Running Head: CONSUMER DRIVEN HEALTH CARE:

CONSUMER DRIVEN HEALTH CARE: Impact on future costs Trident University International Kevin S. Varner Topics in Health Care Policy BHM 415 Session Long Project Module Number 4 Coordinator Professor: Dr. Mickey Shachar Core Faculty: Dr. Brad Collins September 15, 2011

CONSUMER DRIVEN HEALTH CARE: Impact on future costs

Consumer Driven Health Care (CDHC) has been touted as the ultimate means of decreasing costs. Even during the most recent Republican Presidential Candidate debate the idea was pitched as a means to fix our health care issues (Mathews 2011). This is simply not the case, and is based on faulty logic by attempting to equate health care with other consumer products. Although health care spending may initially decrease, long term costs will continue to rise. If CDHC is the only method of improving the system health outcomes will begin to decrease as well, as more people decide they simply cannot afford preventive care, and lowincome individuals are forced to choose between health plan savings accounts and paying bills. CDHC The combination of a pretax payment account with a high-deductible health plan is what is commonly referred to as a Consumer-Driven Health Plan (CDHP) (Yi 2010). The basis of the recent drive toward CDHC comes from increased costs to employers hit hard by the recession. With potential annual increases in costs greater than 7%, vice the initially projected 6%, (Koster 2009) employers are trying to finds a means to cut costs. However, a couple of items that jump out of the above description are pretax payment account and high-deductible health plan. Without these two aspects of CDHC projections of savings would be limited or absent. Yet, these two items are the very things that will discourage low-income earners to enroll in health care plans. The Pre-Tax account is designed so employees can decide what amount they think they may need in the future to offset costs if they eventually get sick. In most cases this comes out of the employees paycheck prior to taxes, which saves a small increment and provides the incentive to go this route vice creating their own rainy day savings account. Some plans

CONSUMER DRIVEN HEALTH CARE: Impact on future costs

actually call for some contribution from the employer to the same account, however, when discussing cost-sharing this is mainly for extremely large corporations vice the more common small businesses CDHC is designed to help. The other half of the plan involves high-deductible health plans. These are plans that have higher annual deductibles.and a higher annual out of pocket maximumthan the typical traditional plan. (Yi 2009). This means more money comes out of the workers pocket in order to receive comprehensive health care, while employers and insurance companies pay less. The offset for this is a projected eventual lowering of premiums compared to traditional plans, which could help offset the increased costs so long as the employee stays healthy. The basis for the overall belief in CDHC is that both un-insured poor and insured workers currently have no vested interest in the costs associated with health care. This translates to a belief that since health care plans cover everything an employee may need, may have a reasonable deductible and low annual rates, (and the employer pays the large cost for these plans), workers are content to see prices rise. The general idea continues that due to a lack of outcry from the general public, utilization of all available medical services (whether really needed or not), and other factors health care costs will continue to rise and stay high. By shifting the greater burden of cost to workers the idea is to give them some vested interest in their own health care, the overall costs associated with health care throughout the country, and a whole generation that will shop around for better deals. All of this is supposed to translate into less utilization of unnecessary health care, a push toward cost decreases based on public usage/needs, and overall decrease in costs to Corporate America and some how this will translate into better health care in the long run.

CONSUMER DRIVEN HEALTH CARE: Impact on future costs

The Theory is Faulty The basis for all of this talk of long-term improvements in Health Care with the adoption of CDHC as the norm, comes from the belief that health insurance and health care treatment should be treated as any other commodity. Take coffee as an example; decreased demand means costs decrease as providers struggle to sell their product. Those who can afford it will still go buy $4.00 cups of Starbucks, while those who can not will continue to buy $4.00 cans of Folgers for home use. Those that consider coffee as something they can cut from the budget will just stay out of the coffee isle at the store. Eventually the overall costs will stay lower, suppliers that can not afford to sell so low will go out of business, while others using technology, innovations in growing, and maintain name recognition will do just fine. Now, apply that to health care. Demand for certain services will decrease in the shortterm, many will decide to stop utilizing their insurance selected providers based on budgeting decisions at home, and some costs may decrease. However, unlike cutting out coffee from your shopping, when you cut out health care there is always a long term opposite and equal reaction. A lack of regular doctors visits decreases in preventive medicine utilization, and a decrease in affordable options will lead to another huge influx of disease related health costs. People that cannot afford health care already over-utilize available Emergency Departments, and continue to skip long-term medication for treatment of Diabetes, Hypertension, and Hyperlipidemia. Imagine when that becomes normal among low-income working Americans. Within 10-20 years you will have a huge crisis in health care as those people develop greater levels of disease, worse cases of chronic disorders that have been undertreated, and a general lack of availability of reasonably priced options to combat these issues.

