November 20, 2002
Consumer-Driven Health Plans: Are They More Than Talk Now?
Consumer-driven plans are catching on and could be in the mainstream of
health care in a few years.
by Jon R. Gabel, Anthony T. Lo Sasso, and Thomas Rice
Over the past year medical journals, business magazines, and major newspapers have boldly pronounced that the era of heavy managed care is over and that a new era of consumer-driven health care financing is beginning.
Consumer-driven and defined contribution are two terms often used interchangeably, although they have different meanings. Defined contribution refers to an employer contribution strategy whereby employers set a fixed contribution for health insurance and place the employee at risk for costs beyond that point.
The term consumer-driven or consumer-directed refers to health plan design. Such plans generally involve a greater role for employees in choosing providers and health plans and in designing their own benefit package while assuming greater financial risk.
At its heart, the consumer-driven health care movement seeks to combine incentives with information to enable consumers to make informed choices about non-life-threatening health care. …consumer-driven health care is an effort to put patients in a position to say no to themselves. This can happen only if consumers are aware of the true cost and have a personal stake in it, and if they have enough information and confidence to make treatment decisions.
For purposes of clarity, we classify consumer-driven plans into three loosely defined groups. The first group we term “health reimbursement arrangement” (HRA) plans because they establish an account from which consumers draw to make health care purchases. When the account is exhausted, enrollees must typically pay out of pocket until the annual deductible is met, after which the plan becomes a traditional major medical plan. A second class of consumer-driven plans allows employees to design their own networks and benefit packages. Employees’ network and benefit selections determine the premium for their individual plan, and employees bear the financial risk for these choices above some fixed contribution from the employer. A third class of consumer-driven plans, termed “customized package” plans, allows employees, using Web-based tools, to choose from a predetermined selection of network offerings and benefit packages, such as a narrow, medium, or broad network and a rich, medium, or thin benefit package.
From the Discussion:
The major limitation of this study is that our information is largely from persons with a clear self-interest to report favorable developments about consumer-driven plans. Since there is limited experience and no independent evaluations of these plans to date, we depend heavily upon start-up and health plan executives, employee benefit managers, and benefit consultants for information and insights.
At their best, consumer-driven plans will provide a mechanism to inject incentive-based reasoning on the part of consumers into non-life-threatening medical care decisions. Employees do not bear most of the costs associated with higher use of care or use of more costly delivery systems. Consumer-driven products thus would reestablish the link between service use and an employee financial liability. If, as a result, employees respond to these incentives and use the Web tools not just to make decisions regarding their plan but to select providers based on quality, make informed treatment decisions, and manage chronic conditions, quality of care should improve. Customized package plans can expand the number of plan choices available to workers at small firms.
At its worst, however, consumer-driven health care can destabilize risk pools and lead to a redistribution of health care services and income from the sick to the healthy. A system that controls costs through price rather than nonprice rationing will almost certainly be to the advantage of higher-income groups and to the disadvantage of low-income groups, who are more likely to delay care if they lack the resources to pay for it.
People may be capable of behaving like rational consumers when they are purchasing prescription drugs or selecting health plans, but such rationality may elude them when they are informed that they have cancer.
If there is one message that resonates loudly from our interviews, it is this: “Political partisans, hold your fire! More research and experience are needed!” Independent research is desperately required to address the many issues we have identified. Researchers need to measure the extent of risk selection through studies that examine employees’ health status before they enroll in consumer-driven plans and their competitors. Researchers should analyze the redistribution of out-of-pocket costs and services in HRA plans among the sick and healthy. We need to learn the extent to which employees are using Web tools and determine whether they are becoming better consumers and whether physicians are more or less likely to deliver care according to clinical guidelines. After controlling for risk selection, researchers need to analyze both the consumer-driven plans’ ability to control claims expenses and plans’ impact on health status and employee satisfaction. This is an ambitious research agenda, but surely one with a high rate of return, if the consultants and health plans are right about the future of the health benefits marketplace.
Comment: The very design of consumer-driven products has two precise goals: shift the costs of health care from the purchasers of the plans to the patients, and shift the risk of coverage from the insurers to the patients. This increase in cost and risk is disproportionately shifted to precisely those individuals that have the greatest health care needs. If there has ever been a non-starter in health care reform, this is it!
And we are being called on to “hold our fire,” and watch another decade of economic experimentation on the American patient? Can we stand a decade of observing and measuring the grief and suffering of those that not only are faced with major medical problems, but also must submit to the experimentation that will determine the effect of adding the burden of financial hardship? Are we so lame that we can’t anticipate the results?
There are winners. The healthy and wealthy will benefit. But do we want to establish policies that sacrifice those with greater health and financial needs for the benefit of the rest of us? Are we really that cruel?
No more experimentation! Health policy science has already established the fact that we can provide comprehensive services for everyone, while containing costs, simply by establishing a single, publicly-administered national health program. Let’s do it now!