Consumer-Directed Health Care On The Rise, But May Carry Risks

With medical insurance premiums rising rapidly, many American employers are asking their workers to bear a greater share of the cost of their health care coverage. As a means of reducing premium costs for the company and the employee, some employers are also adding to their benefits package a consumer-directed health plan, generally in the form of a high-deductible policy coupled with a tax-advantaged savings account.

But several recently published studies have cautioned that shifting health care costs and decision-making to consumers may do little to arrest the overall rise in health care costs in the United States, and could even add to the financial problems of individuals and employers.

Employer interest in HSAs and other consumer-directed options appears to be growing. In a 2004 survey of more than 3,000 employer health plan sponsors, Mercer Human Resource Consulting found that increasing numbers of larger companies are offering a consumer-directed health plan (CDHP) as an option to employees. Of the companies with 500 or more employees, 4% said they currently offered a CDHP, 14% said they were likely to offer one in 2005, and 26% expected to include a CDHP in their benefits package by 2006. Smaller companies, which typically offer fewer benefits choices to employees, were much less likely to be considering a CDHP, the survey showed.

To better assess the outlook for CDHPs, Mercer also studied data from 88 companies that offered the plans to employees in 2004. The average cost for CDHP coverage, researchers found, was $5,233 per employee, compared with $6,095 for PPO coverage—a difference of nearly 17%. Most of the plans used were Health Reimbursement Accounts (HRAs), but more than a quarter of sponsors said they planned to start offering the HSA, which first became available at the start of 2004, in addition to, or instead of, HRAs.>br?

To encourage enrollment in CDHPs, employers typically waived or reduced employee contributions to the consumer-directed plans, while maintaining higher employee contribution levels for their managed care plans. But because of the higher deductibles associated with CDHPs, many employees were wary of signing up for the plans, researchers concluded. On average, 16% of employees at companies that offered a choice of plans selected a CDHP in 2004, the study found.

"Employees won’t sign up for a CDHP unless they have a good sense of its value relative to a standard medical plan," said Ray Herschman, a consultant in Mercer’s Cleveland office. "You need good communication and education materials to help them understand how the plans work and what services are offered them."

Herschman described the 2004 CDHP enrollment rate as "good, considering the typically slow rate of adoption with such a new concept." Overall, Mercer said the data suggest that employer experience with the early CDHPs has been positive.

But a survey by the California HealthCare Foundation (CHCF) indicated that many employers are uncertain about whether shifting medical costs and decision-making to employees will reduce their expenditures and improve the health of their workers.

The survey of 301 California employers found that a majority of respondents feel their health care costs are more under control today than they were a couple of years ago. Asked about the positive effects of cost-sharing, 76% of employers agreed that it forces consumers to spend more wisely on health care, and 70% said it reduces unnecessary doctors’ visits and prescriptions.

However, more than three-quarters of the employers surveyed also expressed concern that cost-sharing causes consumers to forgo needed medical care, and has a negative impact on individuals with chronic conditions. In addition, 40% of respondents told researchers they believe cost-sharing reduces the productivity of workers.

"Employers in California and nationally are increasingly turning to cost-sharing as a way to rein in their own health care costs," said Jill Yegian, director of the Health Insurance Program at CHCF. "Cost-sharing doesn’t reduce the total health care bill, however. In fact, health care costs continue to increase at a double-digit pace."

Another warning about possible hazards associated with HSAs and other consumer-directed health options was sounded in a recent study by the Commonwealth Fund, which found that high-deductible health plan enrollees are more likely to have medical debts, and are more likely to forgo medical services, than enrollees in plans with low or no deductibles.

The Commonwealth Fund’s survey of more than 4,000 adults found that around one-half of insured adults with deductibles of $500 or more said they had medical bill problems or debts, compared with fewer than one-third of those with lower-deductible plans. The findings also indicated that individuals with high-deductible plans were more likely than those with lower deductibles to skip medical care or fail to fill a prescription.

"Health savings accounts coupled with high deductible health plans have potential pitfalls, especially for families with low incomes or individuals with chronic health conditions, who are at greater risk of accruing burdensome medical debts and facing barriers to needed care," said Karen Davis, president of the Commonwealth Fund. "The evidence is that increased patient cost-sharing leads to underuse of appropriate care."

A recent survey on consumer awareness of Health Savings Accounts by Watson Wyatt showed that most Americans continue to have at least some reservations about CDHPs. While a majority of the individuals surveyed said they liked HSA features such as control of funds and lower premiums, more than 50% also expressed concern about the financial risks posed by higher deductibles and prescription drug payments.

Following a detailed explanation of how HSAs work, Watson Wyatt asked 1,000 adults with health insurance about their attitudes toward the accounts. While 91% of respondents rejected plans with very low premiums and very high deductibles, 52% said they would be interested in plans with somewhat low premiums and somewhat high deductibles. But those who described their health as fair to poor showed greater interest in plans with somewhat high premiums and somewhat low deductibles than in higher-deductible plans, which were, in turn, favored more strongly by healthier respondents. Respondents cited "maximum out-of-pocket costs" as the factor that would influence them most when deciding whether to enroll in an HSA.