State Health Care Reform: Key Questions and Answers

Health | Policy Reports

No. 311
Monday, April 21, 2008
by Linda Gorman and R. Allan Jensen

Should We Encourage Consumer-Directed Health Reforms?

"Consumer-directed accounts allow individuals to control their own health care dollars."

For the purposes of this discussion, consumer-directed accounts are sums of money that people control, benefit from and can spend at will on certain broadly designated categories.  In health care, these amounts are usually combined with health insurance policies that have lower premiums, and deductibles of at least $1,100.  If people save money on health care, savings accumulate in their health savings account (HSA).  HSA balances belong to the individual account-holder, accrue interest tax-free and can be spent on any medical expense recognized by the Internal Revenue Service.  HSA balances can be willed to beneficiaries.  After age 65, funds can be used for other purposes.  Health Reimbursement Accounts (HRAs) are not owned by individuals and HRA balances may be lost when an individual changes employers.  Health care reforms that arbitrarily limit financing choices to a few government-approved options are not consumer-directed.

Most proposals for universal coverage do not promote any of the consumer-directed private or public-sector initiatives that have been reducing costs and improving health since the late 1990s.

The use of consumer-directed accounts coupled with high-deductible health insurance policies (HSA/HDHP) has grown rapidly since their inception in December 2003.  There were 1 million HSA/HDHP accounts open by March 2005.  The number rose to 4.5 million by January 2007.  Projections recently released by America’s Health Insurance Plans, an industry group, forecast that the use of HSAs will double in the coming year, and that the use of all consumer-directed products will more than triple.  In employer-sponsored plans, the Mercer National Survey of Employer-Sponsored Health Plans suggests that enrollment in consumer-directed health plans has risen to 5 percent of all employees.  The 2007 average cost per employee for HSA plans is $5,679, roughly $700 less than the average $6,644 cost for managed care, preferred-provider plans (PPOs) with deductibles of at least $1,000.  Mercer comments that this “lends support to the theory that the account feature encourages more careful health spending.”23

Private insurers have already begun to increase coverage and lower costs using consumer-directed account-based products.  The lower premiums associated with HSA/HDHP policies have helped reduce the number of uninsured:  An estimated 27 percent of the 1 million people covered by individual HSA/HDHP policies in force by January 2007 previously had no health insurance.  They are particularly appealing to the young: 39 percent of the people covered by HSA/HDHP policies are under age 29.  More than 80 percent of the policies offer disease management, covering conditions such as diabetes, coronary artery disease, congestive heart failure, asthma and chronic obstructive pulmonary disease.  More than 85 percent of the companies writing HSA policies offered health education information, information on physicians, hospital-specific quality data and health care cost information.  Seventy-two percent offered online personal health records.  Policies that are owned by individuals are portable from job to job and, if purchased from a national company, are often portable when someone moves to another state.24

"'Cash-and-counseling' accounts reduce costs and improve health for disabled Medicaid patients."

Consumer-directed account-based reforms have also reduced costs and improved health for disabled Medicaid participants.  The Colorado Consumer Directed Attendant Support Program, which enables people with disabilities to hire, train, supervise and fire their own attendants, has improved health while saving 20 percent or more on attendants for the disabled simply by freeing the participants from Medicaid regulation.  Similarly, the flexibility that the Robert Wood Johnson Foundation’s “Cash & Counseling” accounts brought to Medicaid spending by the home-bound disabled in other states also increased access to needed services and reduced unmet needs.

Results from private-sector employers like Wendy’s, John Deere and Whole Foods suggest that account-based consumer-directed health insurance also increases the use of preventive care.  Reports from other employers indicate that people covered by consumer-directed accounts are more compliant in their use of recommended medications and are more active in disease management programs.

A recent paper by Greg Scandlen reviewed the evidence on consumer-directed account-based health care reform and considered whether consumer-directed insurance has lived up to initial predictions.  Scandlen concluded that initial indications suggest that account-based insurance is changing patient behavior by reducing the demand for unnecessary services, encouraging higher compliance with treatment recommendations, and increasing the use of preventive care. The rate of cost increases has decreased substantially for users of the account-based plans.  There are early indications that account users are fueling a transformation of service delivery.25

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