By Greg Scandlen
Consumer Driven Health Plans have been around for about five years now. They began in June 2002, when the Internal Revenue Service released its first guidance on Health Reimbursement Arrangements (HRAs), but really got a boost in December 2003 when Congress enacted and the President signed legislation enabling Health Savings Accounts (HSAs) as part of the Medicare Modernization Act. Both programs reduce the amount of services covered by an insurance plan, but supplement the insurance with an account of money that receives the same beneficial tax treatment as the insurance portion of the coverage. Money not spent in one year may be rolled over and used for future expenses.
The two approaches – HRAs and HSAs – are the lynchpins of consumer driven health, but they are not the only elements. Other approaches include “defined contribution” plans, where employers make a fixed sum of money available to employees who then use that money to buy their own coverage and “flexible spending accounts” that enable workers to set aside some money to pay directly for the care they need.
Outside of these tax-favored programs, many employers have raised deductibles and co-payments, which require employees to pay directly for services though without any tax advantage. Other employers have simply stopped providing coverage at all. In both cases, consumers are responsible for making their own decisions on purchasing a health insurance policy or paying directly for the care they consume.
These other developments certainly increase consumer cost awareness and demand for information that helps stretch their health care dollars. But the core of consumerism in health care is associated with HRAs and HSAs, known together as “account based plans.”
When these programs were being considered, proponents said they would have several beneficial effects:
Five years later, all of these predictions are being realized:
Not all of the evidence agrees with these conclusions. But the counter evidence tends to be based on three surveys that are of questionable value. Let’s look at those first.
KFF/HRET Annual Survey of Employer Health Benefits
This is an annual telephone survey of some 2,000 employers. It has been conducted every year for some 20 years, and is very comprehensive. In fact, its comprehensiveness may be a weakness. It asks some 400 detailed questions of respondents, testing the limits of telephone survey research. The respondents must be extremely knowledgeable about their benefit programs and articulate enough to answer questions verbally. Sample sizes are also a problem for some of the market segments it surveys. While it interviews 321 employers with more than 5,000 employees (out of a universe of 8,114 such firms), it interviews only 113 companies with 3-9 employees, out of a universe of 2 million firms of that size.
The enrollment information collected by KFF/HRET is questionable to start with. Its 2005 survey found 2.4 million workers in CDHPs (0.8 million in HSAs and 1.6 million in HRAs), growing to only 2.7 million in 2006 (1.4 million in HSAs and 1.3 million in HRAs), and 3.8 million in 2007 (with 1.9 million in each type). This is counting workers only, not family members and not those with non-group coverage, so total enrollment in early 2007 would equal some 11 million, which is consistent with what most industry watchers estimate. But still, the survey pretends a level of precision that is unwarranted. It is questionable, for instance, that HRA enrollment dipped in 2006 and then rose again in 2007.
Some of the more detailed information contained within the report can be spun in a negative or positive light, depending on the point of view of the reader. The 2006 survey found that 19 percent of workers with a choice of plan chose the CDHP. Is that high or low? It can be characterized either way. One critic emphasized that 39 percent of the people in a CDHP were offered no other choice, but neglected to mention that much higher percentages of people in HMOs and PPOs were offered no other choice of plan. 
KFF Survey of Enrollees in Consumer-Directed Health Plans
The Kaiser Family Foundation also published a survey in November 2006 that takes a closer look at the experience of people in Consumer Driven Plans. It found generally that people in CDHPs are more cost conscious and more likely to use information tools than others, but are also less happy with their plan and more likely to skip needed care. However there are some major problems with this survey.
For one thing, it interviewed only 272 individuals with CDHP, and 715 in a “control group.” But 21 percent of the control group said they had deductibles that were high enough to qualify as a CDHP and 14 percent said they had a “personal savings account that they can use for health related expenses.” There is no explanation why these people were included in the control group rather than the CDHP group. Eighty-two percent of those with a CDHP said they were in a “health savings account” (rather than an HRA), even though population-wide the enrollment in the two programs is about equal. All of the control group but only 78 percent of the CDHP had employer-sponsored coverage, which alone could account for the difference in satisfaction. (We are happier when someone else pays the bills.) Respondents were not asked if they had a choice of plan, which could be important when they are later asked whether they would switch plans if they could. Also, the people in the CDHP group were far more likely to have been in their plan for one year or less (48 percent vs. 20 percent), so the natural sorting process had not worked itself out yet.
