CDHPs Could Revolutionalize Health Care
Lower employer health care costs and give consumers more choices
from PERFORMAX
According to Forrester Research, consumer-driven health plans (CDHPs) will attract 2.7 million members and capture $16 billion in premiums by 2005. Preliminary reports from carriers and consultants offering CDHPs show that medical cost increases are less under a CDHP compared to other health plans. A recent nine-month study by a national carrier demonstrates that medical costs under a CDHP rose by just 1.5 percent, compared to double digit increases under other types of plans (Ceniceros).
Some theorize that CDHPs could revolutionize the health care market. The following five concepts explain why.
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Consumers are more careful spending their own money versus someone else’s.
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CDHP education programs provide employees with information on provider quality.
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Consumers shop for the best buy, based on quality and cost, and consider the cost of a particular health care service before choosing it.
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CDHPs put health care providers in an open marketplace where they will be forced to compete for business.
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When consumers ration health care dollars and providers compete for business, health care costs will go down and quality will improve.
As this list implies, the goal of a CDHP plan is to get plan members (employees) involved in health care decision-making, based on cost, quality of services and treatment plan options. When they’re involved in making decisions about the cost of their health care, the costs go down. In fact, they’re more likely to spend health care dollars more carefully when they understand that:
The foundation of a CDHP is a High Deductible Health Plan (HDHP), which is paired with a Health Reimbursement Arrangement (HRA) or a Health Savings Account (HSA).
The differences between HRAs and HSAs
HRAs and HSAs are known as medical expense reimbursement accounts, which are created for the benefit of employees and their dependents. They differ in important ways.
Legislation passed in December 2003 enables the availability of HSAs. Like an HRA, these are medical expense reimbursement accounts, which can be combined with an HDHP to create a CDHP. There are three main differences between HRAs and HSAs:
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Employers do not have to be involved in HSAs—they can be set up and funded by an individual. HSAs can also be funded by the individual and the employer, or just by the employer.
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HSA funds are held in an IRA-like trust for the employee and are fully portable. This means that when plan participants terminate employment, they take their unused HSA funds with them.
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Contributions can't be made to an individual HSA account unless the individual is covered by an HDHP on the first day of the month of the contribution. In order to qualify as an HDHP for purposes of the HSA rules, the plan must meet certain deductible and out-of-pocket expense requirements. Specifically, for individual coverage, the HDHP must have an annual deductible of at least $1,000, with a ceiling on out-of-pocket expenses (including deductibles, co-payments and other amounts) not exceeding $5,000. For family coverage, an HDHP must have an annual out-of-pocket ceiling not exceeding $10,000. No deductible is required for preventive care, out-of-pocket maximums may be higher for out-of-network care and out-of-network deductibles are not counted to see if the minimum deductible requirement is met.
Educating employees about these benefits
Through enrollment in a CDHP, employees become informed health care consumers, but it takes education and increased responsibility to reach that point. By their nature, CHDPs provide increased choice and control, putting more responsibility for health care decision-making in the hands of the employee. They need to learn the true cost of medical care and to weigh both cost and quality in choosing among health care providers and recommended treatment plans.
Items to include in an employee education program:
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Explain the facts about CDHPs and other health plan options during the enrollment process.
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Participants need information about the quality of health care providers and the cost of medical expenses. This includes quantifiable data to measure and compare hospital quality or specific costs of a health procedure. This kind of information is now available through online tools provided by many plans.
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Provide employee access to reliable information about medical conditions through online health libraries and links to reputable health care organizations. Immediate medical information is also available through 24-hour, nurse help-lines.
What do employees like about CDHPs?
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Employees find the cost savings associated with CDHPs attractive.
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Employees enjoy the choices and control they have over their health care dollars.
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When a CDHP is designed with an HSA or an HRA with a rollover option, employees can save unused funds to pay for future health care expenses.
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Employees with HRAs also have a first dollar benefit allowing them to use their account funds to pay for their eligible medical expenses, which reduces their out-of-pocket expenses for the year.
Source: Ceniceros, Roberto, “Consumer-driven Plans May Keep Medical Costs Low,” Business Insurance, Feb. 2004.
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