Consumer driven health plans, which allow individuals to discover the best health services at the lowest cost through health savings accounts and flexible spending accounts, are increasingly popular even though President Obama’s health care law creates disincentives for their use.
Steady, Rapid Growth
Kathryn Nix, a policy analyst at the Heritage Foundation, notes CDHPs were created under the Medicare Modernization Act of 2003 which allowed for the creation of health savings accounts (HSA).
“Ever since that was enacted, every year enrollment in plans that rely on HSAs paired with a high-deductible health plan has grown,” Nix said.
According to Jonathan Ingram, a health policy analyst with the Illinois Policy Institute, as of January 2011, 11.4 million Americans had a plan pairing an HSA with high deductible health plan (HDHP) coverage.
“That number is an increase of 1.4 million Americans over the previous year, and the total has nearly doubled since January 2008, when only 6.1 million Americans had such coverage. More than 10 percent of all newly purchased health plans are HSA/HDHP,” Ingram said.
Nix points out this number doesn’t include health plans that include health reimbursement arrangements (HRAs).
“The data show a movement that is increasing every year and is becoming more popular with individuals and employers who offer employer-sponsored health care alike,” Nix said.
Consumers Taking Control
Joshua Archambault, director of health care policy at the Pioneer Institute of Public Policy Research in Boston, Massachusetts, says the popularity of the plans stems from consumers wanting more control over their health care dollars.
“[O]nce an employee understands that their health insurance is just another form of compensation, they want more control how their health care dollars are spent, so they can save money if they are wise consumers,” Archambault said.
Nix says both employees and employers find much to like about this approach.
“What we’ve seen so far is that ObamaCare is going to increase premiums even further rather than achieving the president’s promise to reduce them by $2,500 per family. So as premiums have increased, employers and individuals have looked for more cost-effective, affordable options to receive and maintain quality coverage, but to bring costs down,” Nix said. “CDHPs are definitely a great way to do that, because what they essentially do is to put the patient in charge of managing their own health care costs. That enables individuals to eliminate unnecessary or low-value health spending.
“When consumers are directly tied to the costs and can see how much it costs, they make more cost-effective choices,” Nix added.
Merrill Mathews, a resident scholar at the Institute for Policy Innovation, notes the tangible benefits of this approach.
“As studies from the American Academy of Actuaries, Aetna, and Cigna have shown, these are the only health plans that are bending the cost curve down,” Matthews said.
Obamacare’s Assault on CDHPs
With many of the most burdensome regulations placed on CDHPs in Obama’s health care law not taking effect until 2014, consumers are still buying into them, Ingram says.
“Consumers are still flocking to HSAs, for the same reasons they gained popularity in the first place: they provide affordable options for Americans looking for quality of care, largely by taking out the middleman,” Ingram said. “But their future viability rests at least partially on regulations that HHS hasn’t drafted yet. The biggest example of this is whether HHS will count one’s contributions to an HSA as part of the HDHPs actuarial value.”
If HHS decides these contributions don’t count, many HDHPs will be banned from the market because they cannot meet the actuarial values based on the insurance coverage alone, Ingram says.
“These plans give consumers power over their own health care. They incentivize consumers to manage their health care use by utilizing cost and quality information and by engaging in healthier lifestyles,” Ingram said. “But the government may ignore their popularity.”
Archambault says the federal government could very well kill off many of the popular CDHP products currently being offered.
“Some form of CDHPs will likely survive because consumers will demand them. However, in states that presently have lower insurance regulations compared to those imposed by Obamacare, the law is sure to gut their markets,” he said. However, he added, “Future reforms could mitigate that. If Congress ever delinked health insurance from employment, I think you would see a huge spike in interest for CDHPs.”
Two Possible Outcomes
Nix, noting the difficulty in making predictions, said the future presents two paths for CDHPs.
“HSAs are definitely in danger under ObamaCare,” Nix said. “The law already restricts what they can be used to pay for, and regulations from HHS threaten to make them no longer viable. It’s unlikely that that will happen, but we don’t know yet. But if HSA plans remain under ObamaCare, I believe they could actually become even more popular.”
Nix points out that because Obama’s law is likely to cause insurance premiums to rise, especially for the young and healthy, because of numerous new regulations and requirements for insurance, some consumers are likely to seek out the most affordable option—in this case, CDHPs.
“For CDHPs to achieve their maximum effectiveness,” Nix concluded, “it’s going to be necessary to give consumers better tools to actually manage the cost of their care, including greater transparency of pricing for medical goods and services. And that starts with repealing Obamacare.”