Are Consumer-Direct Health Plans Working?

February 22, 2017

Employee Benefit & HR News

Qualified high deductible health plans (Q.H.D.H.P.), also known as “Consumer-Directed” plans, have been around for a number of years.  Enrollment in these plans has increased over the past decade.  Q.H.D.H.P. plans have a high deductible component which must be met before benefits are paid typically at 100%.  The minimum deductible amount is determined by the Internal Revenue Service (I.R.S) each year.  For 2016, the minimum deductible is $1,300 for individual and $2,600 for family.

According to the Kaiser Family Foundation, eight percent of employees were enrolled in a Q.H.D.H.P. in 2009. By 2015, enrollment had increased significantly to 24 percent.  During this period, out-of-pocket annual costs on average rose approximately 230 percent.   Surveys indicate about 46 percent of employees shoulder a plan deductible of $1,000 or more.

Analysis of the healthcare utilization of employers implementing high deductible plans shows the cost of care decreasing when followed over a 3 year period versus employers who do not implement these plans.

Part of the decrease in utilization comes from a larger portion of “first dollar” medical costs being paid by the employee because of the higher deductible. Another probable factor is plan participants are giving careful consideration before obtaining medical services.  In fact, this consumer behavior was one of the purposes behind why these plans were created along with lowering insurance premiums.

The “Consumer-directed” focus of Q.H.D.H.P. plans is based upon the assumption patients will research the most cost-effective ways to handle their treatment.  If a patient decides to move forward with care then the hope is they will conscientiously shop for the best possible price on their healthcare services.  Some patients may ultimately decide to defer or forego certain medical care.

Shopping for the best price on healthcare sounds great in theory, but can be more difficult to achieve in practice. However, tools and resources are available to assist.  It is important for plan participants to have the knowledge on how to access.

Finding a good deal on prescription drugs tends to be simple. There are many websites and apps available to help.   As an example, GoodRx allow consumers to enter the name and dosage of a medication and receive a list of pharmacies offering discounted pricing in their immediate area. In addition, many large retailers such as Walmart, Kmart, Sam’s Club and Costco advertise flat and discounted co-pays for basic medications.

Conversely, shopping for medical services is much more complex as compared to the transaction of buying a 30 day supply of pills. However, websites do exist for finding the geographically adjusted fair market price for a particular medical procedure.  These websites include Healthcare Bluebook, Clear Health Costs and New Choice Health.   You may be comforted in knowing the reasonable price for your heart transplant is $125,916, but you probably have no clue on what to do next.   And you would not be alone in this lack of knowledge.

As consumers, we are accustomed to shopping online for the lowest price on items such as electronics, hotels or airline tickets. But when it comes to healthcare, most people do not give a second thought to how much it costs.  The idea of price shopping health service is gaining traction though.  Many patients do not realize they ultimately have control over where medical services are performed.  Most usually rely only upon their physician’s advice.

You have probably seen commercials from a local imaging center which includes dramatizations of patients learning how much an imaging exam is going to cost at their local hospital. They later sigh in relief as they learn the imaging center pricing is much less expensive and gives same day results.  They happily announce they are going to tell their doctor they want their imaging exam to be done at this center.

This imaging center has an online tool for patients to obtain a price quote beforehand for a particular exam with discounts given for upfront cash payments. Most healthcare providers do not yet offer services in this manner, but this practice is catching on with the popularity of consumer-directed plans.

There is an open question on whether consumer-directed plans are actually working to reduce health expenditures or are they simply causing patients to forgo medical care today that will become high dollar expenses later.

If the latter ends up being true, our health care delivery system is potentially looking at a tremendous spike in costs given the sheer number of patients covered under these plans. In any event, the lower medical trend being seen in these plans today must be acknowledged.  Something is obviously going right with this plan design.

Surveys indicate many patients enrolled in consumer-directed plans have limited knowledge on how the plan even works. Under the mandates of the Affordable Care Act (A.C.A.), preventative care is offered with $0 co-pays or very little out-of-pocket cost.  In fact, the preventative care benefit is a base benefit of consumer-directed plans even if the A.C.A. mandates goes away.  However, many enrollees have no idea this benefit is included and may skip preventative care.  As a result, health conditions that could be caught and treated early may not be found until late in the game. Routine colonoscopy at age 50 is a perfect example.  A colon polyp found today may prevent major surgery and perhaps even death from colon cancer down the road.

Employees may not fully understand how the health savings account (H.S.A.) component works alongside the high-deductible plan. This would seem a simple concept, but it should not be taken for granted that all participants have sufficient knowledge.  Employees may not understand the funds held in their H.S.A. represent real dollars.

These funds can be used to pay for medical expenses but are also allowed to accumulate (with potential for return on investment) if they are not used.   The contribution maximum for 2017 is $3,400 for single coverage and $6,750 for family.  Employees need to know the account stays with them as they change jobs, medical plans or eventually retire.  The money in the H.S.A. can be withdrawn without penalty at age 65 similar to an I.R.A..

Employees (and employers) realize a savings on their monthly contributions to the group medical plan because the premiums are lower on an HDHP plan. Savings are also realized from the full tax-deductibility of their employee contributions into their H.S.A..  Many employers also make a contribution into an employee’s account.  Employees and employers alike can save an additional 7.5% in F.I.C.A. taxes.

So what can be done today to encourage the continued forward momentum and cost savings of consumer directed plans into the future?

  • Provide education to plan participants to assure they fully understand the benefits of the plan especially preventative care. Be sure your employees understand the health savings account component and the significant savings potential it offers.
  • Make members aware of online tools which are helpful in finding the most cost effective care.
  • Offer lower cost alternatives to incent members to receive needed healthcare.   Telemedicine services and retail clinic care both offer members value by providing lower cost care. According to Mercer’s Survey of Employer Sponsored Health Plans, savings to the member can be significant.   A usual telemedicine visit charge is about $40 and retail clinics are about $60. Both of these yield savings as compared to $125 for a physician office visit.

In summary, consumer directed health plans are a familiar component in today’s employee benefits arena. To assure their continued success, it is important for plan sponsors, payers and providers to remain diligent in staving off any unplanned negative effects so that true long term cost savings can continue to be realized.

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About Rick Ewers

Mr. Ewers is an analytical consultant providing financial analysis, vendor evaluations, market & compliance analysis, as well as national industry trending for group employers.

View all posts by Rick Ewers

2 Responses to “Are Consumer-Direct Health Plans Working?”

  1. Robyn Says:

    Recommendations should be for employers to offer this type of policy only if there is a very level pay scale through out the organization. Upper management/owners may be able to afford this type of policy, but most below them will not.


  2. Robyn Says:

    Everyone I know that has this type of health insurance is foregoing medical care until they are no longer able to cope. I did, because I couldn’t afford the deductible and my share of the premium. A simple x-ray would have saved the insurance company thousands of dollars spent on surgeries & physical therapy needed to fix an injury that went undiagnosed & untreated. I just could not afford the x-ray and lived with 6 years of extreme pain. Eventually, I was able to save a year’s worth of deductible money and the insurance company is now paying for long term health issues I developed because of my inactivity due to the pain. This type of policy has not proven to work well for anyone, I know, that earns an income less than 35K a year, but that is what is offered by my employer.


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