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The Myth of Consumer-Directed Health Care

The theory behind “consumer-driven health care” is that when the health care user has more financial ‘skin in the game,’ they’ll become more informed and effective purchasers of health care for themselves and their families. That theory hasn’t translated into practice, based on data from the Employee Benefits Research Institute’s (EBRI) latest Consumer Engagement in Health Care Survey.

Health Reimbursement Accounts (HRAs) began appearing in employer benefit packages around 2001, with Health Savings Accounts emerging in 2004. 20% of large employers (with >500 employees) offered either an HRA or HSA plan in 2010, covering 21 million people or 12% of privately insured people in the U.S. Among these, there were 5.7 million accounts in 2010 containing $7.7 billion (including a couple thousand dollars from my own household).

Employees with HRAs and HSAs who exercised, didn’t smoke, and weren’t obese had higher account balances and higher rollovers than those who had less healthy behaviors.

EBRI asked employees with HRAs and HSAs questions concerning cost-conscious health behaviors to see if there was a link between those behaviors — representing cost- conscious processes for health decisions – and account balances. EBRI’s hypothesis was that the higher the account balance, the more likely the individual engaged in the behavior. All of the questions are arrayed in the chart; these include checking whether the employee’s health plan covered a medication; checking the price of a doctor’s visit; checking a quality rating of a hospital; talking with a doctor about the cost of treatments and prescriptions; and asking for generic drugs.

No relationship was found between either HRA/HSA account balances or rollover amounts (shown in the chart) with respect to cost-conscious behaviors.

Jane’s Hot Points: Over the past decade, employee benefits consultants and certain health policy theorists have pointed to consumer-driven health care (CDH) delivered through healthcare reimbursement accounts as an effective vehicle for bending the cost curve of health in the U.S. EBRI’s data should give CDH proponents pause. Consumers don’t behave in straight-line, lock-step fashion when it comes to health care consumption: the general rules of Economics 101 don’t apply for a whole range of reasons I and many other economists have discussed. Here’s a post I wrote in February on Anthem’s price hikes that highlights some aspects of market failure in health care.

Don’t assume that consumers having more financial skin in the health care game will make them smarter health consumers. Many health citizens make what seem to be smart fiscal decisions for health care consumption in the short run — like postponing visits to doctors when they feel ill, or skipping doses of medication. These often lead to longer-term dismal physical outcomes.

Jane Sarasohn-Kahn is a health economist and management consultant that serves clients at the intersection of health and technology. Her clients include all stakeholders in health, including providers, payors and plans; companies in biopharma, medical devices, financial services, technology and consumer goods; non-profits and NGOs. Jane’s lens on health is best-defined by the World Health Organization: health is a state of complete physical, mental and social well-being and not merely the absence of disease or infirmity. She blogs at HEALTHPopuli.

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  3. During the boom years, employers courted health insurance companies to provide benefits as part of an attractive employment package. Doctors made the decisions about treatment and health care insurance and employers made the financing decisions. Where was the consumer in any of this? In my opinion this caused a recipe for the disaster we are experiencing today. This allowed for a burgeoning growth of the health care industry alongside the increase of health care costs far above what the average American can afford.

    The free market moans and groans about government intervention and regulation but yet when bubbles burst and recessions hit, it seems the free market largely has created the conditions where the government inevitably has to get involved. Usually by the time government has to get involved, the only alternative left that will fix things is often a most unpalatable one because the market situation has gotten that bad.

    I’d rather be able to shop around for the best health care and not have government ration it out for me. But I can’t afford basic health care now and won’t ever be able to in the future either so my only hope is my current health care package provided by my employer or a government program. Yeah!

    One thing is clear, there has to be a better market system than this but I am not smart enough to propose one yet.

  4. I was intrigued by the comment that we already have rationed healthcare in the US and that the rationing is being done by the Health Insurance Companies. In the interest of full disclosure I work for a large Health Insurance provider, I subscribe to a HSA using a CDHP Plan as part of a HIGH Deductible PPO.

    Although, I agree that there is room for improvement in all areas of our health care system, I find it difficult to believe that the insurance companies are the root of all evil, and the cause for all things bad with our broken system.

