The Effects of Consumer-Directed Health Plans on Episodes of Health Care

Past research has shown that high deductible and consumer-directed health plans (HD/CDHPs)can significantly reduce health care costs. In this paper we investigate how these cost savings arerealized. We use panel data from many large employers and difference in difference models toexamine how HD/CDHPs affect the number of health care episodes and the cost per episode. Ourresults show that about two-thirds of the cost savings from HD/CDHP enrollment are from reductions in number of episodes and the remaining one-third of the savings are from reductionsin costs per episode. The presence of a Health Reimbursement Arrangement (HRA) or HealthSavings Account (HSA) does not temper the effects of high deductibles on number of episodes.However, enrollees in plans with generous employer contributions to HSAs have more episodes of care than enrollees in plans where employers make smaller account contributions. The reductions in costs per episode and in visits to specialists, inpatient care, and use of non-generic pharmaceuticals suggest that higher deductibles are effective at making patients more cost conscious even after care is initiated.