What Are the Pros and Cons of Consumer Driven Health Plans?

What is a consumer driven health plan?

CDHPs are health insurance plans that use high deductibles coupled with tax-advantaged personal health spending accounts to increase consumer accountability for their health care spending.

The four types of consumer-driven health plans are health savings accounts (HSAs), flexible spending accounts or arrangements (FSAs), health reimbursement arrangements or accounts (HRAs), and medical savings accounts (MSAs). Each of these types brings tax benefits along with them, the IRS says.

Health savings accounts allow enrollees to set aside pre-tax funds for eligible healthcare expenses, which includes copayments and deductibles but not premiums. The funds earn non-taxable interest and roll over year-to-year.

Flexible spending accounts are tax-free funds that can go toward eligible out-of-pocket healthcare expenses such as prescription drugs and medical products. Employers determine what happens to remaining funds at the end of a year.

Health reimbursement arrangements allow employees to receive tax-free reimbursement for eligible medical expenses. Employers manage these arrangements and health reimbursement arrangements have a cap on how much reimbursement employees can receive in a year. Remaining funds roll over year-to-year.

Medical savings accounts are offered through some Medicare Advantage plans that put together a high deductible health plan with a savings account.

The Medicare medical savings account places a sum of funds in the savings account, with the total amount depending on the health plan. These funds can go toward medical expenses pre-deductible, with the exception of Medicare Part D drug spending.

The primary difference between consumer driven or consumer directed health plans and preferred provider traditional health plans is that consumer drive health plans are tied to high deductible health plans. 

As a result, enrollees tend to pay lower premiums on a monthly basis than in traditional health plans. However, if they experience a high-cost health event, it will take them longer to reach their deductible. 

CDHPs are often confused with high-deductible health plans, which is understandable since consumer driven health plans often consist of a high deductible health plan paired with a savings option. 

A high-deductible health plan (HDHP) includes a deductible of at least $1,400 for an individual or $2,800 for a family. An HDHP’s total yearly out-of-pocket expenses, including deductibles and cost-sharing (co-pays, coinsurance), can’t surpass $7,000 for an individual or $14,000 for a family.

Consumer driven health plan pros, cons

Each type of consumer-driven health plan has its benefits.

For example, health savings accounts can help members with chronic disease prevention and management. In an online survey of 36 payers, all of them offered a health savings account to their fully-insured clients, and 75 percent stated that they offered their fully-insured clients a set of chronic disease prevention services outside of the plan’s deductible.

CDHPs can save costs for payers and beneficiaries, but CDHPs may increase patient risks.

For example, HSA enrollees may experience barriers in access to care, such as finding information on the costs of specific services, the MayoClinic has pointed out. 

Those who are sicker may have difficulty setting aside savings in their accounts, making the account less valuable to them. Unpredicted healthcare crises can quickly deplete healthcare savings. Moreover, in an effort to use the account correctly and save for the future, enrollees may forego necessary preventive care services and delay addressing immediate care needs. 

For example, 8.9 percent of patients who had survived cancer and were enrolled in a high deductible health plan with a health savings account were likely to delay or forego needed care compared to their counterparts in low deductible health plans, according to a study published by the American Society of Clinical Oncology. 

This is consistent with the overall trend: 9.5 percent of individuals with no cancer history who were enrolled in a high deductible health plan had delayed or foregone care, compared to 5.9 percent of low deductible health plan enrollees.

That being said, the researchers noted that enrollees in a high deductible health plan without an HSA were more likely to delay or forego care than enrollees who were in a high deductible health plan but had an HSA.

While consumer driven health plans might have negative influences on enrollees' utilization of care, they may successfully lower costs for employers and payers. Overall spending among consumer driven health plan enrollees was 13 percent lower than individuals not enrolled in a consumer driven health plan in 2016, the last time that the Health Care Cost Institute published a report on the subject.

These differences likely were not tied to the healthiness of consumer driven health plan enrollees compared to non-consumer driven health plan enrollees, the report confirmed. Across three common chronic conditions, consumer driven health plan enrollees consistently spent less than non-consumer driven health plan enrollees. From 2014 through 2016, healthcare spending rose nine percent for individuals who were not in consumer driven health plans and seven percent for consumer drive health plan enrollees.

However, consumer driven health plan enrollees also demonstrated lower care utilization, consistent with the American Society of Clinical Oncology's findings.