    Please help me understand how the insurance company is rationing health care in this example. My wife has a thyroid problem that has been managed effectively for several years. Every few years she needs to have a blood test done to ensure that the medication is at the appropriate level (very small dosage levels can have a dramatic effect). To save money she decided to use our Primary Care provided for a very simple blood test and not go to the specialist. That’s what CDHP is all about right????

    The cost for this very simple test: $181.00 to say hello to the Primary Care Provider and have blood drawn, $729.00 to have the blood sent to a hospital to do the analysis to determine if her dosage was correct. Total cost to me through my High Deductible Insurance policy $ 910.00 I’m sorry but how is 1000.00 to get a blood test done Insurance Company Rationing? I suspect that 700.00 dollars of that cost is for all the people that use the hospital without insurance and/or the integrity to pay for services.

  5. It’s quite simple, health care is not like buying anything else and the average person is unable to make objective decisions (for good reason). In addition, we have forgotten what insurance is all about. Health insurance i snot insurance at all, people expect 100% coverage for everything.
    Auto insurance does not cover oil changes, new tires or other routine maintenance, but health “insurance” does. That is the essence of the problem, people do not see spending $100 on health care in the same way they spend $100 on anything else. It is still $100, why the difference?
    http://www.quinnscommentary.com/category/healthcare

  6. “How do you provide a long term study for something that hasn‚Äôt been around a long time? It has only been a few years that CDHPs have had enough participation to do much meaningful analysis.”
    “I made it as an administrator of benefit plans working with thousands of groups and tens of thousands of members.”
    So you think now you are able to provide “meaningful analysis” without data for long term study.
    “those under 65 are both healthy and unhealthy and your point makes no sense nor is it even close to accurate.”
    So tell me why an unhealthy person would choose a HDHP? Do your members (employees) and their dependents get a choice of HD and traditional in the company plans you administer?

  7. The variables in question are confounded by the fact that neither EBRI, the employer, the insurer, nor the HSA bank know how the patient is paying his bills. People who know how to use their HSAs know that one should not pay out of the HSA for medical costs if one has after-tax cash flow available. Better to let the HSA balance compound. So, looking at the HSA balance in isolation tells us nothing about health spending on a current-year basis.
    BTW, the criticism often hurled at HSAs – that they are merely another tax-deferal tool for high earners, is more likely to become true under Obamacare, which makes us launder more of our money through insurers for first-dollar coverage.

  8. This is not surprising. The public isn’t good at financial skin in the game whether in healthcare or retirement planning. This is exactly why I wrote my book to provide those who are interested the skills and knowledge on when to spend money from HSAs and when to safely skip.
    Americans frankly don’t want to be empowered patients, the latest thinking in fixing the healthcare system. They want a system that allows access to care that is simple, convenient, and personal. http://davisliumd.blogspot.com/2010/09/empowered-patient-is-this-what.html
    Organizations that can do that will win and redefine on how Americans can and should get care.

    Davis Liu, MD
    Author of Stay Healthy, Live Longer, Spend Wisely: Making Intelligent Choices in America’s Healthcare System
    (available in hardcover, Kindle, and iPad / iBooks)
    Website: http://www.davisliumd.com
    Blog: http://www.davisliumd.blogspot.com
    Twitter: davisliumd

  9. For your health care blog I’d like to address a national health care plan…it could be relatively simple: ALL U.S. citizens should be eligible for the same level coverage as every member of Congress has access to……afterall, taxpayers pay for their insurance coverage…..

  10. Did you read these Peter?
    “Research does show that CDHP enrollees clearly demonstrate cost-conscious behavior, according to the Employee Benefit Research Institute (EBRI).”
    How does Peter link to this right after you say;
    “HD/CD/HSA plans are designed to control spending not designed to control costs”
    I guess if you cover all sides of an argument your always right

