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, MD, is a practicing board-certified family physician and author of the book, “Stay Healthy, Live Longer, Spend Wisely – Making Intelligent Choices in America’s Healthcare System.” Follow him at his blog, Saving Money and Surviving the Healthcare Crisis or on Twitter, davisliumd.

85 Responses for “Why Consumer-Driven Health Care Will Fail”

  1. Peter says:

    “Is 3 months of extra life worth $20,000 a month in Rx plus additional medical cost?”

    Aren’t you an anti “death-panel” guy Nate?

    “How much should we spend on non compliant diabetics?”

    How much should we tax diabetic producing habits?

  2. Nate Ogden says:

    “I see. you believe that the healthcare reform act removed almost all personal responsibility and told people that they are legally allowed to spend as much as they want.”

    Does it require insurance to cover an untold number of preventive benefits at 100%? Common sense these expenses are not insurable risk. Have doctors purposefully misclassified procedures as preventive for years to get them paid at 100% when they really were not? We have doctors call every week asking how to bill something so it will be paid under the preventive benefit.

    Does it impose a low out of pocket max annually? Once someone hits that cap what controls are there on their spending?

    Have you not read the bill Joe or do you somehow believe these are not real world problems that already happen and are being exasperated? You want to keep throwing buzz words out there but that’s all you seem to have. How does feedback loops on price prevent doctors from billing office visits as preventive when they are really treating a cold? What price controlling regulation is going to reign in hospital charges? Do you have anything besides faddy words to explain how any of this helps control cost? What does measurement do to control poor personal health decisions besides telling us people are making poor personal health decisions?

    You haven’t made one substantive comment yet. Your argument seems to be by throwing some big words on paper we will solve the cost problem, ignore the actual real world measureable increases these words are going to do it all.

    Peter you don’t have the intelligence to grasp the difference between a government panel saying you’re not allowed to have something and not being able to afford something so I won’t even try.

    How much should we tax diabetic producing habits?

    How do you tax a habit Peter? Do you want to nationalize your mommy’s swear jar? There is no such thing as a diabetic producing product so sales tax doesn’t work. Maybe we should hire one person to follow around every other person and keep a log of their taxable behavior?

  3. Joe Flower says:

    Well, Nate, if you’re going to combine insult (“Have you not read the bill Joe”…”buzz words”…”throwing some big words on paper”) with not reading what I have actually written (“You haven’t made one substantive comment yet.”), then I am not having a discussion with you. I certainly don’t have the time to once again lay out everything that I am talking about for someone who clearly did not read them in the first place, either in this discussion or elsewhere in The Health Care Blog.

  4. Peter says:

    “the difference between a government panel saying you’re not allowed to have something and not being able to afford something so I won’t even try.”

    So rich people should live (and consume health care resources) and poor people should die? How bout your Granny Nat, will she live or die?

    “How do you tax a habit Peter?”

    How do you enforce diabetic compliance – jail? You tax bad habits like you tax alcohol and cigarettes. Tax calories, sugar, fat – all usually in fast/processed food, and dedicate those taxes to paying for non-compliant diabetics, as well as heart disease and hip replacements from obesity. You’re a pay-as-you-go guy aren’t you Nate?

  5. [...] at his blog,Saving Money and Surviving theHealthcare Crisis or on Twitter, davisliumd. Tweet this Share on FacebookThe Health Care Blog Tags: care, ConsumerDriven, Fail, [...]

  6. [...] at his blog,Saving Money and Surviving theHealthcare Crisis or on Twitter, davisliumd. Tweet this Share on FacebookThe Health Care [...]

  7. CDHC Supporter says:

    Consumers don’t think CDHC will fail, assets in HSAs reached $10 billion!

  8. Research consistently shows patients are less satisifed with HSAs than traditional comprehensive health insurance. The popularity may not reflect that consumers really want it more than they don’t have a choice. Small employer groups are choosing HSAs because of affordability. Consumers are choosing some coverage rather than none.

    • Doug says:

      That is the market place at work. These absentee payor systems encourage high cost solutions and unproven solutions drive cost up an over time crash the system. Our humanity, the march of technology and are aging population create a marriage! Create a true consumer based system and prices and services level. Look at almost any non covered medical expense over the last twenty years and you will see little or no fee increases and in many situations decreases. My company WellCard Health is working a health product that uses this market based approach. We expect to have over 2 million users by the end of the year. Let’s move risk dollars to more catastrophic and chronic areas of health care.

  9. Nate Ogden says:

    I want a ferrari more then a pontiac that doesn’t take research to prove. Of course people prefer comprehensive plans that cover everything. That doesn’t matter though becuase people can’t afford such plans just like most people can’t afford ferraris.

