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Acronyms

• CDHC = consumer-driven

health care (or consumerdriven

health care plans)

• FSA = flexible spending

account (sometimes known

as a flexible spending

arrangement)

• HDHP = high-deductible

health plan

• HMO = health maintenance

organization

• HSA = health savings

account

• POS = point-of-service plan

• PPO = preferred provider

Organization

Consumer-Driven Health Care

Consumer-driven health care sprang from the desire of

today’s worker, whether or not he or she is a traditional

employee, to control the amount he or she spends on health

care, and to control how funds are spent, when funds are

spent, and who funds are spent with.

History of Consumer-Driven Health Care

Fifty years ago, employees had first-dollar insurance coverage for

themselves and their families. This coverage was usually funded

entirely by the employer.

Then we saw the introduction of copayments and deductibles, and

employers began shifting part of the cost of health care to their

employees in the form of shared premiums. Flex, or cafeteria

plans, entered the arena as a way of helping employers and

employees save taxes on health insurance premiums. Soon,

along came managed care with precertification requirements,

staff models, and capitation arrangements. Built into these

arrangements were versions of prior cost containment efforts

such as in-network reimbursement levels.

Consumer-driven health care came to the forefront in the 1990s as

health insurance costs continued to increase, along with the costs

of providing health services.

As employers and employees sought ways of mitigating premium

increases while maintaining quality of care, consumer-driven health

care caught hold.

Goals of Consumer-Driven Health Care

Employee needs are more diverse than ever. However, while

employees are trying to satisfy more complex needs, employers

are trying to control costs and minimize risks. To bridge the needs

gap, employers began moving away from making choices for their

employees. Instead, they are moving toward giving employees a

toolbox and asking them to make their own choices.

Expected goals of CDHC include:

• Participants truly understanding the value of their health care

plans, and looking at buying health care and saving for health

care expenses as a long-term venture.

• Participants being involved in cost control and being actively

involved in making decisions about their own health care.

• Participants seeking out and using nontraditional sources for

health care, including online resources, wellness incentives,

“phone-a-nurse” services, and more.

On the Rise

According to a 2007 survey by Towers Perrin, there is rapidly

expanding interest in CDHC plans as a method of meeting the

“CDHC has three basic components: health insurance, personal care accounts, and

health care tools and resources.”

challenge of managing costs and encouraging consumers to

make responsible health care choices. In its survey, 175

respondents (45 percent of the group) currently had CDHC

plans in place or will implement them. Another 15 percent are

considering offering CDHC plans.1

Concerns About CDHC

Like many subjects that address people’s health and wealth,

CDHC is not without its detractors.

Critics point out that asking consumers to manage their own

health care accounts could drive people to make short-term,

cost-effective decisions that could have long-term detrimental

effects. For example, a patient diagnosed with bronchitis who

decides to treat the condition with over-the-counter medications

rather than the prescription drug prescribed by his or her

physician could eventually wind up with pneumonia. In the shortterm,

the patient saved money by not getting her prescription

filled. However, in the long run, the disease could actually cost

the patient more money in terms of additional physician visits,

stronger medications, and possible hospitalization.

1 Towers Perrin 2007 Health Care Cost Survey, 2007.

Or consider the case of a consumer who

has diabetes, a chronic condition. The

consumer may have difficulty achieving the

goals of CDHC since he or she will max out

the annual deductible year after year and

he or she will never be able to “fund” the

savings/retirement feature of the CDHC.

      Finally, it is noted that CDHC does nothing

to solve the issue of

underinsured and uninsured citizens.

Employers’ Views of CDHC

A 2007 Kaiser/HRET survey found that higher employee cost-sharing

was very effective or somewhat effective in 58 percent of small firms

(3–199 employees), and in 61 percent of large firms (200 or more

employees). Additionally, the study noted that employers considered

CDHC to be very effective or somewhat effective in 68 percent of

large firms.2

Components of CDHC

CDHC plans have three basic components:

1. Health insurance

2. A personal care account

3. Health care tools and resources

Health insurance normally takes the form of an indemnity plan, an

HMO, a PPO, a POS, or a high-deductible health plan.

The personal care account can be a health savings account, a

flexible spending account, or in limited cases, a combination of an HSA and an FSA.

Health care tools and resources refer to tools participants can use

to help them make informed decisions about their own health care.

For example, a resource might be a 24-hour toll-free hotline staffed

by registered nurses. If a participant has a headache, she could

contact one of the nurses for advice on treatment. Depending on

the severity of the symptoms, the recommendation could range from rest,

to an over-the-counter remedy, to a visit to the doctor. The

consumer is now making health care decisions based on what is

actually necessary, not based on what an insurance plan covers.

2 Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 2007.

HDHP: A Closer Look

In 2009, HDHPs are defined as plans with minimum annual

deductibles of $1,150 for individuals and $2,300 for families.

An HDHP’s annual out-of-pocket costs cannot exceed $5,800

for individuals and $11,600 for families in 2009.3

Limits on out-of-pocket expenses include copayments and

deductibles. All covered benefits, including prescription drugs,

must apply to the plan deductible. If the HDHP does not apply

the cost of prescription drugs to the annual deductible, the

individual covered may not contribute to an HSA.

One unique aspect of HDHPs is their safe harbor feature for

preventive care. The safe harbor allows the HDHP to offer firstdollar

coverage for specific preventive care measures. The

first-dollar coverage is provided before the deductible has been

met although copayments may still be required for these

services. Internal Revenue Bulletin 2004-23 describes the types

of preventive care that fit in the safe harbor provision.

Conclusion

In the 1950s, an individual with a sore throat would proceed

directly to the doctor’s office, then to the pharmacy to have a

prescription filled. Usually, the individual would not have outof-

pocket costs. In the 1990s, that same individual would go to

the doctor, make a $10 or $15 copayment, then head to the

pharmacy and make another copayment for a prescription.

These payments would be in addition to the premiums he or

she already paid for HMO or PPO coverage. Today, people want

more control over what benefits they buy, what services they

receive, how and when they receive them, and how they control

unused funds. That is consumer-driven health care.