Consumer-Directed Health Plans Can Save Money, But Effects on Quality Still Uncertain, RAND Study Says

For Release

October 24, 2006

Consumer-directed health plans can reduce health care use and lower costs, but it is debatable whether these high-deductible plans can accomplish this without deterring consumers from seeking needed care, according to a RAND Corporation study issued today.

“The evidence from early adopters of these plans and similar changes in health insurance shows that greater cost-sharing leads to reductions in health care use and expenditures,” said economist Melinda Beeuwkes Buntin, co-director of the Bing Center for Health Economics at RAND and lead author of the study.

“We know people are going to reduce their use of health care under these plans,” Buntin said. “But what we don't know is how this will affect overall health care quality and patients' health.”

The study by RAND, a nonprofit research organization, is titled “Consumer-Directed Health Care: Early Evidence About Effects on Cost and Quality.” It appears today on the Health Affairs Web site,

The RAND study is the lead article of a seven-article series on consumer-directed plans, which the researchers define as high-deductible health insurance plans that are often paired with pre-tax health savings accounts. Consumers typically use these accounts to pay for health care expenses, accumulating unspent balances from year to year.

Last year, 10 percent of privately insured, non-elderly American adults were enrolled in a consumer-directed plan. Of those, only 10 percent had a health savings account. But interest in the plans is growing as elected officials and employers look for ways to curb escalating health care costs.

Buntin and fellow researchers estimate that if all privately-insured, non-elderly Americans were moved from low-deductible health insurance plans to consumer-directed plans, the result would be a one-time health care cost reduction of 4 percent to 15 percent. However, pairing such high-deductible plans with health savings accounts could offset those reductions by as much as half.

“On balance,” the RAND researchers conclude, “early evidence suggests that CDHC (consumer-directed health care) may help lower costs and cost increases.” However, “claims that [consumer-directed plans] will encourage patients to reduce inappropriate and unnecessary use instead of making indiscriminate cuts are more problematic.”

Early results suggest that when people pay more out-of-pocket for health care they tend to spend less on what could be called “inappropriate” or “unnecessary” care. Examples of such care are demanding an antibiotic for a viral infection or going to the emergency room for a non-critical health problem.

What is not known, however, is whether these plans will deter people from getting necessary and needed health care, Buntin said. The 1974-82 RAND Health Insurance Experiment (HIE) found that increased cost-sharing prompted consumers to forego appropriate and inappropriate care alike — but with no apparent adverse health impacts.

Buntin and her co-authors point out that “changes have occurred since the RAND Health Insurance Experiment 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.

A major concern about consumer-directed plans is that these plans may attract healthy individuals and families, leaving a larger proportion of sicker patients in traditional plans. The study found some indications that this is happening: those in consumer-directed health care plans tend to have higher incomes and are in better health.

Buntin also said that consumers are struggling to find reliable information on quality and price.

“We know there's a lot of uneven health care quality – it's even difficult for medical professionals to judge,” Buntin said. “Now we're asking patients to become good consumers and consider not only quality of care, but price. They need more information to do that properly.”

Other authors of the study are: Cheryl Damberg, Amelia Haviland, Kanika Kapur, Nicole Lurie and Susan Marquis, all with RAND; and Roland McDevitt, director, health research at Watson Wyatt Worldwide, in Arlington, Va.

The study was funded by the California HealthCare Foundation, the Robert Wood Johnson Foundation, and donations to RAND Health.

To help address the lack of rigorous data to answer the questions raised above and related questions, RAND is undertaking a four-year, $4 million study co-sponsored by the California HealthCare Foundation and the Robert Wood Johnson Foundation. The study will examine the effect of high-deductible health plans — with and without spending accounts — on use and quality of care, including differential effects based on health status, income, and other factors.

RAND Health is the nation's largest independent health policy research program, with a broad research portfolio that focuses on health care quality, costs and delivery, among other topics.

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