“Consumer-driven health plans focus on turning health care users into educated, empowered, accountable health care consumers,” says Sally Stephens, founder, owner and president of Spectrum Health Systems. “Defined narrowly, consumer-driven health care (CDHC) refers to health plans where employees have a personal health account, such as a Health Savings Account (HSA) or a Health Reimbursement Arrangement (HRA).”
Smart Business asked Stephens about the benefits and drawbacks of these programs.
In a consumer-driven health plan, who pays?
The type of plan determines if the employer, employee or both can make contributions to the plan. The CDHP phrase is often used loosely to refer to defined contribution health plans under which employees receive a fixed dollar contribution from an employer and choose among various plans. Richer plans generally require larger employee contributions in addition to those made by the employer.
In contrast to traditional managed-care plans, CDHC allows employees to customize their health benefits, such as trade lower premiums for higher out-of-pocket maximums. CDHC charges employees the actual cost of insurance and lets providers, instead of insurers, set prices for their services and reap the benefits of innovation while offering employees competitive quality and cost information about both insurers and health care providers.
CDHPs involve either an HSA or an HRA. Employees, employers or both can make contributions to an HSA while employers only fund the HRA. Deposits and withdrawals of an HSA are tax-free.
What is involved?
Generally, CDHPs involve a three-tier structure of payment for health care: a tax-exempt health account that an individual uses to pay for health expenses up to a certain amount, a high-deductible health insurance policy that pays for expenses over the deductible and a gap between those two in which the individual pays any health care expenses out of their own pocket.
Also, individuals have the opportunity to save money that they do not spend in a given year for health care expenses in future years (or, in some plans, for withdrawal during retirement). There are support systems (usually on the Internet) to help individuals select good providers, get reasonable prices, track their health care expenses and improve their health.
What groups are more likely to benefit from CDHP?
While the majority of consumer-driven health plans are generally designed for larger self-insured employers, there are providers that focus on the small- to mid-sized market (two to 500 lives).
Can a business save money by having a CDHP for its workers?
According to the Hewitt Associates 2005 Study, ‘companies with significant enrollment in consumer-directed health plans, such as account-based plans and customized build-your-own that allows employees to tailor a plan based on their individual health and financial needs, are experiencing rate increases well below the national trend or, in some cases, even decreased costs.’
United Benefit Advisors’ 2006 Health Plan Survey shows that consumer-driven health plans had the lowest premium increases, averaging 5.7 percent compared to an average 8.6 percent increase for the traditional health plans.
Do insurance companies go along with CDHP plans?
Many insurers, economists and actuaries believe that consumer-driven health plans can significantly lower medical trend rates for the next several years. Generally, they predict that CDHP premiums will grow at roughly half the rate of traditional managed care plans. Insurers believe in the shared responsibility strategy that promotes healthy lifestyles, quality care and efficient purchasing of medical care. It is merely the financial lever that ideally propels behavior change.
What is your experience with the success of CDHP?
In most cases, this new approach supports a shift in how employees think about the employer’s role in providing medical benefits. The focus is on improving health and maximizing the value one receives from medical care. The employer’s role shifts from being a parent to a partner with employees.
Employers who consider CDHP must understand that, regardless of income level, a thoughtfully designed plan typically lowers total cost-share for healthy employees and does not significantly alter costs for the chronically or critically ill. It is the moderate users of health care services who stand to gain or lose and these are the ones most able to control their spending through behavior change.
SALLY STEPHENS is the founder, owner and president of Spectrum Health Systems. Reach her at (317) 573-7600 or email@example.com.