CDHP: Shifting the Power of Healthcare Management to the Consumer

Would you like to manage your own healthcare? Now you can with a consumer-driven health plan (CDHP). This type of health insurance is increasing in popularity with a growing number of companies offering it every year and an estimated 3.8 million employees already enrolled (See image to the right). CDH plans allow people to participate in their healthcare expenditures by paying lower monthly premium contributions in exchange for higher deductibles and out-of- pocket maximums. Employees are provided with a supplemental healthcare plan and are responsible for managing their own healthcare expenses such as coinsurance and co-pay fees with one of two accounts; health reimbursement account (HRA) or health savings account (HSA). HRA is an account “owned and funded by the employer” while HSA is “owned by the employee and are funded either by the employee or with contributions from the employer”. With either of these accounts, CDH plans have provided a way for employers to reduce healthcare costs, and put more power in the hands of consumers.

With CDH plans, employers will no longer have to contribute to high premiums like those necessary for traditional HMO and PPO health care plans. According to a survey done by Mercer Human Resource Consulting, a higher deductible “reduces the employer’s share of annual premiums down to an average of $5,770 a person, about $1,000 lower than for other plans”. In addition, these plans allow consumers to purchase their healthcare on a need basis, and therefore eliminating what economists would identify as a possibility for moral hazard. Consumers would be able to reduce their costs by paying for healthcare that is suitable just for them.

The CDHP seems like a win-win situation.

Nevertheless, despite these arguments in favor of this plan, CDHP consumers’ survey results show that “44% are not likely to recommend them to others, compared to 19% of those with traditional health plans; 37% are not likely to stay with their plan if given another option (13% for those with traditional plans); and only 37% are very or extremely satisfied, against 67% of the folks with traditional plans”. It is evident that there are still many issues that need to be resolved for the future success of this novice plan design. Although CDH plans provide benefits to both the employers and employees, both groups must be wary of the potential downfalls of the plan design including high out-of-pocket maximums and minimal insurance coverage.

To reduce monthly premium contributions in CDH plans, out-of-pocket costs are increased in order to shift the liability of future health risks to the consumers. However, these out-of-pocket costs must be reasonable for a consumer and their family to afford. One problem, especially with the health savings account (HSA), is that employers can choose not to contribute to the account and leave it to the employee to manage and pay for their own deductibles and out-of-pocket maximums. This can cause a huge financial burden on employees’ with unexpected healthcare costs. In order for this health care plan to work, employer’s need to ensure that employee’s will not be abandoned in midst of a medical crisis.

Many individuals are skeptical about the CDH plan offerings because of the broad range of insurance coverage the plans offer. In a New York Times Article, Fran Hawthorne states, “one way to pay less is to cover less”. Many CDH plans will not provide well-rounded medical benefits including a combination of preventative, routine, and hospitalization coverage so that they can reduce costs. Without any aid from the insurance company, the costs for these office visits and procedures could strongly deter consumers from getting the healthcare that they need. This could potentially lead to even greater health risks and problems in the future. With the strong evidence and support for preventative care and early detection in today’s health care system, CDH plans must encourage employees to get the proper medical care in a timely fashion before their condition becomes life threatening and the cost of medical care is unaffordable.

The CDH plan proposes a new strategy for reducing healthcare expenses, which is desperately needed in light of today’s rising costs. Currently, the United States spends on average $5,283 per person a year for healthcare. CDH plans have the potential to help reduce the per capita cost for healthcare by lowering premiums and reducing unnecessary insurance coverage, but employers and employees must become active participants in their healthcare expenditures (Illustration of a CDHP advertisement can be seen on the left). Employers need to have a good understanding of the medical coverage that their employees need in order to provide comprehensive benefits that will reduce large claim liabilities; and employees must learn how to safely and properly budget their healthcare expenses to reduce their costs. In order to help ensure that this occurs, regulations should be imposed to guarantee coverage of preventative care services and greater price transparency by healthcare providers so that employers and employees can better understand the nature and costs of healthcare. In order for healthcare to progress, everyone needs to have a better understanding of how their medical insurance works so that can use it in a more efficient and effective manner.