  11. Few points for you Peter,
    How do you provide a long term study for something that hasn’t been around a long time? It has only been a few years that CDHPs have had enough participation to do much meaningful analysis.
    Can you show me a long term study suggesting worse outcomes? Seems your very biased and vocal opposition doesn’t even have anecdotal evidence to support it yet you feel free to spew it.
    Your use of anecdotal biased opinion to dismiss or disagree with my comment relies on misusing anecdotal. It’s an undisputable fact that someone asking to switch to a generic is controlling cost. It is also a fact using a nurse line instead of the ER controls cost. There is nothing anecdotal about this statements. My only statement that could possibly be anecdotal is that CDHP members review outcomes more than traditionally insured members. If I made this statement based on my cousin calling when my uncle didn’t then you could dismiss it as anecdotal. I made it as an administrator of benefit plans working with thousands of groups and tens of thousands of members.
    I would suggest you follow this link and read up before using that argument again.
    http://en.wikipedia.org/wiki/Anecdotal_evidence
    “Accounts of direct personal experience are commonly equated to anecdotal evidence where this form of evidence is not one of the above categories of anecdote, hearsay or conclusion deduced from generalisation. Unlike anecdotal evidence the reliability of accounts of personal experience is normally capable of assessment for legal proceedings.”
    Jump to the Scientific context part and notice that not one of those apply.
    ‚ÄúYou’d also have to account for income and initial health status in the study.‚Äù
    If you did the analysis on specific individuals and their change in consumption and cost pre and post CDHP you would not account for either.
    “I would also assume that working age group employed are a healthy population to begin with,”
    And you would be an ass. What about working age married to the group employed? Or non working age dependent of the group employed? Or how about not working age retired from the group employed? Let me make it easy for you Peter, those under 65 are both healthy and unhealthy and your point makes no sense nor is it even close to accurate.

  12. Nate, can you show me a long term study, not your own anecdotal biased opinion, that there are as good or better long term outcomes, financial and medical, for HDHP/HSA? You’d also have to account for income and initial health status in the study. If insurance companies did their own medical analysis before offering high deductibles I’d be very surprised, but I know they would have done their own corporate financial analysis. I would also assume that working age group employed are a healthy population to begin with, and of course you can’t loose with a HDHP if you are(stay) healthy.
    http://www.managedcaremag.com/archives/1001/1001.downstream.html
    http://www.lifeandhealthinsurancenews.com/News/2010/10/Pages/HDHPs-Cause-Some-Californians-to-Delay-Care-UCLA-.aspx

  13. “HSA in my view is just a means to maximize profits”
    Gary can you please link to any study or analysis showing HSAs are more profitable than traditional PPO plans? Being that traditional plans are considerably more expensive I would expect them to provide a higher profit. For example it is much easier to make $10 on a $300 premium then it is on a $100 premium.
    Just curious where this view came from as it seems counter logic.
    “Besides you can’t spend it on anything but sick care.”
    All those federal laws allowing them to pay, actually requiring they cover preventive care are imaginary? You remind me of Ezra Klien, he use to love ranting about HSAs and how they were sexist becuase women have more preventive health needs and HSAs didn’t cover preventive health, of course he was just being his typical ignorant self and women actually got better coverage from HSAs for the exact opposite reason Ezra cited, facts were never his strong suit.
    “,HSAs are like buzzards picking the bones of insurance members without delivering a product.”
    they reproduce like rabbits
    “HD/CD/HSA plans are designed to control spending not designed to control costs or give better outcomes.”
    And you know this from where Peter, your long history selling HSAs? Your long time administering them? Maybe you have had one for 5 years now? Or Gary told you so?
    When someone with an HSA ask to switch to a generic how is that not controlling cost? When an HSA member calls the nurse line instead of running to ER that doesn’t control cost? HDHP members are far more likly to review provider outcomes then those not on a CDHP plan.
    Is it possible they are just to difficult for you to understand so you find it easier to bash them for made up reasons? HSAs, Gary’s personal windmills….

  14. HD/CD/HSA plans are designed to control spending not designed to control costs or give better outcomes. I guess you’d have to track long term outcomes and eventual account balances to determine if these plans really are financially better. They attempt to make the patient the medical expert who knows better than the doctor. But surely higher income plan holders do better than low income in the, getting seriously ill lottery.
    “I do ask my doctor what things cost”
    I agree that doctors should be held to some sort of treatment cost control accountability, but having them know the patient cost for every procedure/drug is just not realistic, unless they have up to date computer listing and the time to discuss with patient, which would increase costs. Such patient monitored cost control may work OK for PCPs but you can throw it out the window in hospitals – the real cost driver in this system.
    Inventive insurance plans designed to shift risk are not the solution to high cost medical care or even appropriate care.

