Consumerism Comes to the Healthcare Market

While the nation waits for the Supreme Court to hand down its decision on the constitutionality of the Patient Protection and Affordable Care Act (ACA), businesses and their employees are voting with their wallets for one approach that’s already available: Account-based health insurance plans (ABHPs), which combine lower premiums in exchange for high deductibles.

Consumer-directed health insurance is the foundation of market-oriented health reform solutions and will be offered as an option in the public health insurance exchanges if the ACA is found to be constitutional.  At present, 59 percent of major employers have an account-based health plan option, an increase of 53 percent when compared with last year, according to a survey by Towers Watson and the National Business Group on Health.  More importantly, employee enrollment in ABHPs has risen at companies offering them as a choice.  This year, 27 percent of eligible employees are enrolled, a 35 percent increase over 2011.  That finding is similar to a Fidelity Investments report showing a 61 percent surge in sign-ups for health savings accounts (HSAs) among its client companies — the largest one-year gain on record.  ABHPs are linked to tax-advantaged HSAs, because contributions can be used to accumulate funds to pay costs not covered by the high-deductible plans.  Reduced premium costs are the key driver.

Employers anticipate that their healthcare costs to rise 5.9 percent in 2012, according to the Towers/NBGH survey.  Total yearly premiums paid by employers and workers for high-deductible plans in 2011 were 10 to 19 percent lower than for managed care or traditional point-of-service plans, according to a Kaiser Family Foundation study. According to Kaiser, the average annual cost for individual coverage through a high-deductible plan last year was $4,793 — 15 percent lower than for a PPO managed care option.  “Everyone saves some money, and that really matters in tough economic times,” said Helen Darling, president and CEO of NBGH.

The downside is that high-deductible accounts shift much of the burden to the employee.  Out-of-pocket expense can be painfully high in the event of illness.  By law, there is a maximum yearly out-of-pocket liability of no more than $5,950 for single coverage and $11,900 for family coverage, although the Kaiser survey reports that the average maximum out-of-pocket cost in plans for single coverage was $3,304.  Supporters of ABHPs say that a higher out-of-pocket responsibility will create smarter, more careful healthcare consumers — which is expected to slow the rapid growth of healthcare spending.

As some employers adopt health plans that require patients to pay more out of their own pockets, demand for medical pricing information is on the rise.  In response, a new crop of entrepreneurial companies is providing price transparency tools to self-insured employers.  “The consumerism movement is finally getting wired,” said Cyndy Nayer, president, CEO and founder of the Center for Health Value Innovation in St. Louis, who believes pricing transparency in health care will lower costs by fostering competition.  “This is one of the best disruptive technologies.”

The dearth of price information in healthcare has been a major driver of ballooning costs, medical cost containment experts say.  Managed care had made pricing of individual medical services unknown to health care consumers.  Providers participating in HMOs had traditionally been paid on a per-head-per-month — basis, while insurers’ negotiated discounts off fees charged by doctors participating in their preferred provider networks were rarely disclosed to patients.  Because health insurance has been primarily paid for by employers, employees had little incentive to shop around for medical care.

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