RAND Researchers Say Consumer-Directed Plans Can Save Money, but Effects on Quality Are Still Uncertain

All-stakeholder roundtable endorses ways to protect the chronically ill from being hurt by cost-sharing

Early returns suggest that “consumer-directed” health plans can restrain health care costs and utilization, but whether these high-deductible plans can accomplish this without deterring consumers from seeking needed care is still up for debate.

So report economist Melinda Beeuwkes Buntin and colleagues at RAND in an article published today on the Health Affairs Web site. In one of the lead papers of a seven-article Health Affairs package on consumer-directed health care (CDHC), published with the support of the California HealthCare Foundation (CHCF), Buntin and coauthors also find that enrollees in consumer-directed plans tend to be healthier and wealthier—although not younger—than enrollees in more traditional comprehensive plans.

In a second paper, Jill Yegian focuses on how consumer-directed plans will affect one of the most vulnerable groups of patients: the chronically ill. Reporting the results of an October 2005 expert roundtable sponsored by CHCF and Health Affairs, Yegian, CHCF’s health insurance director, presents concrete steps that purchasers, health plans, and regulators could take to prevent the increased cost sharing in consumer-directed plans from harming the chronically ill. The roundtable brought together two dozen leaders from the insurance, clinical, purchaser, consumer, and regulatory communities.

Surveying the available evidence, Buntin and coauthors estimate that moving all privately insured nonelderly Americans into consumer-directed plans—which they define as plans having deductibles of at least $1,000—could result in a one-time reduction in utilization of medical care of about 4 – 15 percent. However, consumer-directed plans are often coupled with tax-favored personal spending accounts such as health savings accounts (HSAs) and health reimbursement arrangements (HRAs), which in effect decrease the cost of medical care below the deductible amount. These accounts could offset by as much as half the reduction in use and spending from high-deductible plans.

“On balance,” the RAND researchers conclude, “early evidence suggests that CDHC may help lower costs and lower cost increases,” even accounting for findings that enrollees in consumer-driven plans enjoy modestly better health and higher incomes than enrollees in more comprehensive plans. However, “claims that CDHC will encourage patients to reduce inappropriate and unnecessary use instead of making indiscriminant cuts are more problematic.”

The 1974-82 RAND Health Insurance Experiment (HIE) found that increased cost sharing prompted consumers to forgo appropriate and inappropriate care alike—although with no apparent adverse health impacts—but Buntin and coauthors point out that “changes have occurred since the HIE that might promote more-appropriate care choices among consumers who have financial incentives to choose wisely.” For example, many consumer-directed plans waive or reduce the deductible for preventive care, and these plans often provide financial incentives for consumers to enroll in disease management programs, health-risk appraisals, and wellness initiatives.

Moreover, while price and quality information is still sparse for consumers and physicians, new information sources are appearing, and there are indications that enrollees in consumer-driven plans are using them: Aetna indicates that its CDHC enrollees access information at twice the rate of enrollees in traditional plans. Crucial to the future of CDHC, Buntin and her colleagues say, will be the success of public policies to promote the use of information technology in health care and to develop reliable and standardized performance measures.

Stakeholders Suggest Risk-Adjustment, First-Dollar Coverage of Maintenance Drugs To Protect Chronically Ill

In her paper, Yegian says that the evidence is mixed on how the chronically ill will respond to the cost sharing imposed by a high-deductible environment. In the RAND HIE, there was one exception to the lack of adverse health consequences: Hypertension was less well controlled among poor and sick patients, who had a 10 percent increased risk of death.

More recently, the Strategic Health Perspectives effort led by Harris Interactive found that “much higher proportions of chronically ill respondents who are enrolled in high-deductible health plans forgo maintenance prescription drug therapy because of cost,” while “data collected by McKinsey and Company show that chronically ill respondents in full-replacement consumer-directed plans are more likely than those in other plans to be compliant.” The presence or absence of funded accounts such as HSAs and HRAs may partly explain these divergent results, Yegian suggests; in addition, both efforts are limited by their reliance on self-reported data.

To help address the lack of rigorous data to answer these and related questions, RAND is undertaking a four-year, $4 million study cosponsored by CHCF and the Robert Wood Johnson Foundation. The study will examine the effect of high-deductible health plans (with and without spending accounts) on use and quality of care, including differential effects based on health status, income, and other factors.

