A colleague of mine recently had minor surgery. Here’s what he wrote me afterwards: “I just got my bill (the real bill, not what I have to pay). The surgery alone was more than $7,000. The ‘recovery room’ charge, which consisted of a bed with clean sheets and 45 minutes of sitting around eating a bad bagel, was more than $1,000. The notion that anyone can put away enough money in an individual savings account to cover all ultimate health costs is utterly absurd.”
Yet that “absurdity” is a big part of the thinking behind so-called consumer-driven health insurance, which is slowly becoming the next big thing in health-care cost control. Consumer-driven health plans (CDHP) offer lower premiums in exchange for higher deductible or out-of-pocket limits, which would be funded by a tax-deductible health savings account paid into by, of course, the consumer. The theory is that when people are forced to actually pay for their care, they will choose more prudently and help bring everyone’s costs down. These plans wouldn’t expect my colleague to pay his entire bill -- including the bad bagel -- out of his account, but they might encourage him to order the generic painkillers at the pharmacy on his way home.
One public-sector CDHP zealot is Indiana Gov. Mitch Daniels. His state’s employees have been on a CDHP since 2006, and this year 90 percent of the state workforce will be signed on. Daniels has written opinion pieces in several publications, including The Wall Street Journal last March, where he called health care as usual, “a machine perfectly designed to overconsume and overspend.” The typical health plan, he wrote, “signals individuals they can buy health care on someone else’s credit card.”
But is putting health care onto a personal credit card a better idea? Most consumers, if that’s what sick people really are, don’t think so. According to Stateline.org, 22 other states have voluntary CDHPs, but only 2 percent of government employees have signed up. (The private sector doesn’t fare much better, where just 17 percent of employees are now covered by consumer-driven plans.) And it’s not clear yet that CDHPs make much difference in the big cost picture. Data from the Employee Benefit Research Institute (EBRI) show that, overall, these plans only save about 1 percent over traditional plans.
CDHPs are typically the choice of younger and healthier employees. They don’t see the doctor much, and they tend not to have chronic illnesses so their out-of-pocket costs are low. For older workers with existing medical conditions, a CDHP might not add up. The key to deciding, says Paul Fronstin, director of the Health Research and Education Program of EBRI, is crunching the numbers. “The math is fuzzy,” he says, “but you need to do the math correctly.”
That’s hard for the average worker because not only is the math confusing, but in many cases workers don’t get all the information they need to make the computations, Fronstin says. The HR or benefits manager who puts the materials together may not know what’s needed to make a full cost comparison. “Insurance is already complicated, and it’s moving toward more complication,” he says.
Still, consumer-driven plans do make sense for some, and Fronstin says that over time, people in these plans grow satisfied with them as they understand how they work. “There is not a yes or no answer with these plans. You have to take the time to learn how they work and compare them with your other choices. You can’t just spend 15 minutes on it. You must take responsibility.”
Sooner or later, we’re all going to have to do that, adds Fronstin, referencing a recent EBRI survey showing continued growth in CDHP offerings. It’s still not entirely clear who saves money and who doesn’t. “But if you didn’t see [a consumer-driven plan] in this year’s open enrollment, you’ll probably see it next year.”