Consumer Driven Health Care Plans

For about the last 10 years the United States has been experimenting with consumer driven health care plans.  CDH plans typically combine a high-deductible insurance policy with a health savings account or health reimbursement account.  CDH plans now cover well over 8 million individuals, up considerably from 4.5 million in 2007 and these types of plans continue to grow rapidly.  So what have been the results?

The American Academy of Actuaries has recently produced a review of high quality research on these plans.  Here are their conclusions:

The primary indications are that properly designed CDH plans can produce significant (even substantial) savings without adversely affecting member health status.  To the knowledge of the work group, no data-based study has emerged that presents a contrary view.

Cost-savings in the first year of instituting a CDH plan relative to a traditional plan ranged from 12% to 21%, remarkably large figures.  Moreover, costs appear to grow more slowly under CDH plans than under traditional plans.  

The knock on CDH plans has always been that they could cause people to avoid preventative case.  Not only does this appear to be false it’s the opposite of the truth:

Generally, all of the studies indicated that cost savings did not result from avoidance of inappropriate care and that necessary care was received in equal or greater degree relative to traditional plans.  All of the studies reported a signficant increase in preventative services for CDH participants.

Especially interesting is that some of the studies found that CDH plans resulted in better compliance with evidence-based care.

Note that these results come from CDH plans instituted within the current system.  One would expect that the general equilibrium effects of consumer driven health plans would be even larger than the partial equilibrium effects, see Singapore for evidence (but consider Tyler’s remarks). 

The American Academy of Actuaries is a credible organization but I would like to see more of the underlying data.  All of the studies the AAA reviewed used credible methodologies, controlled for selection and were based on substantial data but the major studies so far have been industry funded.




intuitively this makes sense.

does it really matter?

HDHP/HSA is great as long as you don't live in a nanny state like NY or NJ. Then it's not a good deal at all.


It's only remarkable if you assume that health care reform is about improving health care and not simply a government power grab.

It is possible that some of the cost savings can be explained by self-selection among CDH plan participants. My employer offers a CDH plan in addition to two HMO plans and a PPO plan. The few of us who chose the CDH plan are without exception young, healthy and light users of healthcare. I have not read the linked monograph but I wonder how typical this is.

Some versions of some of the health care bills that came out of different committees in Congress would effectively outlaw most of these plans. They have provisions against consumers bearing too much of the cost of their health care plans, and the wording is structured to disallow high-deductible plans.

Of course, like anything, it could change, and there are several different bills.

Tim point out that "...CDHPs create incentives that drive better behavior. For instance without first dollar Rx coverage it was a no brainer for me to buy Prilosec at $30 than Nexium at $250."

However, it is my understand that the main drivers of medical costs are the big ticket items (heart surgery, dialysis, etc) and it's hard to see how CDHPs help with them.

Are the people who would sign up for and fund an HSA different from other people? I would guess that they are more knowledgeable on the subjects of insurance and healthcare and are more conservative.

Hey Rich, I didn't cherry pick. In fact, I specifically addressed the point made in the additional 3 paragraphs you cut and pasted, which boil down to "Interestingly, using the difference in trend rates MAY understate the true impact of consumer-driven plans." [emphasis added]

As I note in my comment, IMHO, trends at least as likely to OVERSTATE the true impact, since people with chronic conditions tend to get worse over time faster than healthy people do, and this will result in an adverse selection bias in both trends and levels.

Adjusting for age, etc. doesn't solve the self-selection bias, so I ignored that.

Finally, I agree that "It might be possible to design a study that would negate selection as a factor ... Assuming the control group was constructed to mirror the traditional plan offerings for the study population"

To do this right requires a controlled experiment. However, this has not been done. Let's do a few and then talk.

The AAA may not be especially political but a) the underlying studies reviewed were undertaken by parties with strong vested interests, and b) apparently none of the parties doing or reviewing the research were professional academics and the work was not published in peer-reviewed journals (with all due respect to actuaries and insurance executives).

Bottom line: the existing evidence is unconvincing.


Your arguments are weak. The AAA study contradicts you in that it indicates that trend rates are likely to UNDERSTATE the impact. The AAA actually took the time to do a disciplined study. All the studies examined showed that CDHPs had a favorable impact. You don't like the conclusions and substituted hand waving for analysis.

HSA's will never cover catastrophic medical needs.
I have an HSA that I have been contributing to for a few years now and its almost totally exhausted already due to just a few visits to doctor and dentist this year.
Catastrophic care is what drives most people into bankrupcy.