The October roundtable was titled “Coordinated Care in a Consumer-Driven System” and was the eighth in a series cosponsored by CHCF and Health Affairs. The session was designed to find ways to combine the best of consumerism with the best of managed care and participants agreed that several steps could help protect the chronically ill against adverse effects from high point-of-service cost sharing in consumer-directed plans. These steps included the following:

  • Risk adjustment. Plans should consider reducing deductibles and other cost sharing and/or increasing HRA and HSA contributions for the chronically ill, particularly for those with low incomes. Roundtable participants suggested that the Treasury Department alter regulations forbidding employers from linking HSA contributions to health and income.
  • Defining “preventive care” broadly. Plans should consider broadly defining “preventive care”—which can be covered before the deductible is satisfied—to include not just services such as mammography and immunizations, but also maintenance drug therapy for chronic diseases. Such therapy can prevent adverse events such as hospitalizations for uncontrolled diabetes, but maintenance drugs are most often excluded from preventive care. Again, participants suggested changes in Treasury regulations that may bar considering maintenance therapy as preventive care in HSA-eligible plans.
  • Spreading out cost sharing. Plans should replace all or part of the deductible with coinsurance—under which consumers and plans share costs—and a higher out-of-pocket maximum. This would smooth out cost sharing and “avoid the dilemma of too-strong financial incentives below the deductible and too-weak financial incentives above the deductible.”
  • Making cost sharing smarter. Plans should consider focusing out-of-pocket costs on “discretionary care that is subject to patients’ preferences and should reduce out-of-pocket costs for nondiscretionary care.”

Perspectives on the Buntin and Yegian papers include the following:

Marjorie Ginsburg, executive director of Sacramento Healthcare Decisions. “It is not likely that CDHC will add to the serious debate that Americans must have to reach a just, efficient, and effective health care system,” Ginsburg says. “In the end, the big-picture questions about health care coverage will have to be asked and answered by many voices, not addressed through an individual’s personal treatment decisions. Regardless of a patient’s willingness to pay a high deductible, should health insurance cover a promising cancer drug costing $100,000 a year? Should insurance pay $1,500 for a scan to diagnose Alzheimer’s disease when no cure is available, or pay for extensive medical work-ups for adults without risk factors or symptoms?”

John Goodman, president of the National Center for Policy Analysis. Goodman argues that Buntin and coauthors ignore the fundamental fact that “health care has to be rationed.” He states, “Someone must choose between health care and other uses of money”; the answer given by CDHC is that the patient should choose. He notes that in cosmetic surgery, where consumerism governs, the typical patient can “(1) find a package price in advance covering all services and facilities, (2) compare prices prior to the surgery, and (3) pay a price that is lower in real terms than the price charged a decade ago.”

Peter Lee, CEO of the Pacific Business Group on Health, and Emma Hoo, PBGH director of value-based purchasing. Lee and Hoo say that CDHC “is only one component of a broader quality-based benefit design strategy” that is needed to promote better quality and hold down health care costs. “Purchasers want health plans to effectively engage consumers to make better decisions (versus simply shifting costs), promote provider accountability for quality and efficiency using standardized performance measures, align incentives to reward better performance, and induce reengineering of care delivery,” they say. They note that purchasers want all health plans—not just consumer-directed plans—to more actively engage both consumers and providers with information and incentives.

Tony Miller, managing director of Lemhi Ventures and cofounder of Definity Health. Miller cautions against viewing CDHC as merely providing a demand-side solution to rising health care costs by giving consumers some “skin in the game.” Instead, CDHC “is about a change in the way we are going to finance our consumption of health care services so that users of those services have more control over how the dollars are spent.” Miller criticizes the Buntin and Yegian papers for “pining for a past that never existed” in which “utopian conditions of quality and cost predated CDHC.”

Murray Ross, Kaiser Permanente director of health policy and research. Ross suggests that the “real villain” is “unsustainable increases in health care costs” that force employers to shift costs back to workers in some way. “If, as is typically the case, employers can not reduce cash wages in the short run, then the alternative will involve less-comprehensive coverage, a lower employer contribution, or both,” Ross points out. “Consumer-directed plans are only a tool used to accomplish this objective,” and “banning these plans (that is, requiring minimum benefit packages) would not change the reality that something has to give.” However, Ross suggests that disease management conducted through organized provider groups and delivery systems is more likely than higher premiums or deductibles are to effectively cut costs.

The package of articles can be read on the Health Affairs Web site through the link below.

About the California Health Care Foundation

The California Health Care Foundation is dedicated to advancing meaningful, measurable improvements in the way the health care delivery system provides care to the people of California, particularly those with low incomes and those whose needs are not well served by the status quo. We work to ensure that people have access to the care they need, when they need it, at a price they can afford.