  15. Conventional Health Insurance is balooning so quickly that affording the premiums and paying for perscription drugs is just about as affordable as it gets. HSA in my view is just a means to maximize profits and further ration care with Higher Deductable.The conversation on whos healthty and who is not as Healthy is bullshit. The Fact is with the Inflated cost of Doing business and the superficially Inflated Hospitalization Prices can empty anyones savings account in No time! Besides you can’t spend it on anything but sick care.
    In todays work environment ,HSAs are like buzzards picking the bones of insurance members without delivering a product.

  16. “You better believe she heard from me about that. I make it a point to tell her, this is my money, not “insurance” money, so let’s review the options.”
    Adding 5 minutes to every office visit.
    Steve

  17. Most CDHP have built-in, upfront coverage for many preventive services, and there’s no reason for them to skip going to a doctor if they are sick. But if they’re paying with their own money, they’re more likely to call the health plan’s advice nurse first, to see if their symptoms really merit a doctor visit, watchful waiting or just symptom relief.
    If people are skipping their medication, they may simply need better education about what that means to them. Skipping one day may not hurt, so they think it’s ok but it’s not. There’s a whole lot of $4 options at drugstores, so cost isn’t the entire issue.
    Full disclosure: I work for a health insurer and I have a CDHP, and yes, I do ask my doctor what things cost, especially after she prescribed a $120 antibiotic that turned out not to work. But the $7 one did. You better believe she heard from me about that. I make it a point to tell her, this is my money, not “insurance” money, so let’s review the options.

  18. “That theory hasn’t translated into practice,”
    This study can’t support that claim. Account balance is a meaningless measure when not controlled for health. A sick person who exceeds their HRA balance by $500 is counted as no less informed and effective as someone who exceeds their HRA balance by $5000. Obviously not true.
    Before you even begin to try and make your argument you would need to compare pre and post enrollment in an HRA/HSA to see if individuals have a change in consumption.
    As an alternative you could do transaction comparison, take a pool of people who bought name brand drug and generic drug and see how many had a traditional plan and how many had an HRA/HSA.
    “Don’t assume that consumers having more financial skin in the health care game will make them smarter health consumers.”
    Not that reality matters to academics and propagandist but I don’t have traditionally insured members calling for alternate therapies, Rx, providers, or suggestions at nearly the rate CDHP members do. The inflation in HDHP plans is also lower than traditional plans.

  19. I’m not a big fan of CDHP, but this is no smoking gun. In order to know whether CDHP plans are having an impact on costs, there are more relevant things to look at than HSA/HRA account totals or rollover amounts. Like, for example, health care costs!
    One reason there may be no correlation between cost-conscious behaviors and account balances is that the people who are more cost-conscious are either poorer and have less to contribute to the accounts (which would make sense) or they judge themselves to be more able to assess their likely future costs and feel less need to “pad” the account for unexpected expenses (this kind of makes sense, but given the tax angle it would still be irrational not to max-out for wealthier folks).
    Also, what we really want to look at are comparisons of healthy behaviors and cost-conscious behaviors with (a) people in non-CDHP plans, and (b) the same people before and after getting a CDHP plan.

  20. Society today has a pill for everything and it seems that there is a new disorder of some kind every month. With medication prices at an all time high and simple doctor visits that can require payment plans without insurance, the health care industry has positioned itself as a necessity. And in doing so, have been able to command whatever premiums they deem appropriate. The health care NETWORK has to be addressed. How can premiums be lowered while doctors salaries increase? The media bombards us with the notion that we are ill. It’s a vicious cycle and addressing one entity in the equation isn’t going to create more affordable health care or insurance.

  21. This analysis of HRAs & HSAs is interesting. The conclusion that this demonstrates CDH ineffectiveness is wrong, as no causal evidence is presented that directly links the conclusion to the data. HRAs & HSAs are not a proxy for fully realized CDH, as economic theory has demonstrated drastic difference in behavior when participants are partially at risk versus fully at risk. Money alone is also not the sole measure of CDH behavior modification effectiveness.
    This appears to be some political gimmick to spin data presented in a graph to support a personal opinion.
    This blog would be better served by publishing articles from authors who provide genuine health care analysis than by people pushing their agenda.