    • E. Fazzaro says:

      Nobody dies because he can’t afford a Ferrari. People across this country suffer and die unnecessarily every day because they can not afford necessary healthcare. Some of these people still have no access to health insurance at all (thanks to the failure to expand Medicaid in many states) and some of them have only access to the fraud known as “consumer driven” health insurance which allows the insurance company to collect a monthly premium for a policy engineered to not pay for their medical expenses. People do not “prefer” comprehensive health insurance – they need genuine access to proper healthcare. What we do not need is a profiteering insurance industry between ourselves and our doctors, however it may be rearranged. We need a comprehensive, national public healthcare system like every other advanced nation has already had for years.

  10. Peter says:

    All American healthcare is the Ferrari where we pay for only Ferrari mechanics, but the only way you get to drive one is removing essential items. Can’t afford a Ferrari, ok, we’ll remove the engine, or the wheels, or the seats, now go drive your Ferrari.

  11. Could some of the dissatisfaction with HSA’s be due to a lack of clear prices for healthcare services? Most of the patients I see are not dissatisfied to know that a medication they need is $3.50 with free shipping or that a needed imaging study is $400 and not thousands of dollars. What patients hate is making a call to a healthcare facility and not getting a straight answer on the price of a service. Or worse yet, getting wrong information and then getting a much higher bill than anticipated in the future. Most people in our culture just want a clear price for a service and clear knowledge about what they are getting for their money.

  12. Nate Ogden says:

    “Most people in our culture just want a clear price for a service and clear knowledge about what they are getting for their money.”

    I wouls disagree and argue most people want someone else to pay the bill so they don’t have to worry about price at all. There is even less transparency in traditional plans and I don’t see anyone complaining there.

  13. C says:

    Great insight piece….unfortunatly this discussion is disappointing. Being an A** is not an effective way to generate a discussion or get your point across.

    I love reading THCB, particularly consumer engagement section – but HATE when people are arrogent in their responses, don’t provide support/reserach/articles for their statements and insult those who disagree with them.

    If making attacking statements/insults, at least provide your credentials so we can judge if you are even worth listening to. I don’t care if someone agrees or disagrees – unless they provide support and/or their credentials to make this statement. Research? Literature? Publication?.

    Ug…and as a consumer driven health care advocate in mental health, i am excited to see where this movement goes in physical health, and hopefully take lessons learned.

  14. nate ogden says:

    “Being an A** is not an effective way to generate a discussion or get your point across.”

    Is there a study or any polls at least to back this up? I thought I read someplace that the points of an A** are actually very well know so it actually is a great way to get your point across, might not endear you to many people but effective non the less.

  15. Bryan Price says:

    Representative Paul Ryan and the House Republicans are portraying their budget proposal for the next fiscal year as a courageous effort to finally bring federal spending on Medicare under control. An analysis issued last week by the nonpartisan Congressional Budget Office finds that the Ryan proposal would sharply reduce federal spending — but at the price of shifting more of Medicare’s costs onto beneficiaries and their families.

    How much more? Calculations derived from the C.B.O. analysis show that in 2022, when the Ryan plan would kick in, the typical 65-year-old would pay $6,400 to $7,000 more per year than would be paid for comparable coverage under traditional Medicare.

    Mr. Ryan’s proposal would change Medicare from an entitlement program in which the government pays for a defined set of medical services into a “premium support” program in which the government would give beneficiaries money to help them buy private insurance. He contends that competition among health care plans and more judicious use of health care services by beneficiaries can help bring down the cost of health care and reduce the federal government’s burden.

    But the C.B.O. says a private plan offering comparable benefits would be a lot more expensive than traditional Medicare because the private insurer would have higher administrative costs, would need to make a profit and, in an extrapolation of current trends, would pay hospitals, doctors and other providers substantially more than Medicare does. Beneficiaries would have to pay higher out-of-pocket costs or buy skimpier policies.

    The Ryan plan has no chance of becoming law while the Democrats still control the Senate and the White House. But if health care becomes a defining issue in the 2012 elections — as it should — everyone under the age of 55 is on notice that Mr. Ryan’s plan would impose heavy costs on them when they reach age 65.

    End snip.

    Funny how some non-partisan folk seem to think that costs are going to go up instead of go down or remain the same, despite any efficiencies that are supposed to happen.

  16. susan says:

    Having access to information and being able to ask questions of providers is key to this discussion. It’s a two-way street with responsibilities on both sides. Here’s a video that gives some great suggestions:

  17. Rick says:

    I thought the article by Dr Liu was insightful, especially and the analogy to
    the promise of 401Ks in the 1980s.

    My family has had a high deductible HSA eligible plan since I retired (after navigating the hazardous complexities of the 401K world) and it is a completely different experience than the managed care plan we were comfortable with, requiring decision making about doctor visits, tests, prescriptions, etc. Beyond that, additional book keeping for HSA accounts and tax filing was required.

    Based on my experience, I think the expectation that the average family can manage their own HSA high deductible plan is a fantasy. Heck, doctors can’t even tell you how much anything costs!

    I think managed care is a good model for health care. Every person for themselves (HSA) is a terrible model for health care and ensures we will have people lined up a emergency rooms for free care.

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