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COVERAGE: Consumer-Directed Plans Can Save Money, But Quality Effects Uncertain

October 24th, 2006

Early returns suggest that “consumer-directed” health plans can restrain health care costs and utilization, but whether these high-deductible plans can accomplish this without deterring consumers from seeking needed care is still up for debate. So state economist Melinda Beeuwkes Buntin and colleagues at RAND in an article [2-week free access] published today on the Health Affairs Web site and reported in today’s Washington Post. In one of the lead papers of a seven-article Health Affairs package [2-week free access] on consumer-directed health care (CDHC), published with the support of the California HealthCare Foundation (CHCF), Buntin and coauthors also find that enrollees in consumer-directed plans tend to be healthier and wealthier — although not younger — than enrollees in more traditional comprehensive plans.

Surveying the available evidence, Buntin and coauthors estimate that moving all privately insured nonelderly Americans into consumer-directed plans — which they define as plans having deductibles of at least $1,000 — could result in a one-time reduction in the use of medical care of about 4-15 percent. However, consumer-directed plans are often coupled with tax-favored personal spending accounts such as health savings accounts (HSAs) and health reimbursement arrangements (HRAs), which in effect decrease the cost of medical care below the deductible amount. These accounts could offset by as much as half the reduction in use and spending from high-deductible plans.

“On balance,” the RAND researchers conclude, “early evidence suggests that CDHC may help lower costs and lower cost increases,” even accounting for findings that enrollees in consumer-driven plans enjoy modestly better health and higher incomes than enrollees in more comprehensive plans. However, “claims that CDHC will encourage patients to reduce inappropriate and unnecessary use instead of making indiscriminant cuts are more problematic.”

The 1974-82 RAND Health Insurance Experiment (HIE) [2-week free access] found that increased cost sharing prompted consumers to forgo appropriate and inappropriate care alike — although with no apparent adverse health impacts — but Buntin and coauthors point out that “changes have occurred since the HIE that might promote more-appropriate care choices among consumers who have financial incentives to choose wisely.” For example, many consumer-directed plans waive or reduce the deductible for preventive care, and these plans often provide financial incentives for consumers to enroll in disease management programs, health-risk appraisals, and wellness initiatives.

Moreover, while price and quality information is still sparse for consumers and physicians, new information sources are appearing, and there are indications that enrollees in consumer-driven plans are using them: Aetna indicates that its CDHC enrollees access information at twice the rate of enrollees in traditional plans. Crucial to the future of CDHC, Buntin and her colleagues say, will be the success of public policies to promote the use of information technology in health care and to develop reliable and standardized performance measures.

For more discussion of this study, by Jonathan Cohn on The New Republic blog “The Plank,” click here.

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3 Responses to “COVERAGE: Consumer-Directed Plans Can Save Money, But Quality Effects Uncertain”

  1. Neil Gardner Says:

    you are correct that insurance companies can get better rates when negotiating with providers. the argument made by CDP supporters is that once consumers are in charge of paying for things themselves, they will start to scrutinize providers and shop for the lowest price / highest quality.

    To pcervieri:

    Thanks for the reply. I would like to go further becasue you seemed to just skim over the critical part of my previous questions. If large payers can NOW already get 60% off the supposed provider charge, I would think that would be the best individual consumers could ever hope to get, so if it is already available with large payers, WHAT EXACTLY IS THE ADVANTAGE PRICE-WISE for the caveat emptor, individual shopping around in healthcare?????

    As for assessing quality, I fail to see again why caveat emptor should be the preferred method of judging quality in a supposedly state regulated system. What the heck is the regulation for if consumers have to figure it out on their own?? I would think all quality should be guaranteed by the system through accountavility to experts, as that is the point of licensing and state boards,no? Besides, consumers on their own will never overcome the info asymmetry and emotional stress between them and providers, never!!

    So we are back again to the question of lowest price, which I believe I have already shown is best set (that lowest price) by large payers. The absolute best and fairest example of that would be a monopsony of a single payer negotiation, IMO!

  2. pcervieri Says:

    you are correct that insurance companies can get better rates when negotiating with providers. the argument made by CDP supporters is that once consumers are in charge of paying for things themselves, they will start to scrutinize providers and shop for the lowest price / highest quality. 3rd party companies are also trying to fill in the current information gap AND the thought is that when there is greater transparancy in the system, prices will drop. newt gingrich, today at the CDHCC conference, pointed to jeb bush’s initiative in florida to show what different pharmacies in specific zip codes are charging for the top 100 drugs. once a pharmacy is caught with their pants down (like when they charge way more than neighboring pharmacies), their prices will drop and fall in line with competitors.

    so i think the point is that prices may be higher now, but going forward they will drop when all these pressures start to act against providers (unruly consumers and 3rd party information providers – the health care equivalent of priceline).

    here is an interesting talk on the future of consumer directed health plans:


  3. Neil Gardner Says:

    I have a question for anyone who knows or thinks
    they know about Consumer Directed Health Plans and accounts.

    With respect to what prices you are charged by providers when in the
    deductible part, I want to know if the prices charged in consumer directed
    plans are the insurance allowable prices even when you pay from your HSA
    account, or whether you have to just meet the provider charge as given until
    the insurance kicks in. I say this because few people will have the
    economic clout and knowledge to judge what a good price is as compared to a
    giant insurance company that has the clout and expertise to know and set
    good rates.

    I am constantly amazed when I get my insurance statement (EOB) to see how
    much of the original provider charges are not allowed and do get written
    off. It usually approaches 60%, and I thank God I have the insurance
    company showing me what a good rate is. I could never know that by myself.
    Hell, if the uninsured could just be given the insurance companies fee
    charges, that alone would save them 60%!

    I want to know if the part that is paid from the consumer-directed account
    is paid out by you (your account) at the full provider charges, or whether
    it is paid by you (your account) at the insurance company ALLOWABLE rate??
    If paid out at the insurance allowable charge then 2 more questions:

    1. What makes the provider take this fee schedule when you are suppose to be
    able to shop around?

    2. What are you really shopping for if the insurance company is then setting
    the price you are charged?????

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