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Well-Designed Consumer-Directed Health Plans Could Reduce The Number Of Uninsured Americans

Health Savings Accounts Alone Could Generate Almost 7 Million New Accounts Due To Recent Medicare Changes And The Administration's Proposed Tax Subsidies


BETHESDA, MD - Two new studies were released today at a Health Affairs policy briefing, where state and federal policymakers debated the future of employer-based systems and the merits of reducing costs through consumer-directed health plans. The studies indicate that consumer interest, which has been slow to take hold, will only grow with both tax and quality-of-care incentives. They were published in the November/December 2005 issue of the journal, an issue on health reform that was produced with support from the Robert Wood Johnson Foundation and the Kaiser Permanente Medical Care Program.

"Health Savings Accounts: Early Estimates of National Take-Up" predicts that the 2003 Medicare Prescription Drug, Improvement, and Modernization Act's (MMA's) approval of tax-advantaged health savings accounts (HSAs) could result in approximately 3.2 million contracts. Those contracts would be among people ages 19-64 who are not students, enrolled in public health insurance plans, or eligible for group coverage as a dependent.

"The concern is to reach people who currently don't have good choices," said Roger Feldman, coauthor of the study along with Stephen Parente and colleagues at the University of Minnesota, Minneapolis. Overall, the study predicts that HSAs won't be popular among employees who are eligible for an employer's health insurance because the amount of the employer's premium subsidy reduces the model's attractiveness.

Consumer-directed health plans are a great topic of interest among policymakers, employers, and buyers. "The plans are seen as a potential way to contain costs, expand coverage, and improve quality," said John K. Iglehart, founding editor of Health Affairs. "The question is, How many people will participate in these plans, and will they deliver as advertised?"

Feldman and colleagues conducted various simulations of how several potential tax subsidies for HSAs would affect consumer take-up. Feldman and colleagues estimated that the Bush administration's refundable tax-credit proposals could double HSA adoption from 3.2 million to almost 7 million. It could also reduce the number of uninsured people by 2.9 million at an annual cost of $8.1 billion. A second scenario of a low-income buy-in subsidy would reduce the number of uninsured people by 16.5% (or 4.5 million people) at a cost of $12.2 billion annually, or an average of $2,718 per person. There are currently more than forty-five million uninsured Americans.

A third scenario, which offers two types of free individual HSAs, could nearly eliminate uninsurance, but at a much higher per capita cost. However, the free HSA could erode the market for employer-sponsored health insurance, with reductions of almost 5.7 million covered employees for the less generous HSA and 31.6 million for the more generous design.

Consumer-directed health plans are high-deductible insurance plans coupled with a tax-advantaged account that can be used to pay for medical expenses. In short, enrollees who spend all of their HSAs in a given year then spend their own money until they meet the deductible requirement. Such plans typically were offered to employees of large, self-insured companies. MMA gave consumer-directed plans a boost by approving tax-advantaged HSAs for certain high-deductible health insurance plans.

Good Plan Design Could Encourage Take-Up

In the second study, lead author Meredith Rosenthal, assistant professor of health economics and policy, Harvard School of Public Health, Boston, and colleagues analyzed the benefit design of fourteen first-generation consumer-directed health plans to scrutinize if they could reduce health benefit spending and improve the value of that spending.

"A Report Card on the Freshman Class of Consumer-Directed Health Plans" identifies a key limitation to the likely success of these new plans in promoting informed consumer choice: the lack of detailed information on cost efficiency and quality available to enrollees. Consumers need access to such information to enable them to identify the highest-quality physicians, hospitals, and treatments.

"While there is clearly a role for consumers to be more actively involved in improving the quality and reducing the cost of health care in the United States, there are a number of refinements we need to make in the plans in going forward," said Rosenthal. "If consumer-directed plans are intended to empower enrollees, insurers must give consumers the appropriate information to make good choices."

Plan design must go further than merely offering a straight deductible. "You want cost sharing that encourages consumers to seek the appropriate care, such as preventive services, and discourage wasteful, inappropriate services," said Rosenthal. "While it's not possible to have a perfect plan design, it is possible for the benefit design to be a bit smarter than the first-generation ones," she continued.

Health Affairs, published by Project HOPE, is the leading journal of health policy. The peer-reviewed journal appears bimonthly in print with additional online-only papers published weekly as Health Affairs Web Exclusives at www.healthaffairs.org. The full text of each Health Affairs Web Exclusive is available free of charge to all Web site visitors for a two-week period following posting, after which it will switch to pay-per-view for nonsubscribers. The abstracts of all articles are free in perpetuity.

Print copies of the issue are available to the public for $35. Copies may be purchased online at http://www.healthaffairs.org/1330_issue.php or from Customer Service at 301-656-7401, ext. 900.


©2005 Project HOPE–The People-to-People Health Foundation, Inc.