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Why is There Movement Toward Consumer Driven Health Care?
insurance does many good things. It reduces risk and helps people to get
health care services that they could not otherwise afford. However,
it also has some negative side effects. For example, insured people
often use services whose cost is greater than their benefit. This is called
"moral hazard" and it inflates premiums. Even if an insurance company
pays the bills and an employer pays the insurance premium in the short
run, ultimately employees have their wages reduced because their employer
pays inflated premiums.
When moral hazard was causing high premium inflation in the 1980's, many employers switched to managed care to constrain moral hazard by constraining the supply of care. These constraints often involved rules about which providers or services were or were not covered under what conditions. Managed care constrained premium inflation for a while, but there was a backlash against it in the late 1990's. In response, many managed care companies reduced constraints. Also, consumer demand for health care rose, partly due to medical information on the internet and significant price increases for prescription drugs. Health insurance premium inflation returned with a vengeance in the early 2000's. Now many employers cannot afford to pay rapidly increasing premiums.
Some employers, faced with the alternative of dropping health benefits entirely, have sought to cap the amount that they pay for health benefits through "defined contribution." Defined contribution means that an employer pays a fixed dollar amount toward each employee's health benefits rather than paying whatever it costs for a fixed package of benefits.
One form of defined contribution that has been around for years works as follows -- (1) an employer offers employees two or more health plans; (2) the employer contributes (most of) the premium of the lowest-cost health plan; and (3) if the employee picks a more expensive plan, then then employee pays the incremental cost of the selected plan. This gives the employee an incentive to consider cost when selecting a health plan.
Recently, defined contribution has become one part of the trend toward Consumer Driven Health Care. Consumer Driven Health Plans (CDHPs) generally involve the following: (1) an employer pays a fixed amount toward each employee's health benefits; (2) each employee has an untaxed health account that they control and use to pay health care bills; (3) unspent money in the account accumulates for future years; (4) the account is accompanied by a high-deductible health insurance that pays for major expenses; and (5) the employee gets on-line support to track health care bills, maintain health, get information on provider quality, and get discounted prices.
As we will discuss later, not everyone supports Consumer Driven Health Care. Opponents are concerned that these plans may take health benefits away from employees, give tax breaks to the rich, and leave the chronically ill behind in traditional health insurance paying higher premiums. Legislation to expand tax-exempt accounts is hotly contested.
As of 2002, few people in the United States had Consumer Driven Health Plans. According to an April, 2003 survey on Consumer Driven Health Care by Deloitte and Touche, only around one out of ten employers offered such plans. Those that did usually offered traditional managed care plans as well.
Despite political opposition and relatively low enrollment thus far, interest in Consumer Driven Health Care is growing rapidly. The Deloitte and Touche survey found that more than four out of ten employers plan to offer a Consumer Driven Health Plan in the near future. The trend toward Consumer Driven Health Care is growing due to the collision of two factors:
First, many physicians and employees are frustrated with the restrictions and complexity of managed care. They support Consumer Driven Health Plans with the hope that these plans will reduce the intrusion of health insurance into the practice of medicine and restore independence to the doctor-patient relationship. With the potential for different prices for different providers instead of a uniform fee schedule, physicians with greater patient satisfaction and perceived quality may also be financially rewarded.
Second, many employers are frustrated by the resurgence of high inflation rates for health insurance premiums. Many employers must either contain premium increases or drop insurance coverage entirely. The last time that health premiums were increasing rapidly, many employers turned to managed care. With the current backlash against managed care, however, this is not a great option. Thus, employers can either increase employee copays and deductibles in traditional health insurance or increase employee copays and deductibles in Consumer Driven Health Plans. Consumer Driven Health Plans give more control and flexibility to employees to manage their own health care expenses. It gives them incentives to stay healthy and use care wisely. Thus, it can be a more attractive option.
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