Evolution of Consumer Driven Health Plans Blog Series: Part 3
Part 3: Growth of Consumer Driven Health Plans
This is the third in our five-part series, “The Evolution of Consumer Driven Health Plans: From Cost Shifting to True Healthcare Consumerism.” The goal of the series is to help employers and plan managers assess both the positive and negative consequences of CDHPs, and to recommend steps they can take to better equip employees to be informed healthcare consumers. In our last article, we shared the primary drivers of the cost increases that have given rise to the CDHP movement. Here we explain how CDHPs work and how enrollment in these plans has exploded over the last decade.
The dramatic rise in U.S. healthcare spending relative to the rest of the world is a multi-faceted problem driven by both patient lifestyle choices and healthcare system economic and structural issues. The increased adoption of CDHPs is one response to the spending crisis, but, while these plans can increase control of spending for both employers and employees, CDHPs alone do not address the root causes of the problem.
Growth of the CDHP Market
CDHPs were conceived in response to rising healthcare costs with the goal of giving employees a greater stake in their healthcare spending decisions. Both the percentage of employers offering these types of plans and participation in them has been rising steadily since the early 2000s. There are two main components of a CDHP; a high deductible health plan (HDHP) that is typically coupled with a healthcare savings account of some type. There is some confusion between HDHPs which are simply high deductible plans offered with a lower monthly premium and CDHPs which combine this healthcare savings account with the high deductible health plan. CDHP enrollees are a subset of the full HDHP population defined as enrollees with an annual deductible $1000 or more for single coverage. Since 2006, the percentage of the population in a HDHP has risen from 10 percent to 46 percent. Over the same time period, the percentage of employees enrolled in a CDHP has also quadrupled with a quarter of the population now selecting a high deductible plan combined with a healthcare savings account.
There are several different types of consumer driven health plans available to employees today, including; Flexible Spending Accounts (FSAs), Healthcare Reimbursement Arrangements, (HRAs), and Health Savings Accounts (HSAs). See the chart below for a comparison of these options:
Of the 24 percent of the population currently enrolled in CDHPs, 15 percent are enrolled in HSA/HDHP and 9 percent are in HRA-based plans.
According to a study by the National Center for Biotechnology Information, CDHPs appeal more to younger employees, often without families, who perceive their healthcare needs as minimal. The employee population opting for CDHPs skews younger, more affluent and healthier than those remaining in PPO plans. Lower premiums are the top driver of choice for CDHPs. On average, the premium costs for CDHPs are 18 percent lower than PPOs and 20 percent below HMOs. Employees switching to CDHPs pay $1399/year less in premium contributions for a family plan while employers save $1200. It is difficult to estimate actual savings because it depends on the amount of services used, however, when higher deductibles and co-pays are taken into account, employee savings from CDHPs can be much lower than anticipated.
With 24% of all employees now enrolled in CDHPs, it is important to understand if these plans are achieving their goals in terms of cost reduction and improved healthcare consumerism. In our next installment in our series on the “Evolution of Consumer Driven Health Plans” we will assess the impact of CDHPs on employee finances, health and satisfaction. To learn more, download the full white paper.