There are a host of other problems with the survey, but the problems of the small sample size could have been overcome if the researchers had made sure they were testing people in similar situations. They did not, so the results are questionable. 
Even more problematic is “The 2nd Annual EBRI/Commonwealth Fund Consumerism in Health Care Survey, 2006: Early Experience With High-Deductible and Consumer-Driven Health Plans” that was conducted jointly by the Employee Benefits Research Institute and the Commonwealth Fund in December 2006. This is an online survey of 3,000 people drawn from an online database of Internet users who have agreed to participate in online surveys. In their initial sampling they found only 21 people who were enrolled in a CDHP. So they went back and “oversampled” to get 150 or so respondents. This is a survey whose sole purpose was to look at the experience people were having with CDHPs, so it is hard to imagine why they would be satisfied with such a small number of people with relevant experience. Interestingly, in their “chartpack” of results, they never mention the actual numbers of respondents, just the percentages. Reliable research will always tell the reader what the “n” (number of respondents) equals.
Not surprisingly, the results are terribly skewed. It estimates the number of people enrolled nationally at just 1.3 million in 2006. Even the KFF/HRET survey cited above reported 2.7 million workers (6.75 million people) enrolled in 2006. And contrary to most other reports, the survey report finds less satisfaction, more “missed care,” less impact on the uninsured, and less access to information than “comprehensive care” provides. But given how unreliable the simple count of enrollees is, there is no reason to think the rest of this survey is any better. 
These three surveys are the basis for virtually all of the negative reports and articles that have been written about consumer driven health care in the past year. Reporters, and even academics rarely look any further, and they end up quoting each other to beef up their references, even though it is all based on just three very flawed public opinion surveys.
Completely ignored is a wealth of other, more reliable information that is not hard to find. In fact, there are surveys that are more comprehensive and vendor reports that are more accurate in terms of enrollment, utilization changes and cost effects than these limited public opinion surveys could ever be.
Far more convincing is the empirical evidence coming from employers and health plans about the actual changes in consumer behavior. Public opinion surveys may be easily skewed to achieve the results the surveyors are hoping for. They rely on a very small number of respondents who may or may not be representative of the wider population, and may or may not be well informed about their own health care situation and the terminology used to describe alternative plan designs.
The reports from health plans and employers know with precision whether an individual is enrolled in an HRA or an HSA. They can actually count the number of services used before and after enrollment. They can compare the experience of CDHP enrollees with a large population of people in more traditional forms of coverage, and adjust the effects for differences in demographics and health status.
Let’s begin with the available information on enrollment.
America’s Health Insurance Plans (AHIP) is the trade association of the insurance industry. Not all of the insurance plans and HMOs belong to it, but the vast majority do. Every year since March 2005 it has surveyed its members about HSA enrollment. It does not ask about HRAs or other programs that might be included in a definition of “consumer driven health care.” These companies do not have to guess. They know precisely how many of their members are enrolled in HSA programs versus HRA, FSA or any other incarnation.
AHIP’s nose count found 1 million enrolled in HSA programs as of March 2005, increasing to 3.2 million in January 2006 and 4.5 million in January 2007. These are three times as many people in HSAs alone as EBRI counted for both HSAs and HRAs.
AHIP also found that people enrolled in HSA programs have widespread access to preventive services, disease management programs, and information and patient support tools. The vast majority have access to account information online (93 percent of all HSA enrollees), health education information (99 percent), physician-specific information (97 percent percent), hospital-specific quality information (86 percent), and health care cost information (88 percent). The companies offer coverage of disease management for diabetes (91 percent), coronary artery disease (90 percent), congestive heart failure (89 percent), and asthma (87 percent). Other programs aren’t as widely offered, but are growing.
