared to those enrolled in traditional health benefit plans.^[18]

Some policy analysts say that consumer satisfaction doesn't reflect quality of healthcare. Researchers at Rand Corp. and Department of Veterans Affairs asked 236 elderly patients at 2 managed care plans to rate their care, then examined care in medical records, as reported in Annals of Internal Medicine. There was no correlation. "Patient ratings of healthcare are easy to obtain and report, but do not accurately measure the technical quality of medical care," said John T. Chang, UCLA, lead author.^[19][20][21]

See also

• Consumers for health care choices
• Flexible spending account
• Health care systems
• Health economics
• Health insurance
• Health insurance in the United States
• Health reimbursement arrangement
• Health savings account
• Medical savings account

References

External links

• "Health Savings Accounts (HSAs)". U.S. Department of the Treasury. 15 August 2011. 
• "The Impact of Consumer-Driven Health Plans on Health Care Costs: A Closer Look at Plans with Health Reimbursement Accounts." Public Policy Monograph, American Academy of Actuaries, January 2004