Consumer Driven Healthcare

What you need to know about consumer-driven health plans

A mid-career engineer, Michael Eckman, 37, bounced back from a year of unemployment by recently landing a new job about 15 miles northwest of Philadelphia. It happened quickly. He sent the initial application on a Wednesday, heard back that Thursday, interviewed Friday and received an offer a week later.

Once employed, his benefit choices emerged quickly, too.

For health insurance, he had two options: He could access a traditional preferred provider organization, which would organize every aspect of his healthcare.

Or he could enter a “consumer-driven health plan.”

The latter option, he said, would give him an annual cash allotment earmarked for heath expenses.

It was intriguing. But one element of the plan made him nervous: The annual cash allotment wouldn’t roll over yearly. He’d have to spend it or lose it each year.

“I felt like it was asking, ‘Do you plan on being sick or healthy this year?’ ” he says. “What kind of a question is that?”

Eckman is healthy; he said he’s been to a doctor only a few times since college.

“Life is complicated enough,” he says. “The PPO was just simpler. Everything was taken care of without my having to think about it. It was worth the extra few bucks per month.”

A recent Employee Benefits Research Institute study seems to indicate that people with high annual earnings are making similar decisions. The study found that the average household income of CDHP enrollees had significantly decreased: In 2005, CDHP enrollees were more likely to have a household income of $150,000 or more, according to the study, but by 2010, CDHP enrollees were more likely to have household income between $50,000 and $100,000.

Are high-income earners dropping consumer-driven health plans?

No, says Roger Feldman , a professor of health insurance at the University of Minnesota who has co-authored various scholarly reports on consumer-driven healthcare plans. The EBRI study is more an indication that these plans are becoming mainstream, he says. High wage earners aren’t dropping these plans; lower wage earners are signing up for them.

In 2001, when a handful of employers began offering CDHP plans, educated folks enrolled; they had degrees in higher education, they were wealthy and they were able to take on risk, Feldman says. That meant they could easily pay costs above their healthcare account balances if necessary.

Now, he says, education is less of a factor. More institutions offer CDHPs, so the number of enrollees has increased. The EBRI study confirms this to an extent; it shows that in 2010 about 12 percent of the healthcare market was represented by CDHPs – up from that handful of employers in 2001.

Making the Case for Consumer-Driven Health Care — HBS Working ...

Executive Summary:

Even as so-called Obamacare becomes a central issue in the 2012 presidential election, policymakers and academics continue the debate on how best to deliver affordable and efficient health care services to millions of Americans. In this video interview, professor Regina Herzlinger makes the case that consumers should have more say over their own care.

This growing awareness that our current system is headed on an unsustainable track is one reason that the business of health care is a major research topic at Harvard Business School and its Healthcare Initiative , where some 40 faculty conduct research on questions as diverse as how "work-around" cultures develop in hospitals to the best ways deliver high-impact medical services in developing nations.

HBS professor Regina Herzlinger has been the foremost advocate for what she calls " consumer-driven health care ." In this video, she argues that just as consumers drive the retail industry, so too should they drive health care.

The short sightedness of CDHP is very few are prepared "to shop" for medical services when there is a need.

The dynamic of need is much different than purchasing a new shirt.

The system needs to integrate healthy lifestyles and if we want to turn medical care into a "retail like" environment; change retail to be a health environment banning artificial or manufactured items from the grocery shelves.

Right on!

One problem with moving toward consumer driven health care is that in the current state of the health care market consumers cannot easily get accurate information about the price and quality of health care. It is virtually impossible get the information to really shop around.

We learned in the 20th century from the failed experiments of Soviet communism and European socialism that governments are extremely inefficient at delivering basic goods and services. This is especially true when they resort to command and control central planning instead of harnessing the tremendous efficiency that markets force onto both providers and consumers. Markets work really well to deliver goods and services, but they only work well when consumers and producers have adequate information. By improving the information environment, Truth in Healthcare will help the market to work better.

Consumer-driven health care, implications for providers, payers, and policymakers

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Consumer-driven healthcare, risk assessment and utilization in the individual market

Consumer-driven healthcare, growth, strategies, details and mixed options

Consumer-driven healthcare, cost shift or paradigm shift?