More recent surveys find CDHPs have continued to grow rapidly in 2007. United Benefits Advisors (UBA) surveyed 10,000 employers (five times the number surveyed by KFF/HRET) and found that 56 percent more companies offered CDHPs in 2007 than in 2006, and 76 percent more people were enrolled. It also reported that this growth is concentrated in the 25–100 employee group market, the very market segment KFF/HRET was most likely to miss. 
Recent press reports suggest that growth in HSAs is likely to double between January 2007 and January 2008 to 10 million. One report cited interviews of a number of benefit consultants who attribute the growth to a greater number of employees offering the programs and a greater proportion of employees enrolling in them. 
The growth in enrollment is fueled largely by favorable cost trends. The UBA survey cited above found that the cost of CDHPs went up just 2.7 percent in 2006, compared with 7.2 percent for all health plans. This finding is supported by many other reports:
Clearly something important is happening here. The same phenomenon is being reported by many different and independent sources. The cause is not a mystery. It comes from very favorable utilization changes.
Enrollment is going up and costs are stabilizing because Consumer Driven Health Plans are doing exactly what they promised to do – change patient behavior.
UnitedHealth Group has recently reported that people in CDHPs are –
The Blue Cross Blue Shield Association reported in 2006 that people with HSAs are more likely to –
A more recent report from the Blue Cross Blue Shield Association confirms these findings. Jennifer Vachon, Executive Director of the Marketing and Consulting Services Group at the Association, summed up the new survey by saying, “These findings show us that CDHPs are beginning to deliver on their promise. Our survey shows that CDHPs empower consumers and help them become more engaged in their health care decisions.”
Some of the information provided includes the following:
HSA enrollees are much more likely to research health information, including:
HSA enrollees are much more likely to plan and save for future health care expenses:
HSA enrollees are much more likely to participate in wellness programs:
HSA enrollees are no more likely to forego care due to cost:
The survey was conducted by Knowledge Networks of 3,000 people enrolled in Blue and non-Blue CDHPs and non-CDHPs. 
Cigna studied the experience of 38,211 “Choice Fund” (including both HSAs and HRAs) enrollees and compared it with the experience of 231,680 people enrolled in their PPO and HMO products. It found the Choice Fund enrollees had 11 percent lower costs for pharmaceuticals, 24 percent lower for inpatient care, and 10.7 percent lower for outpatient care. It found these savings were not the result of healthier enrollment. It also found that Choice Fund enrollees were 12 percent more likely to use preventive care and that, “Choice Fund members are more compliant with medications that manage ongoing conditions, and more discerning in their use of medications with over-the-counter alternatives.” 
These findings were confirmed by Cigna in October 2007 in a follow-up report that said, “First-year member preventive visits increased and second-year member visits remained significantly higher than those among traditional plan members (and) use of maintenance medications that support chronic conditions increased while costs decreased.” 
McKinsey & Company reports that people in CDHPs are:
A study in the Journal of the American Medical Association (March 14, 2007) found that people in CDHPs have 10 percent fewer emergency room visits overall and 25 percent fewer repeat visits, almost entirely for non-severe conditions. “Our study showed that for most members, the high-deductible plan seemed to work as intended,” said Frank Wharam, MD, MPH, research fellow in the Department of Ambulatory Care and Prevention at the Harvard Medical School and the study’s lead author. “Patients went to the emergency room less frequently for non-emergency conditions.” 
Now, it must be said that most of these reports are also limited. They measure only what is measured and do not report on other indicators. They don’t always control for differences in population characteristics and they often don’t present their methodology. These are not randomized control trials, but neither are they opinion surveys.
In fact, they are not aimed at public policy at all. This is market research. It is how business, not government, solves problems. Public policy research tries to identify issues on which there is broad agreement. It is looking for 50 percent-plus support of an idea that Congress or state legislators will be comfortable voting on. Once enacted into law a new idea or program will rarely be repealed or substantially changed. The citizenry is stuck with it, for better or worse. So, it had better have widespread support beforehand.
Markets work very differently. A new product or idea does not need widespread support. It simply needs enough buyers to be potentially profitable. The first iteration is a test. People buy it because they like new things and they think it will improve their lives in some manner. Business looks at how well the new product is doing, what are the strengths and weaknesses, what works and doesn’t work, and revises it to eliminate the problems and build on the strengths.
