Gov’t Study Finds Consumer-Driven Health Plans Control Costs Better Than Traditional Insurance
September 1, 2010 - 9:55 AMConsumer-driven health care plans, which are being offered by more companies, cost less than traditional health insurance and are better at controlling the growth in health care spending, according to a new study.
The General Accountability Office compared both private and government-offered plans, both consumer-driven and traditional Preferred Provider Organization (PPO) health insurance plans.
Specifically, the plan compared PPOs to Health Reimbursement Arrangements. HRAs are a type of tax-advantaged account that reimburses enrollees for health care expenses. HRA-based plans typically have higher deductibles and lower premiums than traditional health insurance plans and unused account balances may carry over from year to year. HRAs are owned by the employer, and only the employer may make contributions to them.
Employees with HRAs can use the money in their personal accounts to pay for the medical services they want or need, unlike in traditional insurance plans where doctors bill insurance companies for whatever services they provide. Due to the limited amount of money in an HRA, patients have an incentive to make more prudent, better-informed decisions about where their health care dollars go.
Because patients can roll over money in their HRAs from year to year, they have an incentive to be thrifty in their health care spending. If their HRA is depleted, they often are placed in an accompanying high-deductible plan that increases out-of-pocket costs.
GAO found that health spending was significantly less for employees in both government and private HRAs than in either type of PPO.
GAO compared its findings with studies done by other researchers, concluding that patients in consumer-directed plans are healthier than those with traditional health insurance. “Our review of published studies generally found that HRA and other CDHP [Consumer-Directed Health Plans] enrollees tend to be healthier than those enrolled in traditional plans,” GAO said.
In addition to having healthier patients, the consumer-driven plans also experienced slower rates of spending growth, and thus were better than traditional plans at holding down the cost of health care.
“For the public and private employers we reviewed, health care spending and utilization of health care services for the HRA groups generally increased by a smaller amount, or decreased, compared with the PPO groups,” GAO found.
GAO found that the health status of participants did not account for the reduced spending observed in the studies. Healthier patients naturally need less health care and therefore spend less on health care. A type of plan that has mostly healthy enrollees will always have lower spending levels and therefore appear to be better at controlling costs, the study said.
GAO discovered that when researchers held health status constant, spending was still lower in consumer-driven plans than in traditional ones – meaning that health status did not account for the savings observed in consumer-driven plans.
“[T]he majority of the studies we reviewed that examined total or medical spending and controlled for differences in health status or other characteristics of enrollees reported lower spending among enrollees in HRAs and other CDHPs relative to traditional plans,” the report states.
GAO’s study showed that HRA enrollees were better able to hold their health care spending well below that of traditional insurance enrollees, spending only an average of $1,300 per year on health care compared to the average of $3,200 per year for enrollees in the PPO.
GAO also found that employees enrolled in both consumer driven and traditional health plans that were offered by private-sector employers spent less on health care than did employees in government-offered plans, which are often extremely generous.
“For the HRA group, similar to the public employer, average annual spending at the private employer increased by a smaller amount than for the PPO group,” GAO found.
“Specifically, average annual spending for the private employer’s HRA group increased by $152 per enrollee compared with $206 for the PPO group.”
Privately-employed enrollees had much lower levels of health care spending than did government employees, in both types of plans. Employees in consumer-driven plans spent an average of only $775 per year while those in the PPO spent an average of $1,400 per year on health care.