Thursday, June 29, 2006

Consumer directed health plans

Via LAtimes, more companies are moving to consumer directed health plans, though they aren't exactly flocking in droves. From a writeup of a survey by Aon Consulting and ISCEBS,

Twenty-eight percent of companies surveyed this year said they were offering consumer-directed plans, up from 22% in 2005, according to a study of 434 employers by Aon Consulting and the International Society of Certified Employee Benefit Specialists, a nonprofit group.

However, a majority of employers either don't believe the plans will lower costs or are uncertain of their effectiveness. Thirty percent said the plans would fail to save money, while 31% were unsure.
Forty-eight percent of companies said the plans would make employees better, more efficient purchasers, while 25% said they thought the plans would lead workers to forgo necessary care to save money.

Of the companies that don't offer a plan, 40% said they planned to introduce one. Specifically, 12% planned a 2007 debut while 32% hadn't decided on a date.

Bill Sharon, senior vice president at Aon Consulting and co-author of the study, said employers' wariness was understandable because the plans had been around for only about five years and the scant data surrounding their effectiveness had been mixed.

"It is the nature of human resources executives to be skeptical about new things," Sharon said. Of consumer-directed plans, he said, "There is not a lot of data to say they work."

"Consumer driven health plans" are an interesting development economically, as they allow people to take more control over their health risk. For instance, a plan with a 5000 deductible (how much you pay out of pocket before the coinsurance kicks in) and 100% coinsurance (what portion of spending the plan covers) would insure you against anything really serious that happens, like a week long hospital stay, which could run upwards of $50,000. On the other hand, you're responsible for all the minor things, doctor's visits, medications, etc. Most plans have prescription drugs built into the main health deductible. Pair these with a health savings account, and assuming you don't plan on using much care, you've got a reasonably stable true 'insurance', rather than a what your typical employee plan resembles, a cost spreading device.

HDHPs (high deductible health plans) w/ or w/o HSAs are pretty tightly regulated too, so its not as if theyre particularly abusive of consumers. At least, not in their design. These plans are also cheap, comparitively. For individuals, costs will probably average below $150/month (f0r instancce, a small sampling of individual health HSAs in california found an average cost of around $130/month for an individual $5000/100% plan), although more competitive options with even leaner benefits are available. For employers, the costs are also much more competitive.

The problem thus far though is that like any regulated government project, its just not going the way the regulaters wanted it to. In this case, people are opening the plans for essentially catastrophic coverage, as their normal plans, because of the cost differential. They aren't making any sort of personal risk assessment. Moreover, they aren't opening the HSAs, which are supposed to store money to guard against that middle 2000-5000 spending gap where HSAs can actually be scarily expensive, especially in comparison to benefits (none).

If HSAs are going to continue in their heavily regulated condition, then steps need to be taken to help inform consumers and keep them from bankrupting themselves even though they're paying for insurance. For instance, 130x12 + 4000 = 5560, compared to a lower ded plan with, say 1500/70. Those go for about 230. So, 230x12 + 1500 + (.3) x 2500 = 4998, $550 less. Personally, I think the HDHPs are better plans, in general, and would rather get one of them. But effective use requires an HSA, which people aren't setting up.

Also, when you consider how much of health spending is on prescription drugs, it gets more difficult. Whereas most plans will have some sort of tiered copay system, like $10 generics, $35 preferred brands, 50% non preferred, or something similar, HDHPs require you to pay the full cost under the deductible. In the above example, if $500 of that is spending, the different could increase to $800 or $900 which at that level is not unreasonable.

The alternative, of course, is to let companies specifically design these plans as high risk, and market them as cheap competitors rather than the full, stable plans, which, without HSA utilization, they aren't.


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