How Much Can Consumer Directed Plans Save?

Published May 15, 2012

Consumer Power Report #326

How much could shifting to consumer directed health plans save? A great deal, according to this new study by RAND researchers, published in Health Affairs:

Enrollment is increasing in consumer-directed health insurance plans, which feature high deductibles and a personal health care savings account. We project that an increase in market share of these plans–from the current level of 13 percent of employer-sponsored insurance to 50 percent–could reduce annual health care spending by about $57 billion. That decrease would be the equivalent of a 4 percent decline in total health care spending for the nonelderly. However, such growth in consumer-directed plan enrollment also has the potential to reduce the use of recommended health care services, as well as to increase premiums for traditional health insurance plans, as healthier individuals drop traditional coverage and enroll in consumer-directed plans. In this article we explore options that policy makers and employers facing these challenges should consider, including more refined plan designs and decision support systems to promote recommended services.

Greg Scandlen says he believes the benefits could actually be much higher than $57 billion. He writes at the National Center for Policy Analysis’s blog:

First year savings are the least of it. The real value of consumer driven approaches is that trend is reduced and the savings mount up over time. The 2009 study by the American Academy of Actuaries, for one, found that the trend over time for CDHPs ranged from 12% to 17% lower than for traditional plans. (By the way, this new RAND study is one of the very few, if any, to cite the AAA study as a source.)

This difference in the experience of HRAs and HSAs is particularly important because this study relies on data from 59 large employers from 2003 to 2007. HSAs were signed into law in December 2003, and didn’t really go into effect until 2005. So the HSA experience studied here must have been very limited.

Importantly these savings do not accrue solely to employers. The study looks at out-of-pocket costs as well as premiums, and concludes that families themselves reduced their costs by over 20%.

Scandlen theorizes that people would navigate such a system with far greater ability than experts have previously expected. But placing this study in a larger context, I wonder if the appeal of these plans will ultimately lead to how Republicans will attempt to “fix” Obamacare should the Senate not end up in their hands. Allowing for plans such as these to be sold within the Obamacare exchanges, subsidized by taxpayers of course, might be a way to help middle-income households, which are going to be in a difficult position given their status, as the NCPA notes.

Under the Obama plan, however, many of these families could instead find themselves buying their health insurance on the new state-based exchanges that get started in January 2014.

For a family of four, premiums on even one of the lower priced “silver” options could still cost more than $15,000 annually on the exchanges. Even those with only modest incomes could find they make too much money to be eligible for premium assistance tax credits–the tool the Obama administration created to defray the costs of the expensive exchanges.

Additionally, even though people aren’t forced to carry health coverage on the exchanges if the cost of these policies exceeds 8 percent of their pretax income, the point may be moot: the exchanges will crowd out other low cost insurance options. The end result of giving the middle class the runaround is that they’ll be paying higher premiums for the same coverage (or broader coverage that they didn’t want in the first place).

If repeal is not a realistic political option, consider something like this likely to be part of the discussion.

— Benjamin Domenech



The latest Bloomberg Government report outlines the massive redistribution to insurers.

Health insurers will gain $1 trillion in new revenue over the next eight years under the 2010 health care law, assuming it is upheld by the Supreme Court, according to a Bloomberg Government study.

The amount is equal to about 0.5 percent of the nation’s estimated gross domestic product from 2013 to 2020, and insurers led by UnitedHealth Group Inc. would keep about $174 billion–$22 billion a year–for profit and administrative costs. The money comes from U.S. subsidies to people purchasing insurance beginning in 2014 and an expansion of Medicaid, the government’s health program for the poor.

The Supreme Court is weighing whether the law’s requirement that most Americans carry health insurance is constitutional. If it isn’t, the court will decide how much of the law to strike down. Should the law survive the court’s review and Republican efforts at repeal, it is projected to expand insurance to 32 million Americans who lack it by 2016.

“It’s a confirmation of, one, how much money we’re spending as a nation on health care; and two, how much is riding on this court case and the Supreme Court’s decision,” Matt Barry, a Bloomberg Government health analyst and the study’s author, said in a phone interview. “You’re talking an amount of money here that can affect the economy, not just an industry.”

About 9 percent of the insurance industry’s total revenue from 2013 to 2020 hinges on whether the health law stands, according to the study.

SOURCE: Kansas City Star


For now, at least, he declines to implement.

Insisting the state should wait until the U.S. Supreme Court decides whether federal health care reform is constitutional, Gov. Chris Christie vetoed a bill today that would form a “health exchange,” an online marketplace small employers and uninsured people would use to shop for low-cost coverage.

The veto does not come as a surprise. The health exchange is a key component of President Obama’s Affordable Care Act, which requires everyone to carry health insurance or pay a fine, and Christie has delayed implementing aspects of the federal law before the nation’s highest court announces its decision in June.

“While I appreciate the Legislature’s attempt to find steady policy footing in these shifting legal sands, I am concerned that a hastily created exchange in New Jersey will impose unnecessary obligations upon the state’s citizens,” Christie said in his veto message. “I believe the better course of action … is to continue to monitor the ever-changing landscape surrounding the implementation of the Affordable Care Act, and to refrain from imposing its mandates upon our citizens until outstanding issues are settled.”

