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

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

13. Cost-Sharing Effects Davis K, 2004.

16. Patients Becoming More Cost Conscious

17. Patients Price-Conscious on Medication