Whether considering consumer-driven health plan enrollees’ healthcare spending or healthcare utilization, the message is the same: enrollees must be well-informed and have strong healthcare literacy, particularly as the population of healthcare consumers in these plans grows. 

More than three in ten consumers were enrolled in a high deductible health plan or consumer-driven health plan in 2021. Of those, 13 percent were in consumer-driven health plans, according to the Employee Benefit Research Institute (EBRI).

But EBRI also found that, as enrollment in high deductible health plans continues to accelerate, consumers in such plans have become more comfortable with consumer-driven health plan options. Half of all high deductible health plan enrollees were very familiar or extremely familiar with consumer-driven health plans, compared to only 22 percent of traditional health plan enrollees in 2020.

The amount of time that an enrollee has been in a consumer-driven health plan also factors into how enrollees use their plans and savings accounts, according to a separate EBRI issue brief.

“As individuals become more familiar with HSAs, they are using the accounts more as designed,” the researchers explained.

“Specifically, account balances are growing over time, enabling longtime accountholders to withdraw larger sums when unexpected major health expenses occur. Plan sponsors that value employee financial wellness can work with administrators and advisors to better educate employees on use of HSAs, including available investments.”

Popular consumer-driven health plan benefits

CDHPs are offered by some of the largest commercial payers, including Humana, BlueCross BlueShield, and UnitedHealthcare.  They are generally advertised as plans that include care coordination tools and many cost-sharing benefits.

Humana CoverageFirst CDHP offers beneficiaries both health assessments and biometric screenings.

As for financial benefits, CoverageFirst CDHPs also offer “benefit allowances,” which cover the first $1000 of covered medical services for each member enrolled without rollover year-to-year.

This allotment covers services such as prescription drug purchasing, preventive care, and routine office visits where enrollees only pay for copays and applicable coinsurance on these services.

BlueCross BlueShield HDHPs for employers offer HSAs, FSAs, and HRAs to employees and a suite of healthcare engagement tools. These include interactive online health plan statements, hospital cost and quality comparison tools, medication cost and coverage search tools, health care cost search tools, and readily available health and wellness information.

BCBS HDHPs can be offered as either health maintenance organization (HMO) or preferred provider organization (PPO) plans to benefit a company’s healthcare spending through employee accountability.

“Consumer-directed health plans combine financial engagement and comprehensive support to move employees toward becoming empowered consumers of health care services,” BCBS said. “This approach can help your company manage costs over the long term and be an effective strategy for delivering quality, sustainable coverage for your workforce.”

UnitedHealthcare’s consumer driven health plans include high deductible health plans with HRAs and HSAs. Employees in a high deductible health plan with an HRA can use the myHealthcare Cost Estimator on myuhc.com to estimate care costs and manage their claims with the myClaims Manager. Enrollees receive full coverage for preventive care.

Employees who have a high deductible health plan with an HSA will manage their account through UnitedHealthcare’s Optum Bank, creating a single point of contact to streamline HSA enrollment, communications, and contributions.

What types of consumers would find value in consumer-driven health plans?

CDHPs are based on low cost-sharing and higher deductibles, which require active engagement in purchasing decisions from the consumer. 

The Employee Benefit Research Institute (EBRI) found that older generations were more likely to be in CDHPs or HDHPs. In comparison, younger generations were more likely to be in a traditional health plan. Nearly half of all high deductible health plan enrollees in the survey were between 45 and 64 years old (48 percent).

Millennials tend to value their ability to interact with health plans and sponsors more than older generations. They are looking for health plans that are constantly available and convenient. Because millennials often do not understand their own benefits and may not have a primary care provider, many payers have turned to concierge-style engagement for this population.

In contrast, high deductible health plan and consumer-driven health plan enrollees, who trended older, were more cost-conscious. These enrollees were more likely to check whether their plan covered a prescription or treatment, look at the quality rating for a provider or care setting, or discuss more cost-effective treatments with their providers.

Additionally, high deductible health plan enrollees and consumer-driven health plan enrollees may prioritize lower premiums over lower deductibles.

Consumer-driven health plan enrollees tended to leverage their health savings accounts to cover immediate healthcare costs such as out-of-pocket expenses and unexpected expenses, but others put the funds toward healthcare costs in retirement or toward reducing taxes, the EBRI survey also discovered.

When considering or promoting CDHPs to potential enrollees, payers should make sure that the plan benefits align with consumer needs that effectively encourage smart healthcare utilization and meet the priorities of beneficiaries in different financial circumstances.