Consumer-Directed Health Plans - Wave of the Future?


Consumer-Directed Health Plans - Wave of the Future?

Friday, April 20th, 2012 - 12:49
Republicans endorse the approach

Consumer-directed health plans are a hot topic these days on the Hill. These plans will be offered in the new Health Exchanges come 2014 and have the support of Congressional Republicans as a free market option that addresses many of the issues embedded in the health reform debated.

Consumer-directed health insurance, in effect, creates much lower premiums for employees with higher deductibles. This may be a good way to encourage healthy individuals to enter the health insurance risk pool and reduce the number of the uninsured, especially the young who often eschew coverage. It also lowers employers health costs. The flip side it is that it increases out-of-pocket spending on medical care for those in need of treatment. The ensuing debate is whether shifting more of the risk to the consumer is an effective way of containing costs. For those who stay healthy, the consumer-directed plans is a relatively safe bet, but for others, it means shouldering a lot of risk, even with caps on expenditures.

According to Reuters, consumer directed health insurance, also termed account based health plans (ABHPs) "are linked to tax-advantaged HSAs, because contributions can be used to accumulate funds to help pay costs not covered by the high-deductible plans." HSA contributions roll over from year to year, a key distinction and advantage over over the consumer-directed health plan model over a traditional flexible spending account where all funds must be spent by the end of the calendar year. For retirees, there are even arrangements where accounts can be invested in mutual funds or other investment vehicles.

While consumer-directed plans may solve the problem of individuals over-insuring and over-utilizing the system, which has led to well-documented reports of unnecessary testing and excessive costs to the health system, it is unclear if these plans address other drivers of costs. Sensitizing individuals to the cost of health services is smart, but it must also be balanced with the fact that individuals often lack the expertise and information necessary to make an informed choice on utilizing the system. For example, ABHPs do not take in account the fact that faced with higher costs, individuals may forgo less acute care leading to more serious illness and costs down the road.