The Pros and Cons of Consumer-Driven Healthcare
For the past fifteen years, a relatively small but growing number of businesses have been offering an alternative to traditional employer-managed health care: consumer-driven health care.
Consumer-driven health care is a name for the practice of setting up employee health plans with low premiums, high deductibles, and savings accounts. The goal of these plans is to reduce costs for employers, prompt employees to make more educated decisions about the care they seek, and increase the percentage of employees that have access to insurance. The reality, however, is not that simple, and there are a number of pros and cons to consumer-driven health care.
When consumer-driven health care was first introduced in the early 2000s, it was wildly unsuccessful. It was simply a way for employers to shift the cost of health care onto their employees. Sure, consumers had more options, but none of them were good. The high deductible and tax-exempt nature of the savings account meant that both the employer and the employees were spending less money on health care upfront, but if the employee got sick the majority of the cost was deferred onto them, whereas with a plan with a lower deductible the employee and employer would share the costs more evenly.
The intention of consumer-driven health care was to encourage employees to shop around for cost-efficient care, but few employees actually possessed access to reliable information about the cost and quality of their care, and while the consumer-driven plans encouraged employees to reduce their use of unnecessary health care, employees also reduced their use of necessary health care because they felt they could not afford it. Consumer-driven plans require employees to be able to differentiate between necessary and unnecessary care, which many medically untrained people are unable to do.
Overall, consumer-driven health care plans (CDHPs) haven't had the best track record. Seven years after their implementation, employees reported an on average 25% lower rate of satisfaction compared to traditional employer-managed plans.
CDHPs aren't entirely bad, however. In fact, they show quite a bit of promise if they are applied correctly (and the advent of cost transparency over the last few years has also helped to inform consumers immensely, though we’ve got plenty of room for improvement).
First of all, these plans are successful at their primary goal: reducing employer spending on health care. And although this reduction is relatively modest, even a small difference in expenses can be the difference between being in the red and being in the black for many businesses.
Second, consumer-driven health care plans also save money for employees who are generally healthy, because those employees don't need to spend as much on their premiums and rarely make use of care. This allows those employees to put the money they save from the lack of hospitalizations and doctor's visits right into their pockets.
In addition to the (albeit conditional) savings that consumer-driven health care plans provide, there is an arguably greater benefit: employees under those plans spend less on unnecessary care. The plans also deter employees from seeking necessary care, but when the employees do seek necessary care they are far more likely to ask doctors about alternate treatment options and to request generic versions of medication instead of name brands. Despite their flaws, consumer-driven health care plans do make a difference in how discerning employees are with their health care choices.
The whole philosophy of consumer-driven health care plans is to put the power in the hands of the employees. And while these plans have quite a few flaws, they are most definitely serviceable if these flaws are corrected. If employees are educated on the difference between necessary and unnecessary care and provided with accurate information about the cost and quality of local care, consumer-driven health plans could become the new normal going forward.