The second iteration – Version 2.0 – is almost always better and cheaper than the first. Version 2.0 will appeal to a broader population and it, too, will be measured and improved. And so it goes until it reaches market maturity, growth levels off and people wonder how they ever did without it in the old days.
WHERE IS ACADEMIA?
With the exception of the JAMA article above, none of this information is peer-reviewed, scholarly research. Unfortunately, such research is almost always behind the times and doomed to be looking in a rear-view mirror. Typically, it takes two or three years for academic research to be conducted and published. In a fluid market, three years is ancient history.
One example is the special edition on consumer driven plans published by the journal Health Services Research in June 2004.  This was a mere six months after HSAs became law so the information on Consumer Driven Plans was confined to a few companies that had pioneered the Health Reimbursement Arrangement concept. A few of the articles looked at the program Humana had first offered in 2001, but Humana had already discovered the problems with that design and had revised its product by the time the papers were published.
Another example would be a literature review by Melinda Beeuwkes Buntin and colleagues at the RAND Corporation published in Health Affairs in October 2006. Buntin does not attempt to offer original research, nor does she evaluate the quality of the available literature. Instead, she provides a reasonably balanced, though uncritical, synopsis of what has been published, including many, though not all, of the studies reported on above.
Unfortunately, this results in speculative work from 1996 being given equal weight to current reports from the field. Of course, in 1996 the original “Medical Savings Account” law (the predecessor of current approaches), had not even been written, let alone enacted. Projections from the time would have been entirely hypothetical and were aimed at influencing Congressional deliberations.
Even more disturbing is the continued reliance on the RAND Health Insurance Experiment (HIE) from 1971-1982. The HIE was a powerful research project that actually informed much of the interest in Consumer Driven Health Care today. But its limitations are profound. The federal HMO Act hadn’t been passed when the project was designed, PPOs didn’t exist, communications tools were primitive, and it predated much of the treatment protocols and medications that are standard today. It is disturbing that academics still reach back 30 years to predict what effects these programs will have on today’s market, especially when there is an enormous real-life experiment involving many millions of Americans taking place before their eyes. 
Academic versus Market Analysis
In her conclusion, Buntin calls (naturally enough for a researcher) for more research, especially research that “adopts rigorous analytic techniques and methods that will produce reliable and generalizable conclusions.”
Once again, this call underscores the differences between academic, public policy, and market research.  “Generalizable” to what? The entire population? The 50 percent-plus-1 of the population needed to pass new laws? Or some market segment, such as single mothers with high school educations living in the Midwest?
Marketeers know that different population segments behave differently and want different products. No one product is right for everybody. The trick is to differentiate products so that every market segment is happy. Not everyone likes cell phones, so land lines and CB radios continue to be available on the market. But cell phones are still an extremely successful innovation.
Similarly, not everyone will like Consumer Driven Health Care. It takes some effort to make choices and many people are passive. They will prefer HMO coverage. How big is the population that prefers each approach? It is impossible to say, at least for another 10 years or so, once the newer approach begins to reach maturity. By then there will be even newer products available and some small number of “early adopters” will try out the newer products to see how they work.
People in business are entirely comfortable with a fluid environment like this. Academics and bureaucrats are not. They want programs that are universal and unchanging. Social Security today is very much like Social Security was 70 years ago, and if some people aren’t pleased with it, too bad. Most people like it fine and minorities of voters don’t matter.
Meanwhile, we are in the midst of a transformation in American health care. Not everything about consumer directed health care will succeed, but the overwhelming preponderance of the evidence says it is working exactly as it was intended to work. Policy-makers and academics who ignore or deny this development are missing out on the most significant change in health care of their lifetimes.
The data below was not included in the study as it was originally published in November 2007 by Consumers for Health Care Choices.
The Mercer consulting firm has issued a report on a new survey it conducted on employer benefits. It finds that the increases in benefits costs has declined substantially since 2002, and leveled off at around 6 percent annually – still double inflation. Smaller employers (under 200 workers) are terminating coverage. The percentage providing benefits has dropped from 69 percent in 2001 to 61 percent in 2007. The remaining employers have slowed trend through the use of health management and employee consumerism.
