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December 11, 2006

Why haven't consumer-directed health plans taken off?

A recent study conducted by The Commonwealth Fund and the Employee Benefit Research Institute reveals that enrollment in high-deductible health plans (HDHPs) and consumer-directed health plans (CDHPs) is up this year by a meager 1%.  (Be sure to read the summary on the first page of the study report.)  One would think that the tax benefits and low premiums would sway consumers, but this has not happened in significant numbers.  This fact is bemoaned by the analysts (e.g., HFMA) and the advocates (e.g., Health Care For All).  President Bush has been pushing CDHPs as part of his program of personal responsibility (heralded at various times, including the signing of the HIT/EHR executive order back in August, as noted here), but the public isn't buying it.

Why is this so?  There are a couple of possible explanations.  Depending on which one you believe, there may be more movement over the next year.

One possible explanation is that fuller engagement with the whole idea is possible only now that the IRS has provided clarity regarding tax treatment of health savings account (HSA) contributions, and the real effects of this policy clarification will not be seen until the next plan year.  This is because most groups had already made health insurance commitments for 2007 before the IRS acted.

A related possible explanation is that the tax benefits for HSA contributions were not generous enough, and now that the lame duck Congress enacted a $1 billion giveaway in its final hours (as elucidated below), more folks will contribute to HSAs.

The boondoggle du jour is explained in today's Washington Post as follows:

Under current law, annual contributions to the accounts are limited to the amount of a person's annual insurance deductible and cannot exceed $2,700 for an individual or $5,450 for a family.

Under the new law, if it is signed by President Bush as expected, any health savings account holder could choose to shelter the maximum amount, which is scheduled to increase next year to $2,850 for individuals and $5,650 for families.

Some say that HSAs and HDHPs are working for some people, though some would say they're working best for the people who need them least (see my earlier post here, including a link to the RAND report on the subject).

Now that the IRS issues are out of the way, and Congress has made HSAs even more attractive, the financial services industry is likely to fill the void and market HSAs more aggressively.  (See Health Affairs Blog post on the subject.)  As a result, many small employers and individuals who have not been interested in HSAs to date are likely to get into the game.  Matthew Holt, who puts out The Health Care Blog, commented on that Health Affairs Blog post and seems unwilling to trust the health care - financial services cabal to do the right thing.  I share the concerns of the commenter on the post linked to above on Health Care For All's A Healthy Blog who observed that getting data on health plans and providers isn't like asking the greengrocer for information about today's produce selections.  It's not a face-to-face interaction, and the average consumer may not be able to make informed choices about health care options.  In fact, uninformed choices may have lifelong negative ramifications.

All of this leads me to the final possible answer to the question of why more people don't enroll in HDHPs and CDHPs:  Maybe they're just not a good idea.  The HSA-HDHP concept has been advanced as a political response to an economic issue.  While there is a long history in this country of dealing with health care in this fashion, perhaps this is one circumstance where we can "just say no."  Now that the lame duck Congress added a few last curveballs to the mix, it will be interesting to see whether the new Congress will be able to make sense of this morass.

-- David Harlow


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I would contend that the real issues of why CDHC have not taken hold quicker centers around two things lacking from the current market, education and choice. Let's first address education.

The vast majority of health care consumers with insurance today are covered by their company’s plan. Employees have relied on their employer to choose for them what is best. After all the company has hired experts that know much more than they do what they need.

The truth is the majority of employees who don't have major health problems and who don't file a lot of claims really only know 2 or 3 things about their coverage.

The first is the PREMIUMS because they see that dollar amount come out of their check every week. Even here, many still don't realize their employer is paying 50%-75% of the total cost of the premium. All they really know is that they're tired of them going up and up every year.

The second is their COPAY because they have at least had to take their kids for routine visits even if they don't go for themselves. This benefit is tricky. Even employers struggle with this real benefit of a copay. Plans with copays can cost from $35-$50 more per month in premiums than the same plan without them. That means most are paying $420 - $600 per year more in premiums for the copay benefit.

The problems with them start because the average employee is visiting the doctor maybe twice a year and saving maybe $80 per visit. Let's do the math, as much as $600 more in premiums to get a $160 benefit. This is a perfect example of employees not understanding the difference between REAL benefits and perceived ones.

Many providers now milk the copay model anyway by requiring multiple visits for the same service that used to be provided all at once. This is done to make up for the different from the usual charge and a lower amount of the copay. Some are even limiting their patients to ONE health care issue PER VISIT as a way to get around these smaller fees they are contractually bound to accept.

The third is their DEDUCTIBLE and that's about it. They have little to no knowledge of out-of-pocket max or if they got real sick what their additional 20% copay in their 80/20 Plan could really amount to.

They rarely understand that in a typical family policy with a $500 deductible that this amount is usually per person. Each member of the family could have $499 worth of bills and the insurance company would pay nothing.

