The affects of rising healthcare costs in the U.S. have made people distrustful of the insurance industry, healthcare providers, and the government. Employers are passing-on increasing insurance costs to their employees, leaving many with no choice but to forego their plans altogether. The bottom line is a national crisis--spurred by these growing costs, the number of uninsured and underinsured in this country has grown astronomically, now reaching 45 million