CDHPs (both HSAs and HRAs) have grown substantially from 1 percent of covered workers in 2005 to 3 percent in 2006 to 5 percent in 2007, and are likely to grow further in 2008. Employers with fewer than 500 workers increased their offering of CDHPs from 5 percent in 2006 to 7 percent in 2007, to a projected 11 percent in 2008. For large employers (500–20,000 workers), it has gone from 11 percent in 2006, to 14 percent in 2007 and 18 percent in 2008. For jumbos (over 20,000 workers) it was 37 percent in 2006, 41 percent in 2006, and 43 percent in 2008.
The survey says, “Evidence that the (CDHP) plans are cost-effective is accumulating. CDHPs delivered substantially lower cost per employee than either PPOs or HMOs in 2007. CDHP cost averaged $5,970 per employee, compared to $7,120 for HMOs and $7,352 for PPOs. Of the two types of CDHPs, HSA-based plans were less expensive than HRA-based plans ($5,679 compared to $6,224).”
Trend between 2006 and 2007 was also favorable to CDHPs, suggesting it is not just a one-time saving, but an ongoing advantage. The trend for CDHPs was 3.5 percent, compared to 7.6 percent for HMOs, 6.1 percent for PPOs, and 11.2 percent for POS plans.
Mercer says this cost difference is not due only to higher deductibles, but because the “account feature encourages more careful health spending.” Comparing CDHPs to high-deductible PPOs still shows a savings of $700 per employee per year.
When given a choice of plan, a greater percentage of employees are choosing the CDHP, up from 21 percent in 2005 to 29 percent in 2007.
The survey also asked about employer support of reform proposals. Only 23 percent support a “pay or play” mandate on employers and only the same number (23 percent) support an individual mandate. Over twice as many oppose these ideas.
 See Scandlen, Greg, “Consumer-Driven Health care: Just a Tweak or a Revolution?” Health Affairs, Vol. 24, No. 6, 2005
See also, Scandlen, Greg, “MSAs Can be a Windfall Foe All.” National Center for Policy Analysis, November 2, 2001. http://www.ncpa.org/pub/bg/bg157/
 Claxton, Gary, et.al. “Health Benefits in 2006: Premium Increases Moderate, Enrollment in Consumer-Directed Plans Remains Modest,” Health Affairs, September, 2006http://content.healthaffairs.org/cgi/content/full/hlthaff.25.w476v1/DC1
Employer Health Benefits 2005 Annual Survey http://www.kff.org/insurance/7315.cfm
Employer Health Benefits 2006 Annual Survey http://www.kff.org/insurance/7527/index.cfm
Employer Health Benefits 2007 Annual Survey http://www.kff.org/insurance/7672/index.cfm
 “National Survey of Enrollees in Consumer-Directed Health Plans” Kaiser Family Foundation, November 29, 2006. http://www.kff.org/kaiserpolls/pomr112906pkg.cfm
 The 2nd Annual EBRI/Commonwealth Fund Consumerism in Health Care Survey, 2006: Early Experience With High-Deductible and Consumer-Driven Health Plans,” EBRI Issue Brief #300, 2006. http://www.ebri.org/publications/ib/index.cfm?fa=ibDisp&content_id=3769
 “January 2007 Census Shows 4.5 Million People Covered by HSA/High-Deductible Health Plans,” America’s Health Insurance Plans (AHIP), April 2, 2007. http://www.ahipresearch.org/
 “Annual Benchmark Survey Shows Average Annual Health Plan Cost is $6,881 Per Employee; Largest Percentage of CDHP Adopters Comes from Employers with 25-100 Employees,” United Benefits Advisors press release, August 28, 2007. http://prnewswire.com/cgi-bin/stories.pl?ACCT=104&STORY=/www/story/08-28-2007/0004652568&EDATE=
 Lopes, Gregory, “Health Plans Offer Investment,” Washington Times, August 20, 2007 http://washingtontimes.com/article/20070820/BUSINESS/108200017/1006
Also, Pallarito, Karen, “Fine-tuning consumer-driven plans,” Business Insurance, August 23, 2007.