Twelve states and Washington, D.C., have enacted laws creating a health exchange.



Since the legislature is unwilling to take it up, Quinn may press ahead despite the coming court decision.

Illinois Gov. Pat Quinn may use an executive order to establish a health insurance exchange, a website where consumers could comparison shop for insurance that’s a key piece of President Barack Obama’s health care law, according to Quinn’s chief health care adviser.

Michael Gelder, the governor’s adviser, said the Legislature’s workload on Medicaid and pension reform makes it unlikely lawmakers will be able to pass legislation authorizing an insurance exchange during the current session, which is scheduled to end later this month.

Looming federal deadlines leave the governor with two choices: calling the Legislature back into special session or issuing an executive order, Gelder said.

But Republicans said an executive order would be inappropriate, especially before the U.S. Supreme Court rules on the Affordable Care Act. A decision is expected in June.

“The issuance of an executive order to establish a health insurance exchange by Gov. Quinn at this time is premature on a number of levels,” said Sen. Bill Brady, a Bloomington Republican who co-chaired a legislative study committee on the health insurance exchange. “We expect the U.S. Supreme Court to issue a ruling on Obamacare in just a few weeks.”

SOURCE: Quad-City Times


Jan Brewer is no shrinking violet:

Arizona businesses that designate themselves to be a “religiously affiliated employer” will no longer have to include contraceptives in the insurance coverage they provide for their workers.

Gov. Jan Brewer signed legislation pushed by Rep. Debbie Lesko of Glendale, R-District 9, to broaden an exemption to a 2002 law which spells out that businesses which provide prescription drugs as part of their health insurance plans cannot exclude birth control pills. The governor said she was satisfied with the last-minute compromise worked out by lawmakers.

“In its final form, this bill is about nothing more than preserving religious freedom to which we’re all constitutionally entitled,” Brewer said in a prepared statement. “Mandating that a religious institution provide a service in direct contradiction with its faith would represent an obvious encroachment upon the First Amendment.”

The 2002 mandate to include contraceptive coverage in health care plans for employees always has had an exception for churches. Similarly, church-run charities that mainly serve people of the same faith were also exempt.



Bring on the PR firms!

The state of Utah is hiring a public relations firm to handle “crisis communications” in the wake of a health data breach that put the personal information of 780,000 people at risk.

The contract will be short-lived and will cost between $100,000 and $200,000, according to a solicitation published on May 11.

It calls for building a communications plan to “rebuild trust with the public, specifically those who were directly impacted by the breach and those who rely on the [Utah Department of Health] for critical health services.”

The chosen vendor will be tasked with building a website, producing videos in multiple languages, and writing content to be distributed via the media, advocacy groups and at community forums across the state.

The damage-control blitz marks a third attempt by the Utah Department of Health to seek outside aid in managing the breach. The agency has hired two independent auditing firms to analyze the state’s data security and storage systems and monitor efforts to notify and protect victims.

SOURCE: Salt Lake Tribune


States like Kansas and New Jersey are considering laws to ban lawsuits against doctors over “wrongful birth,” failing to warn the parents of fetal health problems:

In Suffern, N.Y., Sharon and Steven Hoffman’s son, Jake, was born with Tay-Sachs, a genetic disease that mainly affects Jewish families and is usually fatal by age 4 or 5.

“There’s no treatment. There’s no cure. There’s nothing,” Sharon says.

She says her doctor did not test for the disease. At six months, Jake was diagnosed with it. The couple says he lost control of his muscles and had constant seizures. He died two years later before reaching his third birthday. Sharon says she would have had an abortion if she had known.

“There is no quality of life,” Sharon says. “The only thing that you would be bringing this child into the world to do is to suffer. And die.”

This couple sued their doctor for wrongful birth and settled for an undisclosed amount.

In most states, parents can sue for negligence or if doctors fail to provide information about the condition of a fetus. But more than a half-dozen states have adopted laws that ban those lawsuits, and several others have been debating the idea this year.

SOURCE: NPR’s Health Blog


Sign of what’s to come from the food police?

In Massachusetts, a state law that becomes effective in August will limit access to junk food (including bake sale treats) at schools from a half-hour before the school day until a half-hour after it ends, according to local news reports this week. New guidelines from the state Department of Public Health go further, encouraging schools to apply the nutrition standards at all times.

“We’re at a place in Massachusetts where one-third of our kids in schools are either overweight or obese,” the department’s medical director, Lauren Smith, said, according to The Patriot Ledger newspaper. The goal is to “create an environment in schools where kids have an opportunity to make choices among healthy options.”

Many Americans, in the Bay State and elswhere, sympathize with the aim of improving nutrition. At the same time, many see bake sales as a tried-and-true fundraising vehicle that plays little role in the obesity problem.

Among Boston-area users of Twitter, the buzz on the policy is largely negative. “Banning bake sales to curb obesity? Such an obvious fail,” wrote @SoniaSu_.

Many critics of the law argue that obesity has more to do with lack of exercise than with food choices. Some bloggers, moreover, see the restrictions as part of a broader trend toward micromanaging children’s lives.

SOURCE: Christian Science Monitor