The creation of consumer-driven health plans (CDHPs), health insurance policies with high deductibles linked to a savings option and with more financial respnonsibility shouldered by patients and employees and less by employers, was completely inevitable. The American public likes to have everything, whether consumer electronics or other services, as cheap as possible. With escalating health care expenses rising far more rapidly than wages or inflation, it's not surprising employers needed a way to manage this increasingly costly business expense.
In the past, companies faced a similar dilemma. It wasn't about medical costs, but managing increasingly expensive retirement and pension plan obligations. Years ago, companies moved from these defined benefit plans to defined contribution plans like 401(k)s. After all, much like health care, the reasoning by many was that employees were best able to manage retirement planning because they would have far more financial incentive, responsibility, and self-motivation to make the right choices to ensure a successful outcome.
How did that assumption turn out anyway?
Disastrous according to a recent Wall Street Journal article titled Retiring Boomers Find 401(k) Plans Fall Short.
The median household headed by a person aged 60 to 62 with a 401(k) account has less than one-quarter of what is needed in that account to maintain its standard of living in retirement, according to data compiled by the Federal Reserve and analyzed by the Center for Retirement Research at Boston College for The Wall Street Journal. Even counting Social Security and any pensions or other savings, most 401(k) participants appear to have insufficient savings. Data from other sources also show big gaps between savings and what people need, and the financial crisis has made things worse.
In others words a lot of people don't have enough money to retire. The options they have are simply "postponing retirement, moving to cheaper housing, buying less-expensive food, cutting back on travel, taking bigger risks with their investments and making other sacrifices they never imagined....In general, people facing problems today got too little advice, or bad advice."
Though employers were able to manage retirement expenses, employees paid a significant price. This wasn't intuitively obvious in the 1980's when these plans became more commonplace. Over the past decade, the less than rational behavior by employees hasn't gone unnoticed by those who study behavioral economics or those in the government. As a result, more organizations and companies are nudging employees into the right behaviors with auto-enrollment into 401(k) plans and auto-allocation of these funds with protection from any future liability as noted in the Pension Protection Act of 2006.
The analogies to health care and specifically consumer-driven health plans should be clear. Workers don't save adequately for retirement even when in their best interest. It's very likely that workers won't save money adequately to fund future health expenses. After all, if people can't fund retirement, something we undoubtedly all look forward to, which one of us is willing to saving for chemotherapy or open heart surgery, which no one wants? According to the annual Kaiser Family Foundation Employer Benefits Survey, the average annual deductible for single coverage and family coverage is nearly $2000 and $4000 respectively for health insurance plans that are health savings accounts (HSA) eligible. The deductibles are slightly lower in health insurance policies that are linked to health reimbursement arrangement (HRA). About 13 percent of employees are covered under either plan.
Unlike those in retirement planning who can work longer, even if not desirable, employees who are ill may not have an option to work to pay for their medical expenses. There continues to be evidence that people are curbing their health care due to the ability to pay.
Though experts debate on whether this is a good thing (patients are avoiding unnecessary and expensive therapies and opting for less pricey but equally as effective options) or a bad thing (patients are avoiding the preventive screening tests or therapies that overall can decrease future costs), the opportunities to ensure patients make the right choices should be clear from workers' less than optimal experience with 401(k)s.
If employers wish to help curb medical costs, then they will need to engage workers with programs like employee wellness, assisted decision making (either as second opinions or patient-friendly informed consent), and access to medical experts, equivalent to personal financial advisors, who may be able to help workers make the right choices for their health. Within the business community, there is some acknowledgment that access to these tools will be necessary to not only manage costs but keep employees healthy and productive.
Done correctly, consumer-driven health care can be what everyone hoped they would be, nudging healthy behaviors and slowing health care costs with workers selecting only cost-effective therapies. If implemented poorly and organizations simply shift health care costs and financial responsibilities to workers like retirement planning decades ago, the nation will need to accept more than ever that increasingly more people get the medical care based simply on their ability to pay and not on medical necessity.
As a practicing primary care doctor, I hope that day never comes.
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