This study is interesting, but as Alex and SOE say, it is not yet completely convincing.

I'm surprised* at the number of commentors who mistakenly believe that the healthcare reform plans under consideration would prevent companies from adopting this kind of insurance. But I do find myself asking, if this is so good, what is limiting the rate at which companies adopt this?

* Given that this is MR, I am not really surprised.

Are these plans going to survive under the Obama insurance mandate? Or will they be counted as "underinsured"?

"I would be all in favor of more urgent care clinics staffed with more nurse practitioners and physician assistants, with one or two MD's as consultants."

We are seeing that in texas, lots of clinics like that are opening up in strip malls. And they have great prices.


I suspect how pets are treated at the end of their lives is a mixed bag. We had a lab who was inexplicably losing weight and throwing up despite a healthy appetite. The vet did an x ray and couldn't figure it out. A sonogram and digital exam were inconclusive. The next step was exploratory surgery - $1,600. I was thinking cost/benefit and my wife was crying. Result - we had the surgery and the vets removed a wad of carpet. Our dog was almost 10 and lived another 5 years.

In the veterinary hospital I met a guy with a 17 yo schnauzer, going through chemotherapy. He wasn't throwing in the towel. Some owners will go to extraordinary and expensive lengths to keep their pets alive.

I am 87 years old and have never seen a medical price list prior to any medical decision (or after).
Does such a price list exist?
During Medicare years many reports of Service charges and Medicare allowance and Medicare payments and insurance payments.
None of these reports make any sense at all.

My costs have always been employer provided and I don't recall ever knowing what they were.

Not much more to add to the debate, but I also ended up under a CDHP a few years back, while working in the industry. As a health 24-year old it should have been perfect, until I uncovered the billing fraud that happens.

I ended up, just weeks into the CDHP, having a major shoulder injury skiing. I needed an x-ray, the radiologist billed me for 4 ($750 fraud).

I needed physical therapy to build up my strength after 4 weeks of a sling. For each of my 6 30-minute visit, the PT billed me for a 2 hour visit, ultrasound, and steroid injections! ($300 fraud per visit)

Obviously I negotiated out the fraud (explained by the PT as "normal practice), but if I were in an HMO or PPO UnitedHealthcare wouldn't have caught all of that. THAT's why CDHPs save money: not because people get less care: consumers realize how fraudulent the healthcare system is!

"It's remarkable that in the current debate over how to control health care costs"

Though that's an eminently desirable objective, that's not what the current debate is about.

"reasonable price my ass. my g/f had an ingrown nail cut in an ER (5 min or less) for a quite reasonable $2500. and that was AFTER she said that she would pay cash"

She sounds kinda high-maintenance to me. I'm going to go out on a limb and say a WalMart clinic might have underbid the ER. In other news, a penthouse suite at the Ritz Carlton costs more than a room at the Holiday Inn, even though both have the same size bed. Not only that, a first class seat on that flight to Paris is much more expensive than a coach seat, even though the coach passenger gets there at the same time.


If you were in a good HMO, the radiologist and PT would have been a salaried employee working for the HMO, so if there were fraud, the HMO would be billing the HMO, which seems rather pointless, other than in an interdepartmental battle over funding.

After all, radiology and PT are very common procedures where the primary care doctor should be getting the immediate feed back on the utility of the service; if you were getting only 15 minutes of PT, then perhaps you really didn't need it; or perhaps the reason the doctor ordered it wasn't communicated clearly and the PT wasn't focusing on the right problem.

Working for a computer company for a long time, I saw the documentation writing outsourced and with it the detail and quality declined far more than the costs. The contract writers never get enough time to work with the computer engineers, and the engineers never get to know about the documentation process and the end use needs. Placing institutional barriers up between project functions, controlled primarily by billing, drives up costs per useful output.

That you caught the systematic institutional problem of overbilling did nothing to correct the institutional problem. Your doctor certainly continued to send his patients to the same radiologist and PT who are either crooks or incompetent.


Remarkable? Not all that remarkable considering that in the current debate about housing policy so little attention is being given to the states (Texas, NC) that avoided the housing bubble and pop (despite having expanding populations) or the that in the current debate about banking policy so little attention is being given to countries (like Canada) that avoided a banking crisis.

Why would people care about finding out what works?

"Well luckily medical science is simple enough that we can trust the public to easily understand and make a good assessment of what they need. Really it's all just leaches and limb sawing anyway."

Yeah! What we rrrreally need is a committee in DC to decide.

An ideal CDH plan should allow the insured to pay the same rates as negotiated by the insurer with in-network providers. List prices are typically totally unrealistic. Haven't yet seen a CDH plan like that.

