Industry consulting firm on CDHPs
Consumer-Directed Health Plan Report - Early Evidence Is Promising
By Vishal Agrawal, Tilman Ehrbeck, Kimberly O’Neill Packard, and Paul Mango
McKinsey & Company
June 2005
To gain early insights into what is, arguably, the most important development in health insurance since the widespread introduction of HMOs in the 1980s, McKinsey & Company recently completed extensive primary research on Consumer-Directed Health Plans (CDHPs). To our knowledge, this is the first research of its type to eliminate the possibility of major adverse selection bias because it studied the behavior of consumers whose employers had made the bold move of offering only a CDHP to their employees (i.e., they offered full replacement accounts). Overall, this research demonstrates the potential for CDHPs to alter consumer behavior in ways that could fundamentally change how consumers think about their health - and how they utilize health care resources.
Value consciousness:
Because our findings are based on consumers’ self-reported behavior, we cannot determine whether their decisions to forgo care or to select less extensive treatments were medically appropriate.
Satisfaction:
Less than half of the CDHP consumers we studied reported that they were at least as satisfied with their current plan as they had been with their previous forms of health insurance. (Specifically, the report states that 44% were “more” or “equally” satisfied with their CDHP than they were with their previous health plan. Although not specifically stated, presumably 56% were less satisfied with their CDHP than with their previous plan.)
Concluding remarks:
Our early research findings are surprisingly consistent with many of the arguments that CDHP proponents make. These findings suggest that the plans once again realign health insurance with the important insurance principles of avoiding (or discouraging) moral hazard. In doing so, CDHPs could begin to return health care coverage to the role of covering random, infrequent, and financially consequential events that are beyond the control of the individual. Under these plans, many types of medical expenses would revert to the control of market forces and consumer behavior. As a result, CDHPs could mitigate the seemingly inexorable increases in health care expenses - and health insurance premiums - while improving health outcomes.
Nevertheless, implementation will require a great deal of thoughtfulness, as we have shown. The design and implementation of CDHPs are still evolving, and several factors that could significantly influence the success of the plans are still under active debate. The key challenges will be to achieve the benefits demonstrated in our research while minimizing adverse affects on vulnerable groups, to ensure that CDHPs encourage clinically appropriate behavior, and to provide the right support that enables consumers to manage their increased responsibility for making health care decisions.
We believe the magnitude of the impact that CDHPs had on the behavior of the consumers we studied resulted from each employer’s bold decision to offer only a CDHP product to its employees. The question of how effective these plans will be if employers continue to allow their sickest employees to opt for traditional insurance remains open. We would hypothesize that this type of “slice” introduction would fail to achieve the true promise of fuller consumer engagement and medical expense trend mitigation. If CDHPs are widely adopted, there could be major changes in how consumers think about their health, how they use health care resources, how they seek value, and the basis on which they make their consumption decisions. In fact, we believe that our research findings and similarly encouraging early evidence will stimulate broader uptake. Stakeholders need to watch closely and prepare for the potential sea-change ahead.
http://www.mckinsey.com/clientservice/payorprovider/Health_Plan_Report.pdf
Comment: This report, from an industry consulting firm, makes the agenda of the CDHP movement very clear: “…mitigating the seemingly inexorable increases in health care expenses and health insurance premiums” by “avoiding moral hazard.”
Moral hazard refers to health care services that are utilized that would not have been had the individual been required to pay for them rather than having them covered by insurance. Policies designed to reduce moral hazard, such as creating CDHPs, are designed specifically to reduce health care spending without regard to whether or not that spending is for beneficial services. The policy literature is replete with studies that confirm that such policies do impair access to beneficial health care services, especially for individuals with limited income and/or poor health. Further studies on moral hazard are not needed to determine whether detrimental health outcomes would occur, but rather only to determine the severity of the negative impact on health.
Our last great experiment in containing health care costs, managed care, proved to be quite unpopular with patients. What will be the response to CDHPs? This preliminary study can give us a clue. This group, covered by employer-sponsored CDHPs, is a relatively healthy subset of our population, with less than average need to access the health care system. Yet 56% of these relatively healthy individuals were less satisfied with their CDHPs than with their previous coverage (presumably managed care).
Is our goal really to have patients who are both unhappy and unhealthy? Why continue with this inane, inhumane experiment?