Health Plans Raise Concerns

By Christopher Lee
Washington Post Staff Writer
Tuesday, October 24, 2006

A new kind of health plan being offered by a growing number of employers appears to save on costs but may lead some patients to forgo needed care, a study by Rand Corp. economists has found.

The report, published today in the journal Health Affairs, examined dozens of existing studies to assemble a picture of the early experience with consumer-directed health-care plans, which now cover 3 million to 6 million people and represent about 3 percent of the commercial insurance market.

In contrast to traditional plans, in which beneficiaries typically pay a modest deductible and co-payments of $15 or $20 for visits to the doctor, the new plans can require consumers to shell out hundreds and sometimes thousands of dollars of their own money for drugs, doctors and hospital care before most coverage kicks in.

The annual deductible in a consumer-directed plan is generally $1,050 to $2,000 for individuals and $2,100 to $4,000 for families -- far higher than the average $220 deductible in a traditional employer-sponsored health plan. Premiums tend to be lower, however.

Consumer-directed plans have been heavily promoted by the Bush administration as a way to rein in spiraling health-care spending by giving consumers a financial incentive to shop around for the best care at a reasonable price -- and to get only the care they need.

The new plans often are linked to health savings accounts (HSAs), created by Congress in 2003 to allow consumers to set aside tax-free dollars to pay for medical expenses. Employers sometimes put money into the accounts for their employees. Unlike flexible spending accounts, another way consumers can set aside money for health expenses, unused dollars in HSAs can be rolled over to the next year.

The newer plans can be confusing for consumers used to HMOs and preferred-provider plans. That has not stalled their growing popularity, however. As many as a third of all organizations that sponsor health insurance but do not offer a consumer-directed plan say they will do so in 2007, according to a survey by Watson Wyatt Worldwide, a consulting firm.

But are the plans working as advertised? Yes and no, the Rand study found.

With consumer-directed plans, most employers save at least 10 percent on health costs. A few reported saving as much as 25 percent, although some of the "savings" may simply be a shift in costs to workers, the researchers found.

And people enrolled in the plans do appear to be cutting back on their health care. Studies show a 4 to 15 percent reduction in spending for those without an HSA in their plan, and a 2 to 7 percent reduction for those with one.

That reduction is both good and bad, the Rand study found. In some cases, for example, the greater cost-sharing burden on consumers meant that they did not go to the emergency room for problems that did not require it. At other times, people were forgoing necessary care and potentially jeopardizing their health.

"The evidence is really mixed," said Melinda Beeuwkes Buntin, a Rand economist and the lead author. "There are some studies in which people are reporting that they don't fill a prescription or they don't get follow-up that's recommended by a doctor. So those two things would be cause for concern."

Another concern is that consumer-directed plans might attract disproportionate numbers of the healthy and the wealthy, leaving sicker, less affluent consumers in traditional plans. That, in turn, could force traditional plans to raise their rates even faster, since there would be fewer healthy participants to share the costs of needed care in any given year.

Rand researchers did find that the early switchers to the new plans tended to have higher incomes and be in somewhat better health than their counterparts in traditional plans, a "modest" disparity that researchers say "warrants monitoring."

They also concluded that patients are still struggling to find good, consistent information about the cost and quality of the health care they receive, the kind of data needed if the new plans are to work. The government could help establish standard measures for assessing quality, they wrote, and could remove legal obstacles to pooling data from private insurers.

"I don't think that these plans can be a panacea," for rising health-care costs, Buntin said, "but they could, if well-designed, be one part of the strategy for rationalizing our system of health insurance."

Ron Pollack, executive director of Families USA, a health-care advocacy group, is not convinced. Pollack said the new plans will deter people from getting needed care, weaken traditional insurance plans by siphoning away the healthiest beneficiaries and favor wealthy participants who will get a larger tax break.

They also will do little to save on costs because these plans will still pay for the catastrophic illness and end-of-life care that is responsible for 85 percent of health-care spending annually in the United States, he said.

"Every few years people are looking for a magic bullet to deal with costs," Pollack said. "And this bullet results in the shooting of a dud."

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