Consumer-directed health care has the potential to hold down costs and improve quality by delivering price signals more directly to patients. The theory is that when patients consider the cost implications of their medical care choices, they will shop more intelligently, just as they do for groceries and gas. In the end, that should benefit employers by holding down premiums.
There are plenty of practical challenges to achieving these benefits, but the overall idea is worth a try. Unfortunately, according to a new report from Vimo.com it appears that many employers are using the shift to high-deductible plans as an opportunity to take their cost savings up front, at the expense of their employees and the whole concept of consumer-directed care.
A typical consumer-directed health plan includes a high-deductible PPO plan coupled with a Health Savings Account (HSA). The HSA allows consumers to use pre-tax money to pay for health care. If the employer funds the HSA it’s a good deal for the employee. But it seems the tendency is to fund the high-deductible PPO (which is much cheaper than comprehensive coverage) and pocket most or all of the savings.
According to Tom Cochrane, VP of Partner Relations at Vimo, “Unfortunately, the Vimo report shows that fewer than one out of every three consumers eligible to open an HSA has done so –a shocking statistic because the accounts are such clear winners for consumers… HSAs can even be used to save for retirement.” In addition, the report indicates that the typical HSA balance is only enough to cover about half the deductible. [I spoke to Tom just to make sure Vimo wasn’t inadvertently overstating the case by excluding employer-financed Health Reimbursement Arrangements (HRAs) from the equation. He assured me Vimo wasn’t making that mistake.]
So it’s pretty much bad news all around. Employers are using “consumer-directed health plan” as a euphemism for “benefit reduction.” To make things worse, employees whose employers aren’t funding their HSAs also haven’t been setting up their own accounts. That means they’re missing out on a major tax benefit in addition to getting a pay cut. I’ve mentioned this phenomenon before, but it’s the first time I’ve seen decent statistics.
Don’t be surprised if all this leads to a backlash against the consumer-driven movement.
Vimo is in the business of providing comparison shopping information in health care. They want to be the equivalent of Lending Tree for health care, so are hoping to see the consumer directed movement flourish.
It will be a shame if consumer directed care doesn’t get a fair shot.