Understanding Consumer-Driven Health Plans

Insurers developed consumer-driven health plans (CDHPs) to help employers take control of their employee healthcare costs. What are the different CDHP types and what features do they offer?

What Is a “Consumer-Driven Health Plan”?

Consumer-driven health plans combine a high-deductible health insurance plan with some form of health savings account. These include HSAs, healthcare reimbursement arrangements (HRAs) and similar medical payment programs that cover initial healthcare expenses. The high-deductible health plan protects insureds from catastrophic claims. The high deductibles in these plans force insureds to pay for a greater share of healthcare expenses than under other types of insurance plans. However, plans include a tax-favored savings or spending account that insureds can use to pay at least some of their out-of-pocket expenses.

CDHPs rely on a simple idea: If people spend their own money, they will become more frugal consumers of healthcare. They will think twice before running to a specialist for a minor complaint and compare costs whenever possible. This concept is called “having some skin in the game.” In theory, consumers will take their business to providers who give better care at lower cost. In this way, CDHPs will allow providers, instead of insurers, to set prices for their services and reap the benefits of innovation. And that, proponents argue, will significantly lower healthcare costs.

In reality, however, consumers often lack easy access to the cost and effectiveness data they need to make informed healthcare decisions. When employees have had a choice of health plans, traditionally the employees who opted for CDHPs tended to be more educated and have higher incomes, because these plans require employees to assume more financial risk than other types of plans.

As employers pass along more of their healthcare costs to employees, this could be changing. The Employee Benefit Research Institute (EBRI) recently released a survey that found the income differences between enrollees in CDHPs versus traditional health insurance plans has begun to narrow. In 2006, CDHP enrollees were more likely than traditional plan enrollees to have household income of $150,000 or more, but by 2010 this was no longer the case. In 2010, CDHP enrollees were more likely to have a household income of $50,000 to $100,000, but not more likely to have incomes of $100,000 or more.

Despite the narrowing of income differences, CDHP and high-deductible health plan enrollees have consistently reported higher education levels than traditional plan enrollees. In addition, they consistently have reported better health status and health behaviors (lower rates of smoking and obesity and higher rates of regular exercise) than individuals with traditional coverage.

What does this mean to employers? CDHPs appeal to those who are healthier because they know their out-of-pocket health expenses are unlikely to max out their account balances. The plans’ tax advantages also mean more to higher income individuals. Finally, more educated individuals have greater resources to research and discuss prices with their healthcare providers.

If you offer a CDHP, consider the following actions to help your employees get the most out of their plan:

• Encourage your employees to take advantage of coverage for preventive care services. The law permits an HSA-qualified HDHP policy to cover certain preventive care services, such as prenatal care, immunizations and cancer screenings, before insureds meet their deductible. All plans that fall under the Affordable Care Act guidelines provide first-dollar preventive care for annual exams and a prescribed list of other services deemed “preventive.”
• Implement disease management programs to help your employees control common chronic conditions. This might vary by employee population, but common—and costly—controllable conditions include asthma, high blood pressure and diabetes.
• Consider supplementing your health plan with wellness benefits.
• Offer free health information resources. Many insurers provide online health information or free health counseling services by trained nurses. If your insurer offers these services, make sure employees are aware of them.
• Educate your employees on how their plan works. Most insurers will offer enrollment materials. You can supplement these with information showing the tax advantages of various plans and how account balances can grow (for health savings accounts), as well as the costs involved.
• Consider supplementing your major medical plan with critical illness or hospital indemnity coverage. These coverages, available on an employer-paid or voluntary basis, pay benefits directly to insureds when they have a covered illness or hospital stay. Insureds can use these benefits to cover the high cost of deductibles.