The Myth of Consumer-Directed Health Care

The theory behind “consumer-driven health care” is that when the health care user has more financial ‘skin in the game,’ they’ll become more informed and effective purchasers of health care for themselves and their families. That theory hasn’t translated into practice, based on data from the Employee Benefits Research Institute’s (EBRI) latest Consumer Engagement in Health Care Survey.

Health Reimbursement Accounts (HRAs) began appearing in employer benefit packages around 2001, with Health Savings Accounts emerging in 2004. 20% of large employers (with >500 employees) offered either an HRA or HSA plan in 2010, covering 21 million people or 12% of privately insured people in the U.S. Among these, there were 5.7 million accounts in 2010 containing $7.7 billion (including a couple thousand dollars from my own household).

Employees with HRAs and HSAs who exercised, didn’t smoke, and weren’t obese had higher account balances and higher rollovers than those who had less healthy behaviors.

EBRI asked employees with HRAs and HSAs questions concerning cost-conscious health behaviors to see if there was a link between those behaviors — representing cost- conscious processes for health decisions — and account balances. EBRI’s hypothesis was that the higher the account balance, the more likely the individual engaged in the behavior. All of the questions are arrayed in the chart; these include checking whether the employee’s health plan covered a medication; checking the price of a doctor’s visit; checking a quality rating of a hospital; talking with a doctor about the cost of treatments and prescriptions; and asking for generic drugs.

No relationship was found between either HRA/HSA account balances or rollover amounts (shown in the chart) with respect to cost-conscious behaviors.

Health Populi’s Hot Points:  Over the past decade, employee benefits consultants and certain health policy theorists have pointed to consumer-driven health care (CDH) delivered through healthcare reimbursement accounts as an effective vehicle for bending the cost curve of health in the U.S. EBRI’s data should give CDH proponents pause. Consumers don’t behave in straight-line, lock-step fashion when it comes to health care consumption: the general rules of Economics 101 don’t apply for a whole range of reasons I and many other economists have discussed. Here’s a post I wrote in February on Anthem’s price hikes that highlights some aspects of market failure in health care.

Don’t assume that consumers having more financial skin in the health care game will make them smarter health consumers. Many health citizens make what seem to be smart fiscal decisions for health care consumption in the short run — like postponing visits to doctors when they feel ill, or skipping doses of medication. These often lead to longer-term dismal physical outcomes.

11 Responses to The Myth of Consumer-Directed Health Care

  1. Health Consumer January 13, 2011 at 9:49 pm #

    Nice article and good use of data to illustrate the utilization of HRAs and HSAs. You stretched it a bit too far though in using this data as a referendum on consumer-directed health and labeling it a myth. If your agenda is political in nature, then surely this is excellent for justifying what you and others already feel about CDH (which apparently is that it doesn’t work).

    It would be better to have qualified your assumptions and presented a more balanced viewpoint on CDH and how well this data addresses its effectiveness. Unfortunately your opinion is undermining what could have been an worthwhile analysis of CDHs potential.

  2. Jane January 13, 2011 at 10:07 pm #

    Thanks for your comment, Health Consumer. I’m not playing politics here: I’m stating what the data EBRI generated shows. I do believe in the merits of value-based benefits planning, especially when it creates economic incentives that motivate health consumers toward healthy behaviors. CDH plans need to incorporate helpful ‘nudges’ that reinforce those good behaviors: if they do, then people will spend their accounts wisely, both for fiscal and physical fitness.

  3. inchoate but earnest January 14, 2011 at 5:16 pm #

    Jane, your concluding paragraph contains your article’s wisdom. Health care decisionmaking does not conform well to short-term focused accounting conventions.

    I agree with Health Consumer however that the value of the EBRI “analysis” is severely limited..For example, what would the results like if the participation difference between people whose employers contribute to their HSAs vs those whose employers do NOT contribute to employee accounts? The data indicate participation and contribution rates differ markedly between those two categories of HSA accountholders; most employees participate in the former case, while only a small percentage put money into HSAs in the latter case.

    What might the results look like if the respondent populations were compared depending whether they had money in an account or not?

  4. Don Kemper January 14, 2011 at 10:22 pm #

    As an employer with a CDHD program in place we think we are seeing increased patient involvement and smarter health care decisions.

    Could your results be accounted for by the likelihood that most employees with very low health care costs would have both high HSA balances and few opportunities to exhibit cost-consious behaviors.

    i’d suggest that you may have evaluated the wrong factors.

  5. Leon DeWitt January 17, 2011 at 5:42 am #

    You state, “make what seem to be smart fiscal decisions for health care consumption in the short run — like postponing visits to doctors when they feel ill . . lead to longer-term dismal physical outcomes,” sounds like nothing but your opinion to me. I think it leads to better untilization and less waste compared to the attitude of “we have insurance, it’s not going to cost us, why not.”

  6. Davis Liu, MD January 21, 2011 at 2:07 pm #

    Saw your piece on the Health Care Blog and agree with the assessment. The health insurance industry and consultants are merely repeating the errors that financial services had suggested decades ago when it came to switching from defined benefit plans (pensions) to defined contribution plans (401ks). The theory was if employees had more financial skin in the game they would make better and rational decisions on retirement planning. After all, who had more interest in a good outcome, the employee or the employer?

    Sounds awfully similar to consumer driven health plans.
    http://davisliumd.blogspot.com/2010/09/empowered-patient-is-this-what.html


    Davis Liu, MD
    Author of Stay Healthy, Live Longer, Spend Wisely: Making Intelligent Choices in America’s Healthcare System
    (available in hardcover, Kindle, and iPad / iBooks)
    Website: http://www.davisliumd.com
    Blog: http://www.davisliumd.blogspot.com
    Twitter: davisliumd

  7. Luis Martinez September 4, 2012 at 9:50 am #

    Actually, I was very interested in the content of this article, but was disappointed in its approach. The author states: “The theory behind “consumer-driven health care” is that when the health care user has more financial ‘skin in the game,’ they’ll become more informed and effective purchasers of health care for themselves and their families. That theory hasn’t translated into practice,”
    As to the reason, she concludes: “No relationship was found between either HRA/HSA account balances or rollover amounts (shown in the chart) with respect to cost-conscious behaviors.”
    Well, those are two totally different topics; I don’t see how hoarding money in an HRA/HSA is indicative of good healthcare PURCHASING behavior. I think she missed a good opportunity for research. I have a lot more examples of positive outcomes for both insured and insurer in the two self insured plans I instituted at Lehigh Valley Hospital.

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