If you’ve dealt with the healthcare system in the United States, you know that it can be a bit of a headache. Not only is our system difficult to navigate, but it also consistently fails to deliver the value it should for the prices we pay. Although the U.S. spends more on healthcare per year than comparable countries, Americans tend to be less healthy — financially and physically — than their international peers.
This isn’t a new issue, of course. Policymakers, providers, and payers have spent decades instituting various solutions designed to mitigate the problem. When healthcare costs were rising rapidly back in the early 2000s, consumer-driven health plans were introduced to reduce the financial burden for employers offering health coverage.
Rising healthcare spending, the thinking went, is partially due to our system’s excessive reliance on third-party payments (i.e., insurance). When consumers don’t know the actual price of care, they have minimal incentive to shop around for lower-cost, higher-value providers and services. A consumer-driven health plan was designed to give consumers more skin in the game, incentivizing them to make more informed healthcare choices and forgo unnecessary medical care.
But how effective has this approach been in the years since the inception of consumer-driven health plans — and has reality matched that initial vision?
A Closer Look at Consumer-Driven Healthcare
Consumer-driven healthcare or consumer-driven health plans essentially allow employees and employers to use pretax money to cover out-of-pocket medical expenses (i.e., those not covered under the employer-sponsored health plan). These plans are generally linked to either health savings accounts (which the employee owns and funds) or health reimbursement arrangements (which the employer owns and funds).
If this sounds a lot like a high-deductible health plan, that’s because it is! You can think about consumer-driven health plans as the umbrella under which HDHPs fall. As a result, the benefits of consumer-driven health plans mirror those of HDHPs.
Because they carry cheaper monthly premiums, consumer-driven health plans are a cost-effective option for generally healthy people who can capitalize on the triple tax benefits of an HSA or HRA. And based on data from the Health Care Cost Institute, consumer-driven health plan participants spend about $540 less annually on healthcare compared to those enrolled in traditional plans such as preferred provider organizations. Plus, nearly two-thirds of consumer-driven health plan enrollees say they receive quality care through their plan.
How Do Consumer-Driven Health Plans Work?
To set up a consumer-driven health plan, you need to offer your employees a qualifying HDHP with the option of earmarking a pretax portion of their monthly paycheck for an HSA. When an individual with a consumer-driven health plan visits the doctor, they’ll pay for their care based on a three-tiered payment system.
- First, the employee can withdraw funds from their HSA to cover the visit.
- If HSA funds fail to cover the total cost (which is common), the employee pays for their care using personal funds.
- Once the employee meets their annual deductible, the consumer-driven health plan kicks in and fully covers any care costs.
And that, of course, brings us to the main drawback of consumer-driven health plans: Those lower premiums come with higher annual deductibles, which means enrollees must pay more out-of-pocket costs before their coverage kicks in. It’s important to highlight this fact when helping your employees choose between a consumer-driven health plan and a more traditional plan like a PPO, which will have a higher monthly premium but lower annual deductible.
A consumer-driven health plan likely isn’t a great fit for employees who manage chronic illnesses, for example, because they’ll pay way more out of pocket for monthly prescriptions, doctor’s appointments, and diagnostic tests than they would have under a traditional plan. Additionally, an HSA will do little for someone who cannot contribute the maximum amount each month.
So have consumer-driven health plans been the harbinger of lowered healthcare costs they were designed to be? It depends. An insurance plan that’s right for one employee could be entirely wrong for another. That’s why it’s best to evaluate these things individually. If your employees are still experiencing gaps in coverage — which they likely are — consider offering Paytient alongside your existing health plan to help them access the medical care they need without drowning in debt. To learn more about Paytient, click here.
