CDHC Plans Destined To Become Widely Adopted

Consumer-driven health care (CDHC) plans, also known as defined contribution health plans, are coming to be seen "as an inevitable paradigm shift in health care" and are destined to become the next dominant form of health care insurance, according to a report issued by researchers at the University of Pennsylvania's Wharton School and consultants at Booz Allen Hamilton.

In issuing their report, "Consumer Take Charge: Defined-Contribution Health Plans," the researchers and consultants said that CDHC plans will never completely replace managed care institutions, "but they are another option that could have as significant an impact on the operating principles and direction of the health care sector as HMOs [health maintenance organizations] and PPOs [preferred provider organizations]" when they were introduced in the 1980s and 1990s.

Although the report said precise figures on the adoption of CDHC plans were difficult to determine, various estimates suggest they "now account for about 2% of all health care coverage in the United States." That percentage translates into 300,000 to 400,000 people, or less than 1% of all company-insured employees, the report stated. Looking ahead, however, the report said CDHC plans "will be much more common."

Sean Nicholson, a professor of health care at Wharton, said rising health care costs are making companies pay closer attention to defined contribution plans. "At some point employers become infuriated with another 12% to 15% increase in annual premiums. They said, 'We've got to try some new way to get costs down.'" Given the fact that no plan can keep medical costs growing at less than the rate of inflation, Nicholson said that "good plans" will be defined as those that allow premiums to increase at 6% to 8% a year.

Gary Ahlquist, a senior vice president with Booz Allen, noted that CDHC plans exist because they address an "incomplete agenda" left by 20 years of experimentation and failure with managed care. Another reason: companies have remained paternalistic toward their employees. "Businesses have gotten away from that paternalistic approach in the retirement area and now they're moving away from it in the health insurance area," Ahlquist said. "In the health care surveys we've done, employees tell us more and more that they want choices."