Do you know of a high deductable health insurance plan that doesn't require that the billing go through the insurer who decides how much of the bill is allowed toward the deductable based on the rate schedule it has negotiated with its PPP network?

All such plans allow you to go out of network, but you will need to submit the bill to the insurer which will decide whether the bill is an allowed expense and also how much is allowed to count toward the deductable. You should be able to get that figure from the insurer in advance if you know the right coding, but then if you go out of network, you need to be sure it is coded that way. The doctors who don't want any part of the insurance industry billing probably don't want to deal with your demand that he bill according to the insurance company rules. If he is part of one insurer's PPP net, but not part of yours, then he will probably bill what is allowed by your insurer at a minimum.

@ Rich

True, some people go to great lengths to preserve their animals. But, at the same time, those who chose to "throw in the towel" are not demonized and criminalized. You are perfectly rational if you chose to spare the expense of maintaining your animal, but put it down instead. Moreover, you don't see veterinarians being prosecuted for doing so.


What I think is remarkable in the debate about controlling costs is that NO attention is being given to increasing the supply of health care to meet the demand, by, for example, increasing funding for medical school and nursing school scholarships and loan programs (which I think is something nearly everyone could get behind), opening additional medical schools, SBA loan funding for opening medical clinics, or increasing the use of fastrack procedures for approving new drugs.

FYI, the four studies considered were all performed by three companies with large investments in these products, AETNA, CIGNA and United. These studies should not be considered definitive or unbiased.

To give a couple of examples of things that caught my eye from the United (Reden) study,

-control trend for hospital days: 29.3% (think you could hit that bogey?)
-risk factor for control 1.020; for CDH .628. (very different populations)
-percent in worst risk group control 22%; for CDH 2%-3% (hard to compare)

Overall the United study is comparing two very different populations, and the control group has frankly bizarre trends. It is doubtful this study would be accepted as proof of anything in a rigorous environment. One would have to be very trusting to rely on this at face value, which the Academy works seems to.

On first blush, es32's terse comments seems like he knows what he's talking about, but I think he's cherry-picking (like YKW). Actually the study seems very sober and cautious and takes pains to qualify its conclusions. It can be found at

Otherwise es32 seems to rely on ad hominem arguments, which are popular with those who shy away from real debate.

Some quotes from the report:
There are significant differences between CDH offerings in the marketplace, particularly in the self-insured arena and especially for HRA-based plans. Some plan designs may achieve the goals of managing costs and improving health, whereas others may be ineffectual. Hopefully, successful CDH plan designs will be identified through this process and others will be discarded.

and from the conclusion after a long list of questions that need study and future research:
The current studies that are available indicate that the presence of CDH plans has a positive effect on first-year and ongoing costs. However, what is not entirely clear is whether there is any correlation between the cost impact
and the benefits level.

So, a CDH plan will work if it works, and if it doesn't work, then it wasn't properly designed and shouldn't have been offered, but we don't know how you can know.

Medical Savings Accounts (MSAs), often (always?) found as part of an employer's cafeteria plan, are "use it or lose it." On the other hand, Health Savings Accounts (HSAs), established in conjunction with a high deductible insurance plan, may roll over unspent balances from one year to the next and the next and so on, and, indeed, may ultimately be used to pay Medicare premiums, etc.
That distinction wasn't made by the study cited.

From the report, it looks like they weren't able to study HSAs:
The two primary versions of CDH funds are health reimbursement arrangements (HRA) and health savings
accounts (HSA).
An HRA is an employer-provided notional1 account that typically reimburses some portion of the claims that would otherwise be the participant’s responsibility under the provisions of the high-deductible health plan. At the employer’s discretion, other qualified health expenses may also be reimbursed from the HRA. An HRA may be packaged with any type of health benefit plan. Because an HRA is owned by the employer and administered by the health plan, funding levels and utilization are generally available.

An HSA is a member-owned account that can be opened and funded, as long as the member is also enrolled in a qualified HDHP for which the Internal Revenue Code (IRC) gives specific requirements. The HSA enables taxfree contributions by both participants and employers, and tax-free withdrawals by participants, for qualified health expenses, including health plan deductible and out-of-pocket expenditures. Because HSAs are owned by the member, complete funding and utilization data for the HSA is generally not available.

Does this mean you reject the conclusions of the study because it doesn't properly define a proper plan?

I noted several strawmen in the responses:
"why a total replacement of the system instead of incremental change..."

