Recently, the House Ways and Means Subcommittee on Health has been considering ways to expand consumer-directed health plans (CDHPs). These plans — which essentially balance high deductibles with Health Savings Accounts (HSAs) — are a step in the right direction.
CDHPs save employers money and allow them to give workers more cash compensation rather than expensive health benefits. They can also lead to reductions in overall health-care spending without harmful effects on our health.
They’re already growing: In 2016, 29 percent of employees in the United States were covered by a CDHP. The consultancy Mercer found that 72 percent of employers were planning to offer them by 2019. Even more would be a good thing.
High-deductible health plans have a few advantages. While all health-care expenses must be paid out-of-pocket until the deductible — usually between $1,000 and $5,000 — is met, they give consumers access to a broader network of providers than traditional managed care plans, making it easier for people to get the quality care they prefer.
There are several ways in which this type of consumer-driven health care can improve our whole health-care system. It gives consumers an incentive to shop around for more cost-efficient health care and to reduce their consumption of unnecessary care. It also reduces the administrative costs of insurance companies approving and processing insurance claims.
Of course, in order for consumers to both save money and get the care they want or need, they must have better access to accurate price information that they can understand. But if higher deductibles make enough consumers more engaged in selecting their own health care, it will encourage providers to give them better information and may also lead to more price competition.
HSAs play an important role in how consumers limit health spending. Consumers choose how much to contribute to their HSAs (up to $3,450 per year). That, as well as what their employers contribute, is tax deductible just like the amount spent on premiums for employer-sponsored insurance. HSA funds that are not spent in any given year can be saved and invested so they are available for health expenses in the future.
That leads us to a big problem with employer-sponsored insurance premiums: Because they are tax deductible, employers have an incentive to offer expensive health plans that, from an employee’s perspective, aren’t worth the pre-tax cost.
For those covered by such plans, the price tag for each doctor visit is at most a small copay, giving them an incentive to seek care for even minor health problems. By contrast, employees with high deductibles have an incentive to limit their spending.
That’s not to say there aren’t challenges involved. As a few concerned observers including JPMorgan Chase CEO Jamie Dimon have pointed out, high deductibles can encourage some employees to forgo necessary care so as to avoid paying substantial out-of-pocket costs. To address this, insurance companies are trying innovative approaches to encourage employees with CDHPs to get the care they need in order to prevent more serious problems later on.
It’s true that attempts to implement consumer-driven health care had limited success in the early 2000s. Critics argued that employers used it to shift the cost of health care to their employees. Employees with such plans did not benefit much from shopping around because most lacked reliable information about prices. And although employees covered by CDHPs reduced their consumption of unnecessary health care, they also reduced their use of necessary care.
Since then, there have been some improvements in the design of CDHPs. Some companies give employees incentives to participate in wellness programs, which help them identify undertreated chronic conditions and enroll in disease management programs. According to David Rook of the JP Griffin Group, employers should do more to help educate employees to distinguish necessary from unnecessary care and provide them with “accurate information about the cost and quality of local care.” Employers are also increasing the amount they contribute to HSAs so their employees can afford some large out-of-pocket expenses. These steps should help address the concerns expressed by Dimon and others.
Employees should become more engaged in their health-care decisions. Technology and the growth of electronic health apps are facilitating this, and CDHPs are taking it a step further. If consumers have “skin in the game” for their routine health care purchases, we may start to see some real reduction in the cost of care.
Tracy C. Miller is a senior policy research editor with the Mercatus Center at George Mason University.
