Jun 8, 2010

Consumer-Driven Health Plans (CDHPs)

Close to the turn of the millennium, a new type of health plan design was created—the consumer-driven (directed) health plan (CDHP). Though these plans can involve a variety of different features, there are certain common attributes that characterize them. CDHPs, as first conceived, involved linking a high-deductible supplemental major medical plan with a savings account that would be used to pay either discretionary medical costs or certain charges before the deductible was reached. Decisions involving the spending of funds in the savings account are made by the plan participant. There would often be a deductible gap before the high-deductible supplemental major medical plan would cover expenses. The rationale for the CDHP model is that the plan provides a financial incentive to the plan participant to selectively choose medical care in a cost-efficient manner; thus, to be a good health care consumer. If the consumer-driven health plan is designed well, patient behavior is changed. This is of particular consequence to the plan's economics if patients requiring chronic and acute care, those who are responsible for high-volume discretionary expenditures, change their behavior.
Add a Note HereUnder a typical CDHP, as first introduced, a plan participant would receive some employer contribution, say $1,000 to $2,000, deposited into a health reimbursement account (HRA). When the funds in the HRA were exhausted, the participant would need to pay certain medical costs out-of-pocket before receiving insured health coverage under the high-deductible supplemental major medical plan.
Add a Note HereThe early CDHPs utilized HRAs as consumer-managed, side savings health care accounts. Promoters of consumer-driven health plans sought tax guidance from the Internal Revenue Service (IRS), and the IRS responded that these accounts would be considered employer-provided health benefits exempt from income and employment tax and deductible as an employer business expense. It is noteworthy that HRAs were created by regulatory guidance rather than by statute. In order to qualify as an HRA, these accounts needed to be funded solely by employer contribution, be used to reimburse employees for medical care as defined by Section 213(d) of the Internal Revenue Code (IRC), and medical expenses needed to be incurred by the employee, the employee's spouse or dependents as defined in Section 152 of the IRC. The HRAs provided reimbursements up to a maximum amount, but the IRS ruled that any unused portion of the maximum dollar amount remaining at the end of a coverage period could be rolled over and increase the maximum reimbursement amount in subsequent coverage periods.
Add a Note Here"The true viability of the consumer-directed health care model was ensured on June 26, 2002. That was the day the Internal Revenue Service issued guidelines approving the right of HRA owners to carry over unused amounts from year to year. This ruling may have been the most important change in health care in 25 years."
Add a Note HereThe significance of this ruling was that it introduced a savings element into health plans allowing capital accumulation and investment possibilities so participants could advance fund future medical care.
Add a Note HereNot long after the introduction of the HRA, another type of consumer-managed health care account was created. The Medicare Prescription Drug, Improvement and Modernization Act of 2003 allowed for the use of health savings accounts (HSAs) beginning in 2004. HSAs were similar to HRAs in that they allowed unused account balances to be carried forward into future years. Only individuals covered by a high deductible insurance plan were permitted to establish an HSA. An innovative feature of the HSA was the wide latitude in funding source. An HSA can be funded by employer contribution, or using employee pretax money, or by an individual making a tax-deductible contribution. Another innovative feature is the account ownership characteristic. The accounts are the property of the individual, are nonforfeitable, and may be rolled over from one employer to another and from one account to another. The alternate funding sources for an HSA allow for a variety of plan design approaches involving employer contribution, employee contribution, or both. Also, the fact that an individual or an employer can establish an HSA, allows its creation apart from the employer as long as the individual is a participant in a high-deductible health plan.
Add a Note HereBeyond the basics of a consumer-managed health care account linked to a supplemental major medical plan, what do CDHPs offer? Some designing these plans see a much wider array of consumer choice embedded in these plans. In keeping with the spirit of consumerism, many see the inclusion of consumer education as integral to the success of the plan and the receptiveness of employees to these plans.
Add a Note Here"Most consumer-driven plans are designed in several ways to encourage employees to be better health consumers. First, these plans offer the participant much more information about health choices, including providers, treatments and facilities. These plans may offer far more choice in services. Some allow the participant to 'build' his or her own plan, literally choosing the deductible, copay, health providers and benefits covered. Consumer-driven plans frequently offer quality measures and evaluations of various health providers. They may offer health coaches for general health issues or designated specialist coaches for chronic conditions and disease management."
Add a Note HereSome practitioners are forecasting several stages in the development of consumer driven health plans. Under this evolutionary schema, second generation CDHPs would involve employers funding the consumer-managed health account in creative ways with rewards, discounts or other incentives when employees make behavioral changes. Looking further into the future, CDHP theorists envision optimizing the relationship between health care costs and employee performance.
Add a Note Here"An important component of this strategy is the health risk appraisal. Profiling employees in areas such as stress can lead to an understanding of what health or workplace modifications are needed to lower costs and improve performance."
Add a Note Here"Future-generation CDHPs will emphasize personalization. Under this scenario, decision support systems will link each person with a personalized health care electronic support system providing real-time feedback on health status, lifestyle and health concerns."
Add a Note HereAlthough the future alone will determine the realization of these prognostications, it is clear that the plethora of innovative features comprising CDHPs is likely to expand into many new and exciting areas.


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