Few understand that copays for office visits and prescriptions rarely if ever go towards their deductible. This is the fine print that insurers use to create that difference between real and perceived benefits for them.

In the average business today, 5% of employees file 50% of the claims. This happens because more and more workers with sick spouses or children have no choice but work for a company providing a guaranteed issue group plans. This means that the 95% of employees left are responsible for the other half and have limited experience using their coverage.

It also explains why employers are so tempted to find ways to identify this 5% and replace them with healthy ones. Theoretically they could cut their claims in half.

This is why I say education is at the heart of the problem. Health insurance policies, most at least an inch thick of legal mumbo jumbo are designed to be complicated for a reason. When your healthy and don't need them, they look good with all the perceived bells and whistles. When your sick and at their mercy they tend to take on a different light.

The real benefit of HSAs is that they're simple. When they're written to pay 100%, like most are, instead of 80/20, your deductible is your max out of pocket expense each year. Instead of hiding it behind 20% of some unknown number.

Your family HSA comes with a family deductible where everyone’s expenses goes towards the total. If one family member meets their deductible, everyone else in the family does too.

When they represent a 40% reduction in premiums by moving to a high deductible plan, they free up $.40 on every dollar in premiums to spend at the provider of your choice. Whether it by main-stream or alternative care. And the best part is what ever you have left over, YOU GET TO KEEP for the future instead of the insurance company.

Consumer Directed plans do ask the consumer to take a more active role in their ROUTINE health. They encourage them to spend their HSA dollars the same way they should spend the rest of their paycheck - wisely. What they don't ask them to do is make complicated choices like surgery or hospital stays like the fear mongers want you to think.

If you spend ONE NIGHT in a hospital, your deductible is going to be met and your insurance is going to take over negotiating from there. For major expenses, HSA provide the same, if not better, (100% instead of 80/20) coverage because they're still the same major medical policy as the old one, they just kick in later.

Admittedly many consumers still have scars from the last time someone told them of a better way called an HMO. The reality in health care today is "HE WHO CONTROLS THE FLOW OF PATIENTS, CONTROLS HEALTH CARE.

What I mean by that is that the first attempt to control cost was to let the insurance company steer the machine. The problems arose when they began to reward doctors for withholding the care you thought you were paying for with your premiums. Americans found out very quickly that the guy paying your bill was a bad choice for who got to control your access to services. They saw you only as a number not a person.

About 10 years ago, HMOs were failing across the nation and consumers were tired of their restrictions, a new plan emerged to control the flow, the laughable provider called the NON PROFIT HOSPITAL. You must live under a rock if you still believe this one is a keeper.

A so called non profit or Charity hospital was now under the delusion that they're the wise choice to direct your care. The problem is they are the most expensive and least efficient provider in the market.

They are like the Post Office. In business today, companies must continually find ways to be leaner and meaner to survive in a competitive global economy. Hospitals and the Post Office have chosen a different path. They have decided they're just going to charge you more today for the same service they gave you yesterday for less. After all what are you going to do about it.

Non-Profit hospitals have become the Car Dealership of health care. It would be like your local Ford Dealer, tired of competing with Bob's Used Cars and Joe's Mechanic Shop going out and buying them all out. That way they get your money regardless of where you go.

Non profit has used their UNTAXED income to buy up the majority of doctors in their given geographic area. Now that the doctors work for them they tell them: “When you patients need X-Rays, you send them to OUR Radiology. When your patients need lab test, you send them to OUR lab and so on”.

Now the consumer is being steered to the most expensive provider in the market and when they don't pay their grossly inflated bill, they file a lien on the house and their car for the balance. So much for Charity.

What's even worse for the big picture is the damaging affect on the market and your choice. The hospital plan is designed to steer the patient to them and away from everyone else. This has devastating effects on the independent market of providers who are charging a fraction of the cost for the same service but can't get the non profit to send them any business.

Where does that leave us. The answer is the CONSUMER must be empowered to drive the market with their dollars. Letting the ones in power bring about change is an illusion. They're protecting their interests not yours.

This country was founded on finding a better way to do just about everything. A wise old doctor once told me "Americans have always been educated about the capabilities of health care, they have just never been educated about the cost." No one wants to pay the staggering high cost of cutting edge technology when they’re healthy, but let them get sick and they want the finest care someone else’s money can buy.

YOU, Mr. Consumer must engage yourself in the process. YOU, when offered a new prescription hitting the market for $100 a month must ask your doctor if it’s worth the extra cost. YOU, when your doctor is too busy to answer your questions must find a new doctor who will. YOU, must take full advantage of wellness and the vast amount of information at your fingertips in the information age. Your doctor doesn't go home and do 2 hours of research on your problem, THAT'S YOUR JOB. Get INVOLVED. Your life and your family are depending on it.

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