Consumer directed health plans (CDHPs) aim to lower health care costs by giving members financial incentives to reduce discretionary care and seek lower-cost providers through the use of tax-favored savings accounts. CDHPs typically have high deductibles and out-of-pocket limits but protect against catastrophic costs. Health savings accounts (HSAs) are owned by employees and portable, while health reimbursement arrangements (HRAs) are owned and funded by employers. Research shows CDHP members are more cost-conscious consumers but there is no clear evidence of adverse selection effects on risk pools.

1. Consumer Directed Health Care Winnie Nelson, PharmD, MS

2. CDHP Consumer Directed Health Plans

3. Potential Solution to Premium Growth

4. CDHP Expectations Financial risk to members will alter demand Balance cost against expected health benefits Reduce use of discretionary care Seek lower-cost providers Increase efficiency Lowering utilization Turning member into “smart shoppers” Cost-containment AND protection against catastrophe

5. Types of Health Care Accounts Two components: High deductible Tax-favored savings account Health Savings Account (HSA) Designed to pay for qualified medical expenses Must be paired with high-deductible plan Health Reimbursement Arrangement (HRA) Designed to reimburse employees’ qualified medical expenditures Can be paired with any plan

6. HSA vs. HRA HSA HRA Ownership Employee Employer Contributors Employee, employer and/or family members Employer only Annual limits on contributions Federally-set limit No limit; employer usually sets limit Tax Treatment Qualified medical spending exempt from income taxes; employee contributions  tax-deductible; employer contributions  excluded from gross income and not taxed Employer contributions excluded from gross income; not treated as taxable income to employees

7. HSA vs. HRA HSA HRA Portability Fully portable No requirement; many employers do not make accounts portable Unspent funds Rolls over yearly without limits May roll over yearly but employer may set maximums; funds may revert to employer if employee leaves or retires Qualified medical expense definition Specified by IRS; payment for health insurance premiums may be restricted Specified by IRS Non-medical use Subject to income tax with additional 10% penalty before age 65 Forbidden

8. Overall Enrollment Still Low

9. CDHP Growth

10. 2008 Best Seller for Large Group Amount Avg Annual Deductible Single: $2,046 Family: $3,998 Avg Annual Out-of-Pocket Limit Single: $3,194 Family: $6,110 Avg Lifetime Max Benefit Single: $3.6 Million Family: $3.7 Million Avg Annual Premium Single: $3,185 Family: $8,241

11. CDHP Effects

12. Behavioral Change Members: More likely to use decision support tools Pay closer attention to preventive care More likely to delay/avoid care Increase cost-sharing associated with decrease patient medication adherence MDs: Likelihood of prescribing high cost medication dropped

13. Cost-Sharing Effects Davis K, 2004.

14. Care-Seeking Behavior Modifiable Rowe et al. 2008. Health Affairs Compared use of preventive, cancer screening & diabetic monitoring services Between CDHP & PPO plans Members with continuous 3-year enrollment Results: No difference in level & trends in use WHY? The services were free in CDHP

15. Adverse Selection In Theory Healthier, higher-income individuals enrolling in CDHP Sicker, lower-wage individuals in traditional plans Escalation of cost in traditional plans In Practice Healthy & sick expectations drive consumer decision Conflicting findings in research affected by benefit design Research methods not precise enough to detect

16. Patients Becoming More Cost Conscious

17. Patients Price-Conscious on Medication

18. Increased Influence of Consumer Decision Support Cost conscious decision making Check coverage Ask for generic drugs Talk to doctor about treatment options Ask doctor for cheaper drugs Check price of service beforehand Check quality rating of doctor & hospital Participate in wellness programs Use online cost-tracking tools

19. Implications to Pharmaceutical Industry Threats: Erosion of market in “lifestyle” conditions CDHP becoming only choice Medication non-adherence Cost pressure against biologics & other high cost drugs Opportunities: Price vs. value perception for consumers Provision of decision support Effects of CDHP modifiable Strong interests in consumer engagement to decrease patient cost sharing