Think of the last time you paid a visit to your doctor. What type of care or treatment did you receive? Did you know the cost? Chances are, you didn’t. You probably knew the amount of your deductible, coinsurance, or copayment, but who cares about the total bill, right? After all, your health insurance covered the rest. But therein lies the problem. Not only do we lack that information, but also the motivation to seek that information with the current third-party payer system.
As it stands, the health care industry lacks accessible information on price and quality – transparencies necessary for a competitive market. Normally, competitive markets arise when providers of a good or service compete with each other to satisfy the demands of a consumer population. These providers compete for business via price and quality which constitutes value for individual consumers. A market will remain competitive as long as consumers are making decisions based on their value preferences and providers are competing on the basis of price and quality to win over consumers. Without sufficient transparency, consumers have no purchasing power and the providers have little incentive to lower prices or increase quality. Prices skyrocket, affordability diminishes, and health care access becomes a billboard issue.
As John Torinus points out in his book, The Company That Solved Healthcare, ineffective cost management is the underlying cause of hyper-inflationary health care costs. What began as health care reform has morphed into insurance reform, seeking ways of paying for rising costs rather than controlling them – a band aid for the symptom rather an a remedy for the cure.
The innovation of Consumer-Driven Health Plans (CDHPs) offers a powerful solution to control health care costs by transforming disengaged patients into intelligent consumers. Here’s the rundown on CDHPs and why they’re effective in controlling health care costs:
Structured To Empower Consumers
Every CDHP begins with a high-deductible health plan, requiring each consumer to have some “skin in the game”. These high-deductible plans qualify for supplemental, tax-advantaged health savings accounts, either a Health Reimbursement Arrangement (HRA) or a Health Savings Account (HSA):
- A HRA is owned by the employer, who contributes $1,000-$2,000/year into each account to reimburse employees for out-of-pocket medical expenses or insurance premiums.
- A HSA is owned by individual employees, who can deposit a percentage of their paychecks into the account for qualified medical purchase, tax-free.
- The health care consumer typically uses funds from the health savings account before paying towards their overall deductible and out-of-pocket expenses.
Prevention Is Key
A key component of CDHPs is preventive care coverage. 100% of preventive services such as physicals and mammograms are covered to ensure employees are better able to manage their health year after year. As they say, “an ounce of prevention is worth a pound of cure,” and it’ll cost less in the long run.
Changing Consumer Behavior
CDHPs require a major shift in the way that we receive health care, a transformation from passive patients to engaged consumers. It takes out the insurance as a third party payer and empowers health care consumers to make their own decisions.
- With “skin in the game”, consumers will interact with providers in a new way, checking for price and quality to ensure that they’re getting maximum value.
- The problem of overutilization will lessen as CDHPs encourage consumers to seek outpatient services that they absolutely want or need. Consumers can also use HSA/HRA dollars for procedures not covered by conventional insurance plans.
- Employers can enter the scene by establishing wellness programs that offer deductible-discounts or increased HSA dollars for meeting biometric standards or wellness goals. Driving a seamless wellness culture can help businesses reduce turnover, increase employee engagement, and maximize workplace productivity.
Changing the Health Care Industry
Admittedly, CDHPs don’t work for everyone, especially for those who suffer from chronic medical conditions such as diabetes or cancer. But for the majority of health care consumers who need catastrophic coverage and discretionary health care purchasing power, CDHPs are the way to go. Widespread CDHP adoption can revolutionize the health care industry by turning patients into customers, encouraging healthy competition between providers, and increased responsibility in controlling health care costs.
CDHPs aren’t a cure-all for controlling health care costs. But it’s a step in the right direction. The industry lacks price transparency and quality metrics that help facilitate responsible consumerism, but every industry bends to the demand of the market. Cost structures may currently be rampantly uncontrolled, but a shift to consumer-centric, responsible health care spending will precipitate competitive cost restructuring across the board. For every decision maker, whether a business leader or health care consumer, it all begins with information.