 “Reducing Corporate Health Care Costs,” Deloitte Consulting, 2006. http://www.deloitte.com/dtt/article/0,1002,sid%253D80772%2526cid%253D108941,00.html
 Tuomala, Dave, “Consumerism: Carrier Results versus Employee Perceptions,” CIGNA HealthCare, October 24, 2006. http://www.ccactuaries.org/events/am2006/handouts/37-B.ppt
 “CIGNA Choice Fund: Experience Study,” CIGNA, October, 2007. http://cigna.tekgroup.com/images/56/CIGNA_CDHP_Study.pdf
 “Consumer Directed Health Plans Analysis,” HealthPartners, October, 2007. http://www.healthpartners.com/files/39058.pdf
 Lauer, Gary, “Testimony Before the House Committee on Ways & Means,” June 28, 2006. http://waysandmeans.house.gov/hearings.asp?formmode=view&id=5067
 “Aetna Releases Broadest Study to Date of Consumer-Directed Plans,” Aetna, October 2, 2006. http://www.aetna.com/news/2006/pr_20061001.htm
 “UnitedHealth Group Analysis Confirms Chronically Ill Continue Receiving Needed Care When Enrolled In A Consumer-Driven Health Plan,” UnitedHealth Group, April 23, 2007. http://www.unitedhealthgroup.com/news/rel2007/0423_quality_of_care.htm
 “Blue Cross And Blue Shield Association Survey Shows HSAs Are Popular Among A Wide Cross Section Of Americans,” Blue Cross Blue Shield Association, September 15, 2006.http://www.bcbs.com/news/bcbsa/bcbsa-hsas-popular.html
 “Blue Cross And Blue Shield Association Survey Shows Consumer Driven Health Plan Enrollees Are Taking More Control Of Their Healthcare,” Blue Cross Blue Shield Association, September 28, 2007. http://www.bcbs.com/news/bcbsa/blue-cross-and-blue-shield-12.html
 Tuomala, Dave, “Consumerism: Carrier Results versus Employee Perceptions,” CIGNA HealthCare, October 24, 2006. http://www.ccactuaries.org/events/am2006/handouts/37-B.ppt
 “CIGNA Choice Fund: Experience Study,” CIGNA, October, 2007. http://cigna.tekgroup.com/images/56/CIGNA_CDHP_Study.pdf
 Agrawal, Vishal, et.al., “Consumer-Directed Health Plan Report: Early Evidence is Promising,” McKinsey & Company, June, 2005.
 Wharam, Frank J., et.al., “Emergency Department Use and Subsequent Hospitalizations Among Members of a High-Deductible Health Plan,” Journal of the American Medical Association, Vol. 297, No. 10, March 14, 2007. http://jama.ama-assn.org/cgi/content/abstract/297/10/1093
 Special Issue on Consumer-Driven Health Plans, Health Services Research, August, 2004. http://www.pubmedcentral.nih.gov/tocrender.fcgi?iid=127006
 Buntin, Melinda Beeuwkes, et.al., Consumer-Directed Health Care: Early Evidence About Effects On Cost And Quality,” Health Affairs, Vol. 25, No. 6, 2006. http://content.healthaffairs.org/cgi/content/full/25/6/w516
 One interesting effort to bridge the gap between academic research and the needs of the market comes from Steven Parente, Roger Feldman and Jon Christianson at the University of Minnesota. Their research is very rigorous but little of it has been published in peer-reviewed journals. Instead, they have been very busy presenting their findings on the speaking circuit and in small consultative meetings. http://www.ehealthplan.org/
Greg Scandlen is the president and founder of Consumers for Health Care Choices, a non-partisan, non-profit membership organization aimed at empowering consumers in the health care system, and a senior fellow for the Georgia Public Policy Foundation, an independent think tank that proposes practical, market-oriented approaches to public policy to improve the lives of Georgians. Nothing written here is to be construed as necessarily reflecting the views of the Georgia Public Policy Foundation or as an attempt to aid or hinder the passage of any bill before the U.S. Congress or the Georgia Legislature.
© Georgia Public Policy Foundation (March 17, 2008). Permission to reprint in whole or in part is hereby granted, provided the author and his affiliations are cited.
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