  22. We can agree that incentives matter while disagreeing, or admitting the degree of our lack of knowledge about the extent to which they make a difference. Just because there is an incentive deos not mean it is powerful enough to oversome a host of other factors that can influence a decision.
    As for the impact of HDHP’s and HRA’s I wonder how typical Dr. Marcinko’s experience is? That is healthy , well to do people are very happy with them. Basic insurance premiums are low and you get a tax advantage. While sick or poorer people see little benefit because their out of pocket costs are basically beyond their control and tax treatment is irrelevant.

  23. Something needs to be done to contain costs. We use third parties for a reason, and we’ll still be using third parties even with HDHP and HSA, at least for catastrophic illnesses. But the costs, whether third party or HDHP with HSA, are going to eat more and more of income as a percentage, I don’t see that changing.
    The people that argue for HSAs because doctors will give them a break seem to be missing the point that they are getting the same price cuts as insurance companies, at best. Who do you think is in a better leveraging position, one individual or a company that represents tens of thousands if not more? I wouldn’t be surprised if it wasn’t written into the insurance company’s contract.

  24. Having an HSA and paying the more of the cost health care directly is only half of the equation. To understand the impact that consumer driven healthcare can have you need to understand the openness of the health care system. Currently the information available to health care consumers is not complete. I have a high deductible health plan and an HSA. It is very difficult to compare prices between providers. Additionally information regarding success rates and effectiveness of service providers is difficult to obtain. When care is needed urgently there is not time to perform this analysis. In contract, if you want to buy a TV or almost any other item, volumes of information is readily available. Consumers can easily find retail prices, sale prices, expert reviews, consumer reviews, and product details. The information informs the decision making process and, as a result consumers (usually) make better decisions. Providers are forced to compete with each other in the open. This competition brings about lower prices and higher quality as the lower quality/higher priced providers will lose market share to their competition. Only when the health care market reaches this level of openness will you be able to gauge the effectiveness of consumer directed healthcare.

  25. I feel as though you must be reading a different EBRI study than I am. The December Findings from the Consumer Engagement study explicitly says (p.1):
    “MORE COST-CONSCIOUS BEHAVIOR: Individuals in CDHPs were more likely than those with traditional coverage to
    exhibit a number of cost-conscious behaviors, such as having checked whether their plan would cover care; asked for a generic drug instead of a brand name; talked to their doctor about prescription drug options and costs; talked to their doctor about other treatment options and costs; asked their doctor to recommend a less costly prescription drug;developed a budget to manage health care expenses; and checked prices before getting care.”
    Other studies have indicated similar results, although certainly not universally accepted. The slowdown in national health spending in 2009, released in October, was widely attributed to the effects of the recession — e.g., consumers were watching their money more closely.
    One can’t just look at account balances & rollover amounts, as other factors, such as employer contributions, factor in to those.

  26. Why HSAs are no Longer a Banking Industry Pariah?
    Jane РI’ve had a High Deductible Healthcare Plan [HDHP] coupled with a Health Savings Account [HSA] for my family, and consulting firm, for more than a decade. We’ve been very pleased with it thus far.
    No significant health problems along the way; just a few scares that proved costly, but benign, because of physician over-protection, over-reaction, or liability phobia; i.e., its better to be safe, than sorry!.
    More: http://medicalexecutivepost.com/2010/01/25/why-health-savings-accounts-are-no-longer-a-pariah-in-the-banking-industry/
    Dr. David E. Marcinko MBA
    http://www.MedicalBusinessAdvisors.com
    [Atlanta, GA]

  27. People do make fiscal decision concerning their healthcare because they are not use to paying the provider directly. However in response to Elena, the U.S. already has rationed healthcare, rationed by the insurance companies. So in essence if you are a healthcare consumer, with or without insurance, you already have rationed healthcare.
    Also, because so much of the consumer’s income is going to paying constantly raising insurance policies, with much less coverage, they are either unable or unwilling to spend more.

  28. The reason we don’t see real results from consumer driven healthcare is that the current products out there do not go far enough to create incentives for consumers. As long as there is a 3rd party payer, there will always be overconsumption. Period. Unless we put in place rationing as in countries like the UK and France- where the cancer mortality rate is much higher than that in the US. This research does not warrant the conclusion of “Don’t assume that consumers having more financial skin in the health care game will make them smarter health consumers.” Instead of critiquing the current efforts at improving the system, why not suggest some alternative solutions? Maybe we give everyone free healthcare and force them to get their annual exams- upon penalty of fines or jail?

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