Since their arrival, we have watched as consumer-directed health plans (CDHPs) have been set up to fail. They have been overpriced, underfunded, highly-restricted, unfavorably positioned, tentatively introduced and fraught with administrative barriers. Then, surprise, we hear reports (1) that they seem unpopular.
Here at the Health as Human Capital Foundation, we write often about the importance of consumers taking an active role in health decisions. Without consumers asking informed questions, understanding options, and—most importantly—holding the purse strings, there will not be an affordable, high-quality healthcare solution.
Those of us who have ventured into the health system as true consumers, asking about price and trying to pay directly, know that consumer-friendly transactions will not come quickly in medicine. It will take a critical mass of fellow consumers to push it along.
Employers could help, but too many take a weak approach. We face a wide chasm between current circumstances and a workable marketplace. It requires a big leap; small steps just get us in more trouble and irritate employees in the process.
Though employers seem drawn to the novelty of consumer-directed health plans for their employees, few do so in a way that works. Faced with a typical offering, employees scratch their heads: “Why would I choose something that has greater risk, greater cost, and little likelihood of savings I can keep?” A surprising number of consultants/advisors have encouraged employers to follow this anemic, cautious approach:
- Put minimal deposits (if any) in the health account;
- Keep the deductibles as small as possible;
- Choose a Health Reimbursement Arrangement (instead of a Health Savings Account);
- Offer the plan as one option among many others;
- Allow employees to avoid the choice by automatically renewing their existing health plans through “passive enrollment;” and
- Price the employee contribution slightly lower or similarly with other options.
Taking these steps, so employers are told, helps to minimize the disruption of employees and protect the company from paying out health account money when employees quit. Unfortunately, timidity simply nullifies the power and purpose of consumer-directed plans. We can save you the trouble: if this is your plan, don’t bother. In fact, please don’t implement it; the more consumers who get exposed to inadequate, unattractive options, the more they will resist future plans that actually do it right.
When employees recognize a low likelihood of accumulating funds, see that the funds aren’t portable anyway, would rather not deal with enrollment, and don’t have experience with health accounts, voila! Fewer than 5% enroll! A plan designed to fail will probably fail.
It’s a little like offering lima beans on a dessert buffet. Only someone with odd taste, or who mistakes them for jelly beans, will make the selection. Consumers understand a bad deal when they see one, which is exactly why we want them in the healthcare marketplace, to reject bad deals and demand better ones.
Consumer-directed options are not about avoiding risk, but are instead a bold, attractive, empowering substitution.
Here’s the serious misconception: we are treating this simply as a new type of health insurance plan. It’s not. Instead, consumer-driven healthcare is a fundamental shift in who has control over medical spending, within which a high-deductible health plan plays one part. Consumers use their own money (and money contributed by their employer) to make decisions, instead of leaving power and money in the hands of the insurance company. Insurance plays a supporting role, when catastrophic needs arise, but the design shifts sovereignty to an individual, who can manage funds and health services as he chooses.
We want to substitute asking permission with making decisions; substitute price ignorance with price awareness; substitute more services when employees get sick with more savings when employees stay healthy; substitute “might as well spend it” with “I get to save it.”
A few recommendations for employers offering consumer-directed insurance options.
A new approach to healthcare comes with having something to gain with health and something to lose with illness. Ideal design is somewhat custom to each employer, since our evidence confirms that healthcare must be aligned with other policies (such as paid-time off compensation, safety, training and other policies) to be effective. But in general, the following will maximize the power of a consumer-driven option for employers:
- Start with a significant health savings account balance, even one that fully covers the size of the high deductible, and continue funding that amount every year (The current average is $400, but $2,000 would be better).
- The HSA must be portable. If the employee can’t take it with him when he leaves his current employer, he will not be as likely to save and use it wisely.
- Roll out a full replacement (one option) instead of multiple plan options. If a company MUST offer more than one plan, make a choice mandatory (meaning employees are not automatically enrolled in last year’s plan) or at least eliminate a popular plan so that many employees must make an active choice.
- Choose a deductible above the median spending level (at least $2,000) so the majority don’t reach it. This way, most people see savings accrue and understand the value of not spending.
- Cover USPSTF (U.S. Preventive Services Task Force) recommended screenings at 100% (2).
- Make choices easy and relevance obvious. Remind everyone how much money they have and how much money they keep. Encourage shopping based on quality and price. For a fascinating discussion of use of defaults, and the problems with too many choices, read this Issue Brief by Jodi DiCenzo and Paul Fronstin (3).
Prepare for outcry from actuaries, insurance companies and consultants
Actuaries will tell you that this design is not equivalent to a previous plan (it’s not supposed to be). Health plans want you to choose a lower deductible because their premiums/revenues are higher. Benefits consulting firms get more billable hours by designing more complex options and running actuarial models. Employees would rather not think about it.
But the bottom line is—changing how consumers interact with healthcare will require significant, attractive new options, not timid attempts at disguising cost shifting as consumer-friendly.
Why this matters: If consumer-directed health plans (or perhaps we should call them consumer-directed approaches) fail, they will fail because their most important components have been poorly designed and under-emphasized. Instead of talking about the high-deductible component of the approach, it’s time to emphasize the necessary change in dynamic that results from each of us having our own assets to grow and protect when making informed health decisions that improve cost and quality for everyone.
1. Roberson, J. 31 July 2008. Health savings accounts haven’t caught on with workers. The Dallas Morning News, (accessed August 29, 2008).
2. U.S. Department of Health & Human Services, Agency for Healthcare Research & Quality Preventive Services Recommendations, (accessed August 29, 2008).
3. DiCenzo, J., and P. Fronstin. 2008. Lessons From the Evolution of 401(k) Retirement Plans for Increased Consumerism in Health Care: An Application of Behavioral Research. EBRI Issue Brief , no. 320: 1-26, (accessed August 29, 2008).