FEBRUARY 2007 HOT TOPICS

Early Evidence Shows That Consumer-Directed Health Care Reduces Health Care Use and Spending but Has Mixed Effects on Quality of Care

As Congress looks to increase access to health care and curb escalating health care costs, consumer-directed health care (CDHC) is gaining a growing interest. CDHC plans are an increasingly popular form of medical coverage that have a high deductible, often combined with a tax-advantaged savings account. Last year, just over three million privately insured, non-elderly American adults were enrolled in a consumer-directed plan. Of those, only 10 percent had a health savings account (HSA).

Compared with traditional employer-based health coverage, CDHC shifts more of the cost of routine medical care onto consumers, who pay the high deductible out-of-pocket or from tax-advantaged savings. The benefit design assumes that consumers who spend their own money for medical services will shop more wisely for care. The design also assumes that providers will respond by providing more efficient and better care, thus using market forces to slow cost growth and drive quality improvement. Skeptics have challenged these assumptions, arguing that shifting costs to consumers could cause them to forgo needed care. Evidence about the effects of CDHC is now emerging. A team of RAND researchers led by Melinda Beeuwkes Buntin reviewed recent studies and gathered data from insurance carriers and employers. The RAND analysis suggests that CDHC plans typically reduce the use of health services and cut costs but have mixed effects on quality of care.

Health Care Costs and Utilization. The researchers estimated that if all privately insured, non-elderly Americans were moved from low-deductible health insurance plans to consumer-directed plans, the result would be a one-time health care cost reduction of 4 percent to 15 percent. However, pairing such high-deductible plans with HSAs could offset those reductions by as much as half.

Studies also showed that CDHC plans typically reduced health care spending and utilization. Consumers in CDHC plans generally experienced lower overall average spending on medical services; smaller premium increases; and lower service use, including fewer primary care visits, emergency room visits, hospital days, and office visits. However, studies showed mixed effects on individual spending, with higher costs and cost increases in some plans and lower costs in others.

Enrollment Bias. A major concern about CDHC is that these plans may attract healthy individuals and families, leaving a larger proportion of sicker patients in traditional plans. The study found some indication that this is happening: Those in CDHC plans tend to have higher incomes and are in better health.

Quality of Care. Early evidence about CDHC's effects on quality showed mixed results. Several studies reported an increased use of preventive care in consumer-directed plans and increased adherence to prescribed treatment. However, other studies found that enrollees in CDHC were more likely to behave in ways that save money, such as failing to get follow-up lab tests. This behavior could have adverse long-term consequences. In addition, CDHC participants were less satisfied with their health coverage than those in other kinds of plans and were less satisfied with their current CDHC plan than with their former plan.

Consumer Information. New information sources and tools for consumers are starting to appear. Some insurance plans now provide information on fees that they have negotiated for specific medical procedures and on prices for prescription drugs. Participants in CDHC appear to make greater use of this information, but many nevertheless reported that they lacked sufficient information about provider prices and performance. Less than a sixth of enrollees felt that adequate information was available to support their decisions.

This study represents the first stage of ongoing research that will analyze empirical data on the effects of CDHC. The evidence to date is not sufficient to support firm conclusions about the effects of CDHC. To help address the lack of rigorous data, RAND is undertaking a four-year study co-sponsored by the California HealthCare Foundation and the Robert Wood Johnson Foundation. The study will examine the effect of high-deductible health plans—with and without spending accounts—on use and quality of care, including differential effects based on health status, income, and other factors.

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