Whither ''Consumer-Directed Health Plans?''


 People who purchase their own individual health insurance may be particularly interested in less expensive high deductible plans paired with a tax-advantaged health savings account (HSA). But it remains unclear whether employers will embrace these so-called "consumer-directed" products, whose objective is to expose enrollees to costs of care and, it is hoped, thereby lower their health care expenditures. HSAs have been embroiled in controversy since being authorized by 2003 tax code amendments. An HSA is established by individuals but may receive employer contributions; income they earn is tax deferred (and never taxed if spent on health care); unlike employer-funded "health reimbursement arrangements" (HRAs), their balances belong to the individual - even when changing jobs or leaving the workforce.

It is difficult to obtain accurate data on the numbers of Americans enrolled in high deductible health plans (HDHP) that qualify to be used with an HSA -- proponents of this model tend to report growth while opponents report low uptake. An objective national survey (by the Kaiser Family Foundation and Health Research and Educational Trust) reports that in 2006 only about 7 percent of American employers offered an HSA-qualifying HDHP or an HDHP with a HRA. Four percent of workers were enrolled in these products -- and only 19 percent of employees who were offered these products along with other health coverage options enrolled in such a plan. The proportion of firms offering and employees enrolling in these products in 2006 were not statistically signficantly different from those in 2005.

One reason employers may be less excited about these products is that their average national total cost (the HDHP premiums plus the employer contributions to an HSA or HRA, if employers make such a contribution) is no lower than that of traditional plans (like HMOs and PPOs). Likewise, employee premium contributions for the HDHP plans are similar to those for other types of coverage, yet the consumer-directed plans include much higher cost sharing.

Employers may also not be very impressed with the cost savings experience of consumer-directed products. While the current HDHP + HSA model has been in place only 3 years, research on experience of HRAs and other earlier types of individual spending accounts reveal mixed results. For example, some studies show that enrollees in these plans incurred lower medical costs while others show no spending differences. And several studies find that people who enroll in such plans are younger and healthier and have higher incomes than those who do not.

The distribution of medical care spending across the population also casts doubt on the ability of HDHP products (with or without a spending account) to reduce overall medical care spending growth -- only 10 percent of Americans account for 69 pecent of health care costs --- because they either have expensive long-term chronic illness or experience high cost acute episodes. Even if these people desire to be "prudent" health care purchasers, they quickly exhaust their deductibles and thereafter no longer have such an economic incentive. In fact, some opponents of the consumer-directed model express concern that high deductible plans create incentives to skimp on early preventive and primary care that will lead to worse health and no reduction in (but possibly higher) overall spending for their later care.

It is too early in the experience of these products to predict whether they will beome a favored health coverage option for employers. Recent HSA amendments may make them more attractive to employers and employees. Because they are tax-advantaged savings vehicles, HSAs may be particularly popular with higher income individuals who buy their own coverage. Because HDHP premiums are lower than those for low deductible plans, small employers who cannot afford more generous coverage may offer them (without funding an HSA). But more research on their prevalence and take-up, costs, and health care spending experience will be needed before many employers turn to consumer-directed products as the solution to their own (and the nation's) health care spending dilemma.