A Carlson School professor and his colleagues at the University of Minnesota conducted some of the earliest research to examine the impact of consumer-driven health plans. Stephen Parente of the Carlson School and Jon Christianson and Roger Feldman of the School of Public Health studied Minnesota-based Definity Health, the nation’s first consumer-driven health plan, and are using their findings to advise the Bush administration on the potential costs associated with a tax credit for health savings accounts. Their research helps explain why consumer-driven health plans may soon become a standard offering in many employee benefit portfolios.

Wall Street also will likely pay more attention to consumer-driven health plans following the December announcement of UnitedHealth Group’s $300 million acquisition of Definity Health. With revenues skyrocketing from $400 million in 1989 to a projected $45 billion next year, UnitedHealth Group has established a strong track record of acquiring winners during the 15-year tenure of chairman and chief executive officer Bill McGuire.

The nuts and bolts of consumer-driven health plans

In consumer-driven health plans, employers allocate a sum of money for each employee that goes into a health care reimbursement account. Over the course of the year, the employee spends the money, at his or her discretion, on healthcare needs. Unlike flexible spending accounts, unused funds are allowed to roll over into next year’s account, leaving a greater amount for the employee to spend.

By using the account to purchase healthcare services, employees become directly involved in their healthcare decision-making. The belief is that employees will shop around for the best prices on their healthcare needs, including prescriptions. Employees pay for healthcare costs out of their accounts up to a pre-determined level, typically $1,000 or more, and catastrophic insurance covers more expensive procedures. The plans also provide information on physician and hospital performance and procedure costs to help consumers use their money wisely.

Consumer-driven health plans became much more attractive last year when health savings accounts were approved as part of the Medicare reform legislation. Health savings accounts increase the flexibility of health care reimbursement accounts by treating them in a manner similar to 401(k) plans. They can be employer- and employee-funded, unused amounts can be invested, and employees are able to take the money in the health savings account with them if they change jobs.

Results from early users of consumer-driven health plans

Parente, Christianson and Feldman examined preliminary data provided by some of the employers who offered Definity Health as an employee health benefit option. They learned that Definity was not disproportionately chosen by the young and the healthy, as many believed would be the case. Instead, it was chosen more by higher-income families and was most popular among 35- to 44-year-olds.

Employee payments were cheaper than payments to health maintenance organizations and about the same or slightly less than preferred provider organizations. Patient expenses, including prescription drug costs, were similar for each population. But consumer-driven health plans did show an increase in demand for services, particularly prescription drugs, over time.

The preliminary research also indicated that Definity’s patient hospital admissions were higher than expected. The researchers noted that this trend needed further study to make sure admissions were being accurately counted. The higher admissions were one factor in the higher than average payments made by employers for consumer-driven health plans.

Employees and employers were positive about the consumer-driven health plan, but not more than other health plans. Employees noted three key features that they looked for in a consumer-driven health plan:

• their doctor was in the plan (77 percent);
• no referrals were needed (51 percent);
• preventive services were covered (47 percent).

Additional findings from the preliminary study include:

• 70 percent of employees said it was easy to use the personal care account to pay for health services;
• employees choosing Definity were sensitive to premium differences among competing health plans;
• employees and families with chronic conditions were more premium-sensitive;
• 76 percent of Definity members correctly estimated whether they would or would not have money left in their health savings account at the end of the year.
  
  

These findings represent the initial results of a two-year research project which aims to provide an unbiased evaluation of the impact of consumer-driven health plans. In the second phase of the study, Parente and the other researchers will use interview data to assess the experiences of other “early adopter” employers with consumer-driven health plans. They expect to release the results of this second phase in 2005.

What’s next?

President Bush has made health savings accounts an important part of his plan for health care reform by proposing a tax credit that anyone could use to purchase a health savings account plan. Some observers fear this will be an expensive tax subsidy for the wealthy, but others argue that it might encourage low-income people who don’t have insurance to buy a high-deductible health plan with a health savings account. Parente and his colleagues are using the results from their study of Definity Health to advise the federal government on who will choose a tax-subsidized health savings account, and how much this might cost.

With UnitedHealth Group now having a much larger stake in the game, and insurers such as Blue Cross and Blue Shield offering their own versions, consumer-driven health plans are set to play a much more prominent role in healthcare benefit offerings nationwide.