Evaluation of the effect of a consumer-driven health plan on medical care expenditures and utilization
Consumer-driven health plans (CDHPs) have moved beyond the concept stage and are now health benefit options available to employees in many large companies. Mainstream insurers, such as Aetna, United Health Group, and Wellpoint have introduced their own CDHPs to compete with products offered by start-up companies such as Definity, Luminos, and others. Health policy analysts have expressed concerns that CDHPs could create adverse selection problems and have unintended impacts on service use. These concerns are motivated by analyses of plan designs and philosophical beliefs, but have been largely uninformed by empirical research. In this research project, we used a claims dataset to compare the medical service use and expenditures of employees who were enrolled in a CDHP in 2001 and 2002 to employees enrolled in a health maintenance organization (HMO) and a preferred provider organization (PPO). Our analysis addressed the following questions:
1. What was the impact of the CDHP on payments to providers (i.e., total expenses)?
2. What was the impact of the CDHP on employee out-of-pocket expenses for medical care?
3. Was service use different for CDHP enrollees compared with enrollees in the other health plans?
4. Was the illness burden different in the CDHP versus other plans, and how did it change over time?
5. Were the CDHP effects different in the first year of enrollment, compared with the second year?
Consumer-driven plans differ from traditional insurance and managed care products in philosophy and design. Philosophically, they seek to involve the consumer more directly in health care decision making. Typically, in these products, a “health spending account” is created from which the employee purchases services. Some form of major medical or “wrap-around” coverage is also a key part of the benefits design. If an employee spends all of the dollars in the health spending account in a given year, she then spends her own money until the deductible requirement in the major medical coverage is met. Expenditures in excess of the deductible are covered by the major medical plan. The benefit design can be tailored to cover all or part of these “excess” expenditures. To facilitate informed decision making, the employee is provided with information about health care providers, including physician education and experience, prices, and quality ratings. Usually, this information is available on the Internet to ensure easy access and promote its use .
Consumer-driven health plans are often compared to medical savings accounts (MSA). MSAs first became available in the mid-1980s; they were later regulated by the 1996 Health Insurance Portability and Accountability Act (HIPAA) as a tax-exempt health insurance product offered primarily to employers with 50 or fewer workers and individuals in Medicare . Consumer-driven health plans differ from MSAs in several important ways. Most CDHPs are Internet-enabled health plans that were originally financed by venture capitalists during the dot.com boom of the late 1990s . The use of information technology in an effort to create “informed consumers” is a distinguishing CDHP feature . In contrast, MSAs typically instruct subscribers to “shoe-box” their medical bills for later reimbursement from their accounts, as long as they are under the deductible. For many CDHPs, the Internet has an interactive customer support system to allow a subscriber to track medical expenditures deducted from her account online. Consumer-driven health plans offer online linkages to prescription drug benefit programs as well as online benefit eligibility information to ensure prompt payment to medical providers. Because CDHPs are much more sophisticated in their product delivery to consumers and employers, they are attractive to many medium-to-large employers. In contrast, HIPAA-regulated MSAs contain a number of restrictive provisions that can make these plans difficult to describe to consumers and intimidating for health benefits managers and insurance brokers.
Interviews with employees and CDHP managers suggest several reasons why larger employers are attracted to CDHPs. Philosophically, these employers want informed employee decisions to “drive the market.” Under the CDHP spending account approach, employers believe their employees have an incentive to seek information on providers’ prices and to carefully consider their need for services, because any unexpended funds “roll-over” into next year’s account balance. This potentially reduces the annual “gap” between the spending account contribution and the deductible amount faced by the employee. Also, employers see CDHPs as possibly reducing their administrative expenses. If the CDHP is popular with employees, it may mean that other plan options can be dropped. Finally, some employers may see the CDHP approach as a way to divorce the amount their contribution to health insurance increases each year from trends in premiums, linking it instead to overall employee compensation increases. In this respect, CDHPs would function as “transition vehicles” that could be used to redefine the role of employers in the purchase of health insurance, much as defined contribution retirement accounts did with respect to retirement benefits.
In theory, by combining a high-deductible health insurance plan with a health spending account, a CDHP creates incentives for enrollees to economize on their utilization of medical care. However, there is very little empirical evidence from the MSA experience to inform our research design. Simulation analyses indicate that an employer-funded MSA may have moderate effects on health care spending, depending on who joins (Keeler et al. 1996). A mandatory MSA might reduce spending by 6 percent to 13 percent. The RAND Health Insurance Experiment found that a high-deductible health insurance plan would reduce spending by one-third compared with comprehensive fee-for-service insurance . But, the RAND study did not examine what would happen if the high-deductible plan were combined with a health spending account.