Consumer-Directed Health Plans (CDHPs)

Background

CDHPs have emerged against a background of rising insurance premiums, dissatisfaction with managed care, and changing consumer attitudes about involvement in their care. Managed-care plans arguably played a major role in slowing the growth of healthcare costs in the 1990s by combining selective contracting with restrictions [Page 231]on consumer choice, allowing them to reduce payments to hospitals and physicians. Key features included direct controls on utilization and the use of financial incentives to steer consumers to networks of contracting providers. However, since the late 1990s, there has been a growing consumer backlash against these restrictions. This has been accompanied by a shift in enrollment toward less restrictive types of managed-care organizations (e.g., moving away from health maintenance organizations [HMOs] toward preferred provider organizations [PPOs]), a relaxation of plan constraints on choice, and a re-acceleration in the growth of health insurance premiums. The combination of rising premiums and the push back against managed care has fueled interest in CDHPs as an alternative cost containment strategy or at least as a means of shifting some of the burden of cost increases toward consumers. At the same time, there has also been growing interest among consumers in greater involvement in decisions about their care and in CDHPs as vehicles for tax-advantaged saving.

Design and Operation

Typically, CDHP insurance plans include not only a high deductible but also substantial consumer cost sharing above this deductible until the consumer reaches a maximum stop-loss cap on out-of-pocket expenditures, at which point services are usually fully covered as long as they are obtained in the network. Consequently, insurance premiums will usually be lower than for coverage with a smaller deductible and less cost sharing, but there is greater risk exposure. In the individual insurance market, this trade-off between premiums and risk is explicit. In employer-based plans, the impact on a consumer will depend on an employer's decision not only about contributions to employee spending accounts but also about premium contributions.

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