As health care costs continue to grow at double-digit rates, employers have become increasingly interested in ways to cut costs. Many are looking to the potential benefits of Consumer-Driven Health Plans (CDHPs).
In most cases, a CDHP is a high-deductible health plan combined with one of two tax-advantaged spending accounts: a Health Savings Account (HSA) or a Health Reimbursement Account (HRA). Plan participants use money from their spending account to pay for medical care, including prescription and nonprescription drugs. Plan members who deplete their account must pay for medical care out-of-pocket until the plan’s high deductible is met.
“Once the deductible has been met, the high-deductible health plan functions like a traditional major medical plan,” says Sally Stephens, president of Spectrum Health Systems. “CDHPs can be described along a continuum of health plans with varying degrees of employer/sponsor and employee/participant responsibility. The most common type is a catastrophic or high-deductible insurance plan combined with a health care spending account.”
Smart Business spoke with Stephens about the benefits and potential risks of CDHPs.
Why should business owners look into this type of coverage?
A CDHP controls costs through reduced demand on the health care system. The increased cost-sharing associated with a CDHP shifts costs from the plan to the employee, resulting in lower premiums for the employer.
The whole idea is that employees have an incentive to spend more carefully when purchasing health care services because most plans allow unused funds to be rolled over from year to year. This is not the case for traditional health plans. In this way, the consumer can benefit from using fewer and less costly services. This built-in incentive plan combined with consumer decision-support tools relating to cost, treatment and quality, is a key cost-containment strategy of a CDHP.
Supporters of these plans also claim that giving health care consumers more of a financial stake in their medical care decisions will create more competition in the health care market place and better contain costs.
What benefit does this type of plan provide the employee?
Because the HRA or HSA value can increase over time, when unused balances are allowed to be carried over, employees who consistently incur low levels of spending can actually increase their plan benefits in subsequent years.
In addition, the most successfully designed CDHPs include resources to assist plan participants in improving their health and in making smart medical decisions.
What tools must employers provide employees to make such plans effective?
Employers electing to offer CDHPs are essentially asking their employees to get into the driver’s seat and share a greater percentage of the costs while also getting more involved in their health care.
The success of CDHPs depends on providing employees the Web-based decision support tools needed to research and select network offerings and benefit packages. These tools, similar to what employees are already familiar with, enable employees to actually gain visibility into what their health care costs will be and give them the power to better manage those costs. When coupled with the well-researched benefit options presented by employers, these tools greatly raise the probability of CDHP acceptance and enrollment.
These online tools help educate employees, enabling them to become better health care consumers. By making it easier for employees to understand their health care options, they can automatically take an active part in controlling health care costs.
Is there a risk with this plan? Could overall health care decrease?
The availability of information upon which participants can make their health care decisions is critical. Such information may be unavailable due to lack of credible data and systematic, comprehensive methods for accumulating and disseminating such data. Even if the data is credible, it might not be easily accessible to all users. In addition, some users may not be that savvy to access the Web-based technology. This can result in poor plan choices made at the time of enrollment as well as poor ongoing treatment and choice of providers at the time of the service.
Another potential concern is that even if the appropriate information is successfully gathered, some participants might not have the necessary skills to evaluate what they have gathered. Some participants may also actually postpone treatment until the plan has enough available funds to cover the employee gap or until it is funded next year.
It could also affect employment decisions if low users who have accumulated high balances over several years see this as a cost of changing jobs or provide an incentive to incur elective services prior to leaving.
SALLY STEPHENS is president of Spectrum Health Systems. Reach her at firstname.lastname@example.org or (317) 573-7600.