The criteria that Obama laid out and that I support was absolutely an incremental change. As the majority of the population are covered by employer provided health benefits, and the next largest segment is covered by existing government run health care (Medicare, Medicaid, VA, etc) and as Obama puts it "if you like your plan, you keep it" makes it clear that the change is incremental because only those 20% who aren't covered as well as that 80% are going to see changes which include primarily gaining access to the same health benefits of the other 80%.

The only radical change is seeking to eliminate the line between "haves" and "have nots".

As for liberals not being interested in studies so we know ow to improve the system, why is there not already an existing systematic investigation of what works and what doesn't as Obama has called for?

The study the report covers examine prior studies, finds them wanting, and then lists a page of questions to be researched in future studies.

Of course, data collection is impeded by no standard system for reporting health status and treatment data. The insurers have their systems, the hospitals have theirs, doctor groups have been developing theirs, the VA has its system, and for all practical purposes, none of the systems work together.

Obama has called for changing this chaos into a system that serves the needs of health care professionals, patients, and then secondarily the billing. This is the only way to have a hope of being able to do real studies into what works and what doesn't.

Debate is useful, but stop debating strawmen that you are preparing to set on fire as a means arriving at a winning argument for who knows what; I never get any idea what the point is other than "no".

Two things.
HSA's and high deductibles are fine for the young, healthy working folks. Those with the means, motivation, knowledge and life environment to stay healthy. But they will not be very applicable to huge portions of the American people, especially the expensive ones like those with serious and chronic diseases, elderly, retired, disabled, inner city or poor. But it's nice to see some favorable data here about our worry of shirking their primary care to save money.

Secondly, although there is no similar healthcare crisis in Vet. medicine and lasik, there never was and never will be. The business of medicine is not the same as healthcare delivery, and due to many reasons and aspects, the medical business does not flow like typical a free market. But the closer you get to purely elective medical stuff like lasik and Vet. medicine, the closer it gets to conventional free market capitalism.

is the glass have not full?

On thing that is puzzling about this study of "consumer driven health care":

All of the studies reviewed reported a significant increase in preventive services for CDH participants. This is likely due to the fact that most CDH plans provide commonly recognized preventive care with no charge to the participants. Several of the studies discussed increased messaging to CDH participants, which may account for some increased uptake in promoted preventive services. Increased messaging and no-cost preventive care is consistent with CDH proponents’ view that individuals need to become better informed, proactive participants in their health regimen.
Two studies (Cigna, Uniprise) reported a higher incidence of physicians following evidence-based care protocols. The studies did not explore whether this was due to changes in physician behavior, participants selecting different physicians, or some other explanation.
The Aetna study noted that CDH members use generic drugs at a higher rate than control group members, which is evidence of behavior change that should result in lower cost without associated quality declines.

All of these things are insurer evidenced based direction of care, not consumer choice. I have been preferring generics for decades, as have my HMO docs and policies, who I still use and who still automatically go with generics. As a matter of policy, the HMO emphasized education and prevention, driven by evidence driven studies of effectiveness.

The objections I heard decades ago was to the HMO directing care, and then to the call by Obama for a board that studies the evidence to recommend standards of effective care.

So, how is it "consumer driven" when it seems the cost savings are driven by someone other than the consumer using the evidence to promote certain usage of care by making the central planner's choice of care free or lower priced than cost, while raising the costs of the care the central planner concludes is undesirable?

And how is this diferent than HMOs like Mayo, Cleveland Clinic, et al, in the way it reduces costs?

"HSA's will never cover catastrophic medical needs. "

That's why a CDH plan is broadly defined as a high-deductible health plan (HDHP) offered in combination with a CDH fund such as an HSA as part of the overall benefit design.

Do you think those 8 million CDH participants are stupid?

It's preventive, not preventative. I noted this back in the MR post, "Interview with Kenneth Arrow."

Count me a bit of a skeptic. The review of studies seemed to emphasize the good news and ignore the ambiguous or bad news. E.g. "after the first year, at least two of the studies indicate trend rates lower than traditional PPO plans by approximately 3 percent to 5 percent." [What about the other two studies?]

And, on cost shifting: "while the possibility for employer cost-shifting exists with CDH plans, (as it does with traditional plans) most employers are not doing so, and might even be reducing employee cost-sharing under certain circumstances." [So, most are not, but the rest are? Could that affect the average? And the parenthetical seems like spin to me--it's quite common to combine a plan design change with a cost shift to employees.]

Finally, the greater use of preventive care may be because it's offered as a freebie to make the plan more palatable. It's a small cost distraction and doesn't tell you whether people are foregoing appropriate care. It's a plan design element that could be added to any plan, not just CDH plans.

If the switch saves 12-20% in the first year, but 3-5% in later years, it's a good sign of differing populations rather than differing behaviors for the same population. Hard to say if the selection bias is creeping into later years.

SOE said: "apparently none of the parties doing or reviewing the research were professional academics"

And your point is? What makes a "professional academic" any more qualified than a professional actuary? I'll guarantee you a great deal of "professional academics" will not be able to pass all of the actuarial exams and do the work that many actuaries do. If there is anyone really qualified to do research like this it is health actuaries, it's beyond ridiculous for you to suggest that they are lacking in sufficient credentials.

One interesting thing about the one HSA I've dealt with is that the associated coverage is actually very good for preventative care. In particular, well-baby visits, pediatric preventative visits, and various standard adult preventative stuff (one physical a year, mammograms, that sort of thing) has no copay and has the deductible waived.

So there's in fact strong incentive to make use of these options: the preventative care is effectively free.


Thanks for pointing this study out - I read it on the train going home last night. It's very readable, cautious in its conclusions, and takes pains to point out its limitations. None of the critical commentary responding to this post really lays a glove on its conclusions.

These are interesting points, but an issue that's not been addressed is that HSAs are still an employer-provided benefit that disappear if the worker is laid off, as I was last year. The cost of continuing my high-deductable coverage under COBRA was a bit over $1200/month, and since we'd had HSAs for less than two years I had relatively little accumulated in my account to pay for that (and don't get me started on the $1.30 fee that the bank charged for each payment).

Health coverage should not depend on employment status.

I'm amazed people make claims like: "Catastrophic care is what drives most people into bankruptcy". HSA's kick in after a certain deductible ... it's unlikely, that you'll be going bankrupt because you have to pay the $2000 deductible yourself. Besides, most insurance plans have similar deductibles ... we have a 'Cadillac' PPO plan, and we still payed $1500 out of pocket when your baby was born.

The second point about not being good for poor people, just means people aren't being creative about how to use an HSA for poorer people. Make a deposit in their HSA every month ... the amount would vary based on income. If you're below poverty line, you get 100% of the 'deductible' amount deposited; if you're 2x poverty, you add 50% of the deductible, etc.

While I don't think HSA's are an absolute panacea, I don't see what's wrong this rolling these out more broadly, to see how they can work in controlling costs.

@scott: You clearly don't even understand your own plan . If you have been exhausting your HSA account it means you are meeting your plan's deductible and a catastrophic health event will be almost entirely covered by your plan if it happens.

U.S. healthcare spending continues to skyrocket and are expected to be 17% of GDP, so it is clear that these plans are not affecting overall healthcare spending. An alternate explanation is that they are causing cost-shifting, a major problem with any multi-payer system. For example, Medicare costs have only risen 2/3rds as fast as private insurance costs since 1970, but cost-shifting, rather than Medicare being inherently more efficient, may explain a significant part of that difference. Similarly, private practitioners may be quoting lower prices and cost-shifting to more generous insurers for HSA customers in order to keep their business, without affecting overall healthcare spending.

Clearly these plans may have some part in reducing the costs of healthcare in the future, since they do seem to set up some incentives correctly and surprisingly do not appear to be impacting preventative care (something which I didn't expect at all), but with the rampant cost-shifting that happens in our system it's unclear what that part may be.

In any event, the core problem with our healthcare system right now is one of access, not of cost -- far too many people do not have regular access to health care, and never will under the current system because modern medicine is inherently expensive (leukemia treatment costs $1M regardless of what kind of insurance you have) and insurance costs to cover a pool for these kinds of expenses will always be beyond the means of the working poor. While we're going to have to address costs too as we expand access, I think we need much more data on the best way of doing that without harming the health of Americans. Given the rampant cost-shifting that happens in the current U.S. system, where one intervention to reduce costs simply causes costs to go up elsewhere, that's going to be hard to do...

>cafeteria plan, are "use it or lose it."

Which is, I believe, a deliberate crippling.

So folks will say "oh yeah, that, I tried that, it sucks, you lose it all at the end of the year if you didn't use it" even if a proposed new plan does let you roll over.

CDHP have been growing rapidly. Enrollees now outnumber HMO enrollees (

SOE's analysis is dead on here. The summary of the results indicates that these are extremely weak methods that wouldn't pass muster in any decent health economics journal. Trend is an awful control for selection effects, quite often leading to underestimates of bias as noted. Without some selection correction, I wouldn't trust the cost results at all.

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