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Savings and Risk in Consumer Directed Health Plans

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WASHINGTON (AP) — It’s the hottest trend in job-based health insurance: plans that give you a personal savings account for medical bills but also require you to pay a hefty share of costs before coverage kicks in.

Such “consumer-directed” plans could save billions for employers, providing relief from high health care costs, a study published Monday concludes.

But there’s a warning flag, a risk that workers will forgo needed care, even preventive services covered at no extra cost to them. Some consumers were apparently unsure that prevention was covered.

Compared with traditional insurance, consumer-directed plans charge significantly lower premiums. But deductibles, the annual amount you pay before insurance starts covering, can be twice as high or more. To overcome consumers’ unease about greater financial exposure, the plans are packaged with tax-advantaged medical accounts to which employers can contribute.

“There is reason to be concerned that this potential solution to our rising health care cost problem comes with risks,” said Amelia Haviland, a statistician at Carnegie Mellon University in Pittsburgh, who led the study. “The immediate risks are carried by employees and their families. If they get less healthy, the cost implications could affect the whole system.”

Consumer-directed plans are not new. Former President George W. Bush called them health savings accounts and promoted them as a way to get Americans personally invested in cutting costs, as proponents say, by having more “skin in the game.” What’s new is that the plans are gaining traction in the workplace — enrolling nearly 1 in 6 workers.

Although President Barack Obama took a very different approach from Bush to the nation’s health care problems, the study concludes that the Patient Protection and Affordable Care Act will encourage more employers to adopt consumer-directed plans, accelerating a trend Bush helped to start.

PPACA, if it survives Supreme Court scrutiny, would create economic incentives that boost low-cost plans in two ways. First, the plans provide an option for medium and large employers who don’t currently provide coverage to avoid federal penalties that loom in a couple of years. And they could also help some employers escape a new tax on high-cost “Cadillac” health insurance.

For consumers, there are other considerations: Premiums for traditional insurance could rise if the new plans lure away people in good health. Also, workers with chronic conditions may find that high-deductible plans put more strain on family budgets.

Published in the journal Health Affairs, the study analyzed medical claims data from 59 large U.S. employers, most of which offered the choice of a consumer-directed plan. Crunching that information, researchers estimated that employers overall could reduce their health care costs by 7 percent if half of American workers were to enroll in the plans.

National savings would total $57 billion annually, potentially allowing employers to pay higher wages or hire more workers.

Two-thirds of the savings in the study came from people using less medical care. The remaining one-third came from frugal behavior such as opting for generic drugs or seeing specialists less often.

The study raised concerns about prevention. It looked at six types of recommended preventive services, from cervical cancer screening to hemoglobin A1c tests for diabetics, and found less use of all of them among employees in consumer-directed plans.

Many of those services had been covered at no cost to the patients in the study, and the health care law makes free preventive care a requirement for most insurance plans. But some consumers apparently may not understand that they are covered for prevention.

“The big risk is that people understand ‘I have a big deductible,’ and they are going to cut everything they can think of to cut,” said Haviland.

Meanwhile, consumer-directed plans have clearly moved from a niche to the mainstream. The study found that workplace enrollment jumped from 4 percent of workers in 2006 to 13 percent in 2010. The trend continued last year, reaching 17 percent, says the Kaiser Family Foundation.

Next year, 70 percent of large employers plan to offer a consumer-directed plan, in most cases as one of several options, says the benefits consulting firm Towers Watson. But it’s unclear if or when such plans will dominate the market.

Many employers are experimenting, and large firms seem to want keep offering employees a choice, said Tom Billet, a senior benefits consultant with Towers Watson. Yet a transition could be under way.

“The likelihood of getting to a 50-percent share of the market in the next two to three years is very small,” said Billet, referring to consumer-directed plans. “Five to seven years out, is it possible? Yes.”

For more on consumer-directed health care, see:

IRS Announces 2013 HSA Limits

If PPACA Dies: Employers, Insurers to Handle Response

Health Accounts: Witnesses Clash on Value of FSAs, HSAs


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