Special Feature: Consumer-Directed Plans and Health Care Costs

calculator, money, and syringe

Advocates of consumer-directed health plans (CDHPs) contend that consumers in such plans will have a greater incentive to make prudent, cost-conscious decisions about using health care, which in turn should drive down overall health care costs. Critics, however, have voiced concerns that consumers lack the information necessary to reduce spending without also reducing quality of care. RAND Health researchers compared families before and after moving to a consumer-directed plan with similar families remaining in traditional plans to see how behaviors change in response to switching to a high-deductible plan.

In the most comprehensive study to date on this topic, researchers looked at claims and enrollment data for more than 800,000 households insured through 59 large employers across the U.S. in a study funded by the California HealthCare Foundation and the Robert Wood Johnson Foundation. The analysis shows clear cost reductions, but with potential areas of concern for the long-term health of enrollees.

How common are consumer-directed health plans in the U.S.?

Over half of large employers now offer consumer-directed health plansClick to Enlarge

Consumer-directed plans are increasingly available to Americans. A 2012 survey found that 59 percent of large employers offered at least one such plan. In 2011, about 17 percent of Americans with employer-sponsored health coverage were enrolled in a consumer-directed plan. With continued cost pressures compounded by impacts of the recession for both employers and employees, this number is expected to grow significantly in the next decade. Features of the Affordable Care Act that roll out in the next few years would likely further accelerate this growth.

Do families in consumer-directed plans actually spend less on health care?

Yes — plans with a deductible of at least $1,000 per person and an associated health account are associated with substantial reductions in total health care costs of between 17 and 21 percent. These reductions are seen for families in their first year in a consumer-directed plan in comparison to similar families remaining in traditional (low deductible) plans. Researchers found reductions do depend on the size of the deductible; families switching to moderate deductible plans (between $500-999 per person) do not spend less on health care. On the other hand, once both a high deductible and a medical account are in place, families reduce medical spending just as much when employers make moderate contributions to medical accounts as when employers do not contribute. Such contributions may be important for helping families manage the greater financial risk of these plans. These findings show that the behavior resulting from a switch to a “consumer-directed” plan seems to have effects beyond what would be expected by the basic economics of the change.

Do people in consumer-directed plans save money because they choose less expensive forms of care, or because they initiate less care than those with lower deductibles?

Enrollees in consumer-directed plans used fewer or less expensive services in a given episode of careClick to Enlarge

Both, actually — those in CDHPs initiated less care, and when they did, they used fewer or less expensive services in a given episode of care. Enrollees used 4.9 percent fewer name-brand drugs, made 6.5 percent fewer visits to specialists, and had17.7 percent fewer hospital stays in the first year after switching to a consumer-directed plan than families remaining in traditional plans. This type of cost reduction appears to be a new phenomenon — the RAND Health Insurance Experiment from the 1970s also found that high cost sharing led to cost savings, but these savings were exclusively due to enrollees seeking less care; when they did initiate care, they spent the same amount per episode as those with lower levels of cost sharing.

Do high deductibles reduce preventive care or other high-value medical care?

Enrollees received less high-value careClick to Enlarge

Yes, which shows a possible downside to consumer-directed plans: even when preventive care was fully covered by the plan, enrollees cut back on the use of some beneficial services. These included preventive services such as childhood vaccinations and cancer screenings, as well as tests for managing chronic conditions such as blood tests for glucose and cholesterol for diabetics. The reductions observed in these beneficial services were small to moderate, but any reduction in high value care is troubling and raises questions about patients making care decisions that are not clinically sound. On a positive note, medically vulnerable populations (lower-income or chronically ill patients) did not have larger reductions in high-value preventive care than those without financial or health constraints.

What would happen if more Americans enter into CDHPs?

Fifty percent enrollment in consumer-directed plans could reduce annual health spending by $57 billionClick to Enlarge

CDHPs have been shown to lower overall health care spending, and growth in consumer-directed plans could sharply cut costs — with the size of cuts depending on the percentage of people who switch to consumer-directed plans. Increasing CDHP enrollment to 50% of those with employer-sponsored health insurance would result in an annual savings of $57 billion in health care costs, equivalent to a 4 percent decline in total health care spending for the nonelderly. These savings could be larger or smaller depending on the extent of enrollment in high-deductible, account-based plans: an increase to 75% would save more than $85 billion (a 5-9% decline in total spending).

What more do we need to know about CDHPs?

The immediate cost savings are clear, but further research is needed to determine whether and when consumer spending decisions—such as fewer specialist visits and fewer hospitalizations—are beneficial and appropriate, or if they risk increasing disease rates and treatment costs in the future. As preventive services can reduce health care costs over time and avert health emergencies, improvements in communication are needed to ensure that enrollees understand that these services are beneficial and typically fully covered. The full extent to which enrollees decide to forgo recommended care is unknown, and this question (as well as the longer term health and cost implications) should be explored by subsequent research in advance of the predicted growth of CDHPs.

For more information on this research, please see:

More Research on Health Insurance and Health Care Costs