Q: Are CDHPs more geared toward the healthier and younger population?

A: No, the consumer directed health plans (CDHP) are not more geared toward the healthier and

younger population, rather it is geared towards the employees / participants aged between 35-54.

Hence, the age demographics for CDHP are similar to traditional plan.

Q: Are they effective for patients with chronic illnesses?

A: Yes it is effective for the patients with chronic illness. One of the study reveals that

Employees with chronic illness are equally likely as other employees to join a CDHP, to

understand key plan coverage features, and to report having a particularly positive or negative

experience with their plan where they assign higher ratings to their plan than do other CDHP

enrollees, are more likely than other CDHP enrollees to use informational tools, are more likely

to anticipate spending all of their savings account dollars and are more likely actually to spend

more than the deductible (particularly for prescription drug expenditures). Moreover enrollees

with chronic illnesses spend significantly more on prescription drugs as compare to the other

CDHP enrollees whose spending exceeds the deductible. Furthermore, although people with

chronic illnesses who chose CDHPs had some understanding of how their health savings

accounts (HSAs) would work, they tended to exhaust those accounts and also spend more than

the plan's deductible.

Q: Will they discourage the use of preventative care and cause increased healthcare costs

in the future?

A: CDHP does not discourage the use of preventive care rather it give employees the control of

planning their health care spending in order to encourage them to seek more information and be

more prudent and frugal with their health care spending. Though it has been seen that CHDP end

up with a high up front out of pocket costs but it does not cause increased health care costs in

future if it is implemented properly. CDHPs not only provide a proven cost-benefit to employers,

but also create a more educated, aware and health-conscious consumer base. Both HRA and

HSA accounts offer opportunities for employees to accumulate increased savings over multiple

years that can be used for retiree health costs which will be important with the sharp decline in

medical retiree benefits.

Q: Summarize the history of when, how, and why CDHPs were developed.

A: The first CDHPs were introduced in late 1990s by the health e commerce ventures. The

products under CDHP were designed to engage the consumers in their health care purchases by

themselves. The conceptual model of CDHP enables the consumers to get the information about

the costs and quality of these products through internet in order to create a more efficient health

care market.

Q: Explain HSA, HRA, and FSA with examples.

A: HRA, HSA and FSA are the three types of accounts under CDHP where the money goes tax

free for qualified medical expenses. However, the kind of insurance plan they work with, who

owns the account, who controls it and who can put money into it, makes them different.

HSA:

Health savings accounts are the same as the retirement account for medical expenses. HSAs can

be funded by employers or employees and they are portable. HSAs are the most tax-advantaged

savings vehicle ever passed by Congress. One can only have an HAS if and only if he has

enrolled in the high deductible insurance plan, that is, a health plan that has a deductible of at

least $1,000 for individual coverage ($2,000 for family coverage) and caps on the out-of-pocket

amounts that the individual would have to pay ($5,100 for individual coverage/$10,200 for

family coverage) (as of 2005). In HSA a person himself own his account but anyone can put in

the money, where money taken out of your pay check by your employer for the account isn’t

taxed. An individual and/or the employer can make contributions to the HSA up to the plan’s

deductible amount, but no more than $2,650 for an individual or $5,250 for a family (as of

2005), where the HSA annual contribution for policyholders and covered spouses age 55 or

older, limit is greater than the otherwise applicable limit by $600 in 2005, $700 in 2006, $800 in

2007, $900 in 2008 and $1,000 in all years after. In HSA, you can invest the money and the

money in your account can be roll over year after year and the money put into the account that’s

already been taxed (for example, money that was a gift), is tax deductible. Employers

contributing to an HSA must make available comparable contributions on behalf of all

employees with comparable coverage. If made for qualified medical expenses, distributions from

an HSA are excluded from gross income. Distributions from an HSA that are not for qualified

medical expenses are included in gross income and have a 10% penalty if the distribution is

taken prior to age 65

HRA:

Health reimbursement arrangement/ account are a fund that pays for medical expenses not

covered by your health plan, such as deductibles, coinsurances and co payments. This fund is

owned by an employer where he will decide about the expenses covered under HRA. Under this,

money given to you for medical expenses is tax deductible for your employer and you don’t have

to pay taxes on money you get from an HRA used for qualified medical expenses. The money in

an HRA can neither get invested anywhere nor it can be rolled to next year. HRA funds are used

in order to promote employee health and stabilize health care costs. HRAs can be used for non-

plan covered expenses that are IRS recognized “qualified medical expenses” under IRC section

213(d). Moreover, HRA funds can be used to pay for health insurance premiums for example,

HRAs can be used to pay for COBRA, Retiree Medical, Long Term Care and other medical

insurance plans.

FSA:

Flexible spending account is owned by an employer but you have the authority to decide the

medical expenses you want to pay from your FSA. The Flexible Spending Account (FSA) is the

first tax-advantaged health care account available for most employees. FSA works with most of

the employer sponsored health plans and only you and your employer can put in the money

where you can deposit the money through payroll deduction and the money deposited by you is

tax free. The FSA accounts are attractive to employees who can benefit from the tax advantages

and have significant medical expenses. The money in FSA cannot be invested and cannot roll

over to the next year too.

Q: Examine different segments of the population. Describe which socioeconomic group

is likely to benefit the most from CDHPs.

A: Population can be segmented in various ways. One could be on the basis of age like the age

group of 21-34, 35-44, 45-54, 55-64. Another could be on the basis of their occupation like

employer and employee etc. One of the other ways of segmenting the population is on the basis

of their standard of living under which one segment is of general population and other is of

vulnerable population. CDHPs benefit both these groups of populations, however recent studies

shows that CDHPs may affect the vulnerable population group to a greater extent than the

general population, where, CDHP enrollees with low income and chronic conditions are more

likely to report cost related access problems and delaying care than others in these plans based

upon telephony survey data by Davis, Doty and Ho, 2006; Reed et al 2009. In addition, evidence

from one firm and one insurer respectively suggests that low-income persons who switched to

CDHPs reduced their physician office visits and visits to emergency departments for high

severity conditions more than others who switched (Hibbard et al., 2008; Wharam et al 2007).

Similarly, in one firm, people in lower socio-economic status groups who enrolled in a CDHP

reduced both low- and high-priority visits more than other enrollees (Hibbard et al, 2008). As per

a study done by Amelia M. Haviland, Neeraj Sood, Roland McDevitt, and M Susan Marquis,

CDHP benefit designs affect non-vulnerable and lower income and chronically ill populations

equally. These effects include significant reductions in overall spending that increase with the

level of the deductible and greater reductions for high deductible plans when paired with HSAs

in comparison to HRAs. However, for all populations, enrollment in CDHPs also leads to

reductions in care that is considered beneficial, which could have greater health consequences for

lower income and chronically ill people.

Q: Explain the types of incentives to providers for efficiency in the delivery of healthcare

services. Explain who bears the financial risk the provider, the patient, or the CDHP.

A: Financial incentives, economical incentives, performance incentives, physician incentives are

some types of incentives which are given to the providers for efficiency in the delivery of health

care services, where the patient bears the financial risk and are increasingly responsible for

defining health care value.

Q: Offer your recommendations for patients considering a CDHP, including which types

are appropriate for which patients. Include your recommendations for each, to accept or decline,

and also include your rationale behind such recommendations.

A: CDHP provides savings to employees through reduced premium expenses and give them a

greater control over their health care spending. It also decreases costs to employers as it allows

employers to offer a lower cost premium option. It also encourages employees to make more

informed health care decisions with the help of HRA, HSA and FSA. However, reports have

shown a lower satisfaction of employees through CDHP and high up front out of pocket

expenses but at the same time tax savings through the different accounts and lower premiums

make it attractive for the employees. CDHP not only reduce the cost but also improve their

health care decisions.

According to me, for employees, CDHP benefits them as they are in charge of making health

care decisions rather their health plan. They can actually decide where to put in their money and

which medical expenses to bears. They also bear a financial risk but at the same time they also

enjoy savings on their tax through HRA, HSA and FSA. They can opt for any of these accounts

as per their requirement.

The physicians and the other health care providers can also get benefit by CDHP because it

involves less paperwork and administrative tasks. Physicians also have a chance to gain reward

for their patient satisfaction. CDHP also allows physicians to get compensated for

responsiveness, access, professionalism and communication abilities. As far as employers are

concerned then CDHP also provide them benefit in the form of reduced cost and it also gives

them power to make decisions about the lower medical costs.

If we see the other aspect, then Younger consumers (ages 25 to 39) are more likely to seek

greater control over their health choices and view their work and home environments as

important factors in their ability to gain more control. Younger consumers also believe a healthy

environment has about the same influence on their health as getting preventive care. By contrast,

older consumers are much more likely to cite doctors as influential health and wellness sources,

while younger consumers are more likely to cite friends and family as important. People also

want personalized information on their health care and services.

A patient who is considering a CDHP go through it in the way in which it gives benefits to him.

Since the population is comprised of different age groups and different segment, so each age

group and segment of population see the CDHP in his own perspective and then depending upon

his requirement, he chooses his plan and expenses while doing so he can also do savings on his

tax using various accounts provided under CDHP. For instance it has been seen that the

demographics of CDHP is similar to the traditional plan, where 36% of the CDHP enrollees are

of age group of 35-44, 27% are of 45-54, 21% is of age 21-34 and 16% is of 55-64 years of age.

Though the general perception of CDHP is that it is geared for the younger and healthier

employees but the fact is that it is meant for everybody. Even the vulnerable group of the society

also benefit from it. CDH provides reduce costs and preventive care to them too. People

suffering from chronic disease also get an advantage using a CDHP.

In a 2004–2005 retrospective study of 808,707 families from 53 large US employers (28 of

which offered CDHPs or HDHPs) reveals:

_ CDHP enrollees with higher deductibles (≥$1,000) spent 14% less than employees in

traditional plans

— Monthly cost savings were lower in plans where the employer contributed ≥$500 to savings

accounts vs those where employer contributions were <$500 ($76/mo vs ≈$134/mo)

_ Enrollees in CDHPs with deductibles of $500–$999 had no significant cost growth

_ Enrollment in CDHPs or HDHPs was associated with moderate reductions in the use of

preventive care in the first year, despite waiving deductibles for these services

37

(HDHPs=high-deductible health plans.

Source: Buntin MB et al. Am J Manag Care. 2011;17(3):222–230.)

Hence we can conclude by saying that the enrolment in CDHP is growing despite some of its

disadvantages, where both employees and employers are getting incentivized through the CDHP

cost structure as they provide all types of information tools to their employees so that they can

take the best decision for their health and can choose the best plan for incurring their medical

expenditures. It not only empowers the employees and employers to do more savings but also it

provide them the benefit of chooses their own preventive care and medical assistance as per their

own requirement and priority.

References:

http://www.ncbgh.org/resources/Consumer_Health_Mindset.pdf

https://www.businessgrouphealth.org/pub/f315b092-2354-d714-51b4-aba8d2cc926f

https://www.businessgrouphealth.org/pub/f315acf5-2354-d714-51ed-8a85aa7ebea0

http://mhfcaustin.org/wp-content/uploads/2012/08/Consumer-Directed-Health-Plans-9-2012.pdf

http://econpapers.repec.org/article/wkhdmhout/v_3a15_3ay_3a2007_3ai_3a4_3ap_3a239-

248.htm

http://www.theihcc.com/en/resources/stats_data/cdhps-a-timely-solution_gmeapfuq.html