Consumer-Directed Health Plans: Friends or Foes?

Consumer-directed health plans: Are they the American health care system’s great hope, as their supporters contend, or patients' great peril, as their adversaries warn? The verdict is still out, but family physicians need to be aware of how these plans can affect their bottom line.

Consumer-directed health plans combine tax-deferred health savings accounts, also known as HSAs, with low-cost, high deductible, catastrophic health insurance. Funds from the health savings account pay for providers' services, prescriptions and other covered out-of-pocket expenses until the insurance plan's deductible is met. At that point, insurance coverage kicks in.

Supported by President Bush as a solution for reducing health care spending while providing health coverage for the uninsured, the concept made its debut in the Medicare Prescription Drug, Improvement, and Modernization Act of 2003. And its popularity is growing. To date, 3 million Americans have enrolled in the plans, according to America’s Health Insurance Plans. Robert Crane, senior vice president for Kaiser Permanente, said half of his company’s growth in 2005 stemmed from consumer-driven health plans.

By making patients more aware of health care costs, consumer-directed plans hold great promise for cutting health care spending, according to proponents. A survey released in September 2005 by Blue Cross Blue Shield Association found that 68 percent of enrollees in HSAs were satisfied with their insurers, 71 percent were satisfied with their access to preventive care and 69 percent were satisfied with the health benefits offered by their insurers.

But the concept also may potentially remove the healthiest patients from the comprehensive insurance risk pool, raise individual patients’ out-of-pocket expenses, reduce access to preventive and other needed health care, and, ultimately, increase both the number of uninsured individuals and total health care spending.

Without significant support from employers, consumer-driven health plans would offer little benefit to many of the currently uninsured, say patient and employee advocacy organizations. They point to U.S. Census Bureau data showing that one-third of uninsured people earn less than $25,000; another third earn between $25,000 and $50,000 a year. These people do not have financial resources to set aside even tax-deferred money for a consumer-driven plan, they say.

A December 2005 survey by the Employee Benefit Research Institute (PDF file: 12 pages / 163 KB. More about PDFs.) notes that patients with consumer-directed or high-deductible health plans “were significantly more likely to avoid, skip or delay health care because of costs than were those with comprehensive insurance, with this behavior particularly pronounced among those with health problems or incomes under $50,000.”

Still, supporters contend, the plans could enable employers who don’t currently offer health benefits to do so. Many businesses, they say, can’t afford traditional health insurance but could contribute to employees’ health savings accounts and the premiums of high-deductible health plans, also known as HDHPs. The lower cost may encourage these companies to offer insurance to their currently uninsured workers. Tax incentives for such plans sweeten the concept.

The emergence of HDHPs also may affect family physicians. "There is potential for the HDHPs to have negative implications for physicians," says a discussion paper (PDF file: 20 pages / 140 KB. More about PDFs.) approved by the AAFP Board of Directors last year.

The analysis points to the potential for increased bad debt and higher billing and collection costs on the part of FPs. "Practices can likely expect their billing and collection costs to increase for HDHPs due to an additional need for statements and collection phone calls," says the paper. In addition, "With the HDHPs shifting the upfront financial burden to the consumer, the result is a great potential for an increase in physicians’ bad debt expenses."

Other concerns raised by the AAFP paper are an increased cash flow lag as physicians wait for insurance companies to issue an explanation of benefits before they can bill patients and then wait for patients to decide to pay them. "This is where the practice having an efficient collections policy and process is vital as there is a potential for administrative expenses related to billing and collections to grow," says AAFP. The paper also points out that a patient's HSA may not have enough funds to cover the physician's bill, and the patient "may want to wait until the account balance can cover the physician’s entire bill, which could lead to an increase in the days in accounts receivables."

In order to control some of these factors, AAFP suggests that physicians ask health plans with whom they contract two questions:

- Does the contract require automatic participation in any of the company's new plans, including high-deductible options?
- What patient fees can be collected at the time of service?

The Academy also offers several tips (PDF file: 2 pages / 21 KB. More about PDFs.) for family physicians who want to avert the potentially adverse effects of HDHPs. Among these are