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Consumer-Directed Plans Surge as Employers Try to Control Costs

 |  By Cora Nucci  
   August 25, 2010

Consumer-directed health plans (CDHPs) pay. That's the message this month from the GAO, which released a report chock-full of data to back up the claim. With employer health costs projected to ratchet up 9% next year, an obvious move is for payers to offer CDHPs. The really smart ones will excel at marketing these plans to a narrow and profitable demographic.

The evidence, actually a study of studies, shows that high-deductible health plans with a tax-advantaged account, such as a health reimbursement arrangement (HRA), that enrollees can use to pay for healthcare expenses reduce consumer spending on healthcare. 

Businesses are quickly coming to understand the benefits of CDHPs. In fact, 61% of employers said they plan to offer consumer-directed plans in 2011. Employers know that CDHP enrollees are "healthier" than average and that they tend to sip rather than guzzle health services. From the GAO report:

"...of the 21 studies GAO reviewed that assessed the health status of HRA and other CDHP enrollees, 18 found they were healthier than traditional plan enrollees based on utilization of health care services, self-reported health status, or the prevalence of certain diseases or disease indicators."

Here's an overview of the economically pleasing habits of CDHP/HRA enrollees:

  • Their utilization of services was generally lower than PPO groups.
  • The HRA groups spent significantly less than the PPO groups.
  • The HRA groups were generally healthier than the PPO groups. This is in part because the group skewed about 3 years younger, and members were slightly more likely to be male.
  • Healthcare spending and utilization of health care services for the HRA groups generally increased by a smaller amount or decreased compared with the PPO groups, from the period before to the period after switching.

"Consumer-directed health plans are living up to their expectations as a way to help save employers money and put employees in greater control of their health care. In fact, offering these plans was the most often-cited tactic by employers to control costs. We fully expect that employer interest in CDHPs, and especially full-replacement plans, will continue to increase in the future," said Helen Darling, head of the National Business Group on Health, in a statement.

What the GAO report tells me is that payers who can swiftly market CDHPs/HRAs to younger, healthier, and wealthier populations will be in a position to build loyalty and win market share. Under the Patient Protection and Affordable Care Act (PPACA), however, health insurance exchanges will prohibit payers from selecting applicants on the basis of health.

Plans marketed and sold outside of HIEs presumably remain viable, but the fate of CDHPs under PPACA is an open question.

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