Consumer driven health care will only shift costs if implemented poorly

The creation of consumer-driven health plans (CDHPs), health insurance policies with high deductibles linked to a savings option and with more financial responsibility shouldered by patients and employees and less by employers, was completely inevitable.

The American public likes to have everything, whether consumer electronics or other services, as cheap as possible. With escalating health care expenses rising far more rapidly than wages or inflation, it’s not surprising employers needed a way to manage this increasingly costly business expense.

In the past, companies faced a similar dilemma.  It wasn’t about medical costs, but managing increasingly expensive retirement and pension plan obligations. Years ago, companies moved from these defined benefit plans to defined contribution plans like 401(k)s. After all, much like health care, the reasoning by many was that employees were best able to manage retirement planning because they would have far more financial incentive, responsibility, and self-motivation to make the right choices to ensure a successful outcome.

How did that assumption turn out anyway?

Disastrous according to a recent Wall Street Journal article titled Retiring Boomers Find 401(k) Plans Fall Short:

The median household headed by a person aged 60 to 62 with a 401(k) account has less than one-quarter of what is needed in that account to maintain its standard of living in retirement, according to data compiled by the Federal Reserve and analyzed by the Center for Retirement Research at Boston College for The Wall Street Journal. Even counting Social Security and any pensions or other savings, most 401(k) participants appear to have insufficient savings. Data from other sources also show big gaps between savings and what people need, and the financial crisis has made things worse.

In others words a lot of people don’t have enough money to retire.   The options they have are simply “postponing retirement, moving to cheaper housing, buying less-expensive food, cutting back on travel, taking bigger risks with their investments and making other sacrifices they never imagined.  In general, people facing problems today got too little advice, or bad advice.”

Though employers were able to manage retirement expenses, employees paid a significant price.  This wasn’t intuitively obvious in the 1980′s when these plans became more commonplace.  Over the past decade, the less than rational behavior by employees hasn’t gone unnoticed by those who study behavioral economics or those in the government.  As a result, more organizations and companies are nudging employees into the right behaviors with auto-enrollment into 401(k) plans and auto-allocation of these funds with protection from any future liability as noted in the Pension Protection Act of 2006.

The analogies to health care and specifically consumer-driven health plans should be clear.  Workers don’t save adequately for retirement even when in their best interest.  It’s very likely that workers won’t save money adequately to fund future health expenses.  After all, if people can’t fund retirement, something we undoubtedly all look forward to, which one of us is willing to saving for chemotherapy or open heart surgery, which no one wants?  According to the annual Kaiser Family Foundation Employer Benefits Survey, the average annual deductible for single coverage and family coverage is nearly $2000 and $4000 respectively for health insurance plans that are health savings accounts (HSA) eligible.   The deductibles are slightly lower in health insurance policies that are linked to health reimbursement arrangement (HRA).  About 13 percent of employees are covered under either plan.

Unlike those in retirement planning who can work longer, even if not desirable, employees who are ill may not have an option to work to pay for their medical expenses.  There continues to be evidence that people are curbing their health care due to the ability to pay.

Though experts debate on whether this is a good thing (patients are avoiding unnecessary and expensive therapies and opting for less pricey but equally as effective options) or a bad thing (patients are avoiding the preventive screening tests or therapies that overall can decrease future costs), the opportunities to ensure patients make the right choices should be clear from workers’ less than optimal experience with 401(k)s.

If employers wish to help curb medical costs, then they will need to engage workers with programs like employee wellness, assisted decision making (either as second opinions or patient-friendly informed consent), and access to medical experts, equivalent to personal financial advisors, who may be able to help workers make the right choices for their health.  Within the business community, there is some acknowledgment that access to these tools will be necessary to not only manage costs but keep employees healthy and productive.

Done correctly, consumer-driven health care can be what everyone hoped they would be, nudging healthy behaviors and slowing health care costs with workers selecting only cost-effective therapies.  If implemented poorly and organizations simply shift health care costs and financial responsibilities to workers like retirement planning decades ago, the nation will need to accept more than ever that increasingly more people get the medical care based simply on their ability to pay and not on medical necessity.

As a practicing primary care doctor, I hope that day never comes.

Davis Liu is a family physician who blogs at Saving Money and Surviving the Healthcare Crisis and is the author of The Thrifty Patient – Vital Insider Tips for Saving Money and Staying Healthy and Stay Healthy, Live Longer, Spend Wisely.

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  • doc99

    Whose healthcare is it anyway?

  • Dan Ross

    Dr Liu:
    You made some very good comments concerning the need of employers and members to embrace wellness, access patient advocates and healthier lifestyles. CDHPs, however have a negligible role in making this happen. These plans are the MCO industry’s last gasp to align their own short-term financial interests to the exclusion of patients and employers.

    (1) In the employer provided health market the expense distribution ratios, or percentage of members nailing the plan are dramatically low. 1% account for 25-30% of expenses and the next 4% an additional 25-30%. So, 5 out of 100 members use 50%+ of all plan assets annually. On the other side 70% spend an average $300-$400 annually. How is an increased deductible to $2,000 annually going to impact the diabetic patient with COPD and CHF? Not very much I opine! However, the diabetic or patient with undiscovered heart disease spending $200 may stay away from a $1,000 cardiology testing visit.

    (2) HDHPs cannot make consumers out of patients without the availability of emmense, easily understandable, volumes of quality data (Einstein couldn’t find this today) removal of financial barriers (the opposite of HDHPs), patient work-place delivered education and a strong emphasis on helping members suffering from depression. I seriously doubt they can be implemented correctly across wide demographic groups of employees and dependents. Health savings accounts? The HSA rules make 401K plans seem like kindergarden.

    I hope plans put physicians in charge, eliminate the fee-for-service models, pay docs well and significantly bonus outstanding performance. We have plenty of dollars in play. We simply need to reallocate a percentage from inpatient hospital to prevention services managed by physicians.

    • BobBapaso

      The doctor is supposed to understand the immense volumes of date (what else are doctors for?) and then present the reasonable options to the patient in simple terms. Then the patient decides which he wants to spend his money on out of his HSA.

      We probably need a required minimum annual contribution to HSAs, kind of a semi-tax. And an inheritance tax on those dying with a surplus in their HSA could fund accounts for the poor.

  • Dan Ross

    Come-on Bob? Where are you finding these super doctors? No one, including the super MCOs, know the cost of procedures within their own networks. Docs are left in the dark concerning cost and have no way to know the care being dished out by other physicians. (open access networks) Sick patients can easily see 20 different physicians during a 2 year period.

    Additionally, how are the physicians able to accomplish all this data mining in a 10 minute patient visit?

  • BobBapaso

    Doctors should know the cost of what they prescribe and recommend! It is no harder than having a PDR on your desk to check the appropriateness of any of the thousands of drugs you might consider prescribing. If you didn’t have a PDR you could save the package inserts each time a drug salesman dropped off samples.

    If patients ask the price because they were paying out of their HSAs, and doctors were in private practice, doctors would find out.

  • Anon-MD

    Pardon me, but can you explain why our nation should go into debt to avoid these “horrors” …

    Those are perfectly reasonable responses to either poor planning or a bad economy … why do you think it should be otherwise?

    • Anon-MD

      Part of my comment “disappeared” … the “horrors” I alluded to were these:

      “postponing retirement, moving to cheaper housing, buying less-expensive food, cutting back on travel, taking bigger risks with their investments and making other sacrifices they never imagined.

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