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Consumer-Directed Health Plans

Consumer-directed healthcare is an approach to financing healthcare services wherein individuals are given fixed allowances with which they can purchase specified services. Most plans couple this with catastrophic coverage, usually with a high deductible. These plans often receive tax advantages. Variants may be termed medical savings accounts, health savings accounts, or flexible spending accounts. They have been employed in a number of countries, including the United States, Singapore, South Africa, and China. There are differences in terms of such details as who contributes (employer, employee, or both), the levels of deductibles and co-payments payable, which services can be purchased with these funds, and whether unused contributions can be carried over to subsequent years. Some models employ a “use it or lose it” approach, whereas others allow savings to be accumulated, often tax-free. Consumer-directed models are predicated on the assumption that potential users of care should be the ones making the decisions about what care to receive and from whom.

The Case For

Market Approaches to Allocation

Consumer-based models are based on the premise that, like other commodities, healthcare is a market good and as such its utilization is subject to the predictions of economic theory. In economics, price is the signal that ensures a balance between supply and demand. Economic theorists would thus predict that reducing price would increase demand. In addition, they note that insurance may create what is termed moral hazard, a term referring to the prospect that insulating people from risk (a major purpose of insurance) may make them less concerned about the potential negative consequences of that risk than they otherwise might be. For example, those with flood insurance may be more willing to build in flood plains, in the confidence that insurance would cover their losses. Similarly, economic theory would predict that those with health insurance, because they do not have to pay the full cost of any care they receive, would have an incentive to over-use it. Advocates thus argue that consumer-driven models are the best way to achieve cost control because wise consumers will shop around for the best buy, measured in terms of both quality and price. They suggest that an additional benefit of high deductible plans is that insurers will save money by not having to process small claims.

In contrast, other theorists argue that utilization of health services differs from purchases of consumer goods in that it is (or at least should be) based on need rather than demand. Because need is defined by experts rather than by consumers, they further argue that those individuals receiving care are not always in the best position to make treatment decisions, for a number of reasons, including “asymmetric information.”

Who is the Decision Maker?

Consumer-directed models are often presented as an alternative to managed care, which is described as representing control by technocrats, who inhibit innovation, and instead attempt to control costs with “just say no” policies, to the detriment of both patients and providers. Others note that they also represent a rejection of agency models, whereby expert providers are expected to determine what care their patients need, in favor of models wherein the recipients of care act as the decision makers about both what care to purchase and from which providers. Consumer-directed plans are therefore justified as empowering users of services and being linked to informed decision making. Discussion of these models is thus often associated with language speaking of patient empowerment and of putting patients in control.

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