CONSUMER DRIVEN HEALTH CARE: Impact on future costs

A survey of employers showed a 57% increase in cost-shifting to employees, 17% offering only this option for health care, and a general belief many more employers would be heading this way in the near future (Shepherd 2009). Conversely, in the same survey Public Employers cite reasons why this movement will not work: 35% say it is a poor fit for the organization, 20% do not favor shifting costs to employees, and many state the greater out-ofpocket costs associated with CDHPs could result in employees delaying needed care (Shepherd 2009). If anything is clear in these results, it is there is still no consensus that CDHC actually works, or could possibly fix the overall issues in our Health Care system. An Alternative Obviously, based on the some of the basic premises of CDHC, coverage would decrease rather than expand. Those who cannot afford it would still go uninsured, still utilize whatever methods are available to receive care at the governments expense, and continue to keep the public contributions (through state and federal taxes) high. Quality would remain the same in many cases, only improving in organizations that could afford to increase size, technology and offered coverage based on the amount of people their plans covered, and the amount they charged. Costs may decrease overall in the short term, but this would be through the under utilization of health care driving down the demand because lack of demand drops prices and encourages competition for business. However, as illustrated above, there will be a rebound to the demand issue in the long run which will drive prices back up and increase the amount of money the tax-payer is billed to cover all those who previously decided not to save for their rainy day and never received basic and preventative services. So, how can costs decrease, quality increase, and coverage expand if it is not through this CDHC method? To start, the other way prices drop and competition for business is increased, is

CONSUMER DRIVEN HEALTH CARE: Impact on future costs

by making a product easily obtainable. The price of gold is high because it is rare and there is a demand for it. If the demand remained the same, but anyone could easily find gold whenever they wanted, the price would drop and those who sell it would be forced to increase the quality of their product in order to sell it. So, making health care coverage easily obtainable for everyone is step one. This will lead to decrease in costs for coverage, while allowing high demand, by increasing competition among insurance providers. They need business to survive so will find ways to get more customers. Step two will be to make costs decrease for the insurance companies and health care organizations to allow this drop in price. You do this through some basic tort reforms to make it less expensive to have malpractice insurance. Also, increases in health care infrastructure can provide decreases in costs for medical providers subsequently dropping overhead for providers, which will enable decreases in costs. By making this a secondary goal (after increasing availability) you provide incentive for this cost saving to be pushed down to the consumer. As clearly illustrated in the Oil Industry, huge profits and lower costs (such as taxes) do not translate into lower gas prices without some form of incentive. Making it easy for anyone to get some form of health insurance will provide this incentive. The third step is the most difficult making people care about their own health enough to decrease risky behaviors and increase healthy lifestyle choices. Employees lack of interest in or reluctance to participate in health and wellness programs is the No. 1 obstacle to changing health behaviors. (Towers Watson 2010). You cannot force people to care about this and our freedom of choice allows for patients to engage in activities that will cause health issues; which will lead to more people in the hospital, poorer health outcomes, and continued need for long-

CONSUMER DRIVEN HEALTH CARE: Impact on future costs

term medical care. However, you can force people to pay for this poor choice. The funds generated could be allocated directly into health care. The current Affordable Care Act requires everyone to pay for some form of health insurance if they can afford it. If they do not purchase some kind of insurance they pay more in taxes at the end of the year this money is then used to offset costs in making health care available to everyone. It also means people have a vested interest in maintaining healthier lifestyle choice since they are paying the premiums based on their health. You could add to this by providing incentives for healthier choices; tax breaks for purchasing and utilizing a gym membership or rapid decreases in health insurance premiums for people who can decrease their hyperlipidemia, hypertension, and diabetic complications through diet, exercise and proper medication usage or both. Conclusion Consumer Driven Healthcare has many good qualities in the abstract. This does not mean it will be effective as a long-term means of reducing health care costs. However, longterm change for the better can be ensured when some aspects are utilized in conjunction with: 1 Increasing availability of health care to everyone, 2 Decreasing overhead costs to health care facilities and insurance companies through infrastructure investments and tort reform, and 3 Mandate health care for anyone that can afford it, penalizing those who choose not to with a form of taxation while providing incentives for those who make healthy lifestyle choices. The biggest hurdle is politics not the ability to make these changes, or the willingness of most Americans to go along with these ideas and changes, simply the politics of the day. Until that changes there will be no real guarantee these things can be implemented permanently, or that

CONSUMER DRIVEN HEALTH CARE: Impact on future costs

costs will decrease. The faulty logic associating health care with products such as coffee and oil, if it continues, will doom any real change to a system that is broken.

CONSUMER DRIVEN HEALTH CARE: Impact on future costs

References Koster, Kathleen (2009) Employers turn to CDHPs in anticipation of 2009 cost spike. Employee Benefit news May 4, 2009. Retrieved from: http://ebn.benefitnews.com/news/employersturn-to-CDHPs-in-anticipation-of-2009-cost-spike-2672262-1.html Mathews, Merrill (2009) Romney vs. Perry: The Debate Over Health Care Reform. Forbes Online September 8, 2011. Retrieved from: http://www.forbes.com/sites/merrillmatthews/2011/09/08/romney-vs-perry-the-debateover-health-care-reform/2/ Shepherd, Leah C (2009) CDHPs praised, ROI panned. Employee Benefit news April 15, 2009. Retrieved from: http://ebn.benefitnews.com/news/cdhps-praised-roi-panned-26719791.html The Kaiser Family Foundation (2009) Employer Health Benefits: 2009 Summary of Findings. Retrieved from: http://ehbs.kff.org/pdf/2009/7937.pdf Towers Watson (2010) 2010 Employer Survey on Purchasing Value in Health Care Report. National Business Group on Health/Towers Watson. Retrieved from: http://www.towerswatson.com/assets/pdf/1345/TW_15565_NBGH.pdf Yi, Song G. (2010) Consumer-Driven Health Care: What Is It, and What Does It Mean for Employees and Employers? Bureau of Labor and Statistics October 25, 2010. Retrieved from: http://www.bls.gov/opub/cwc/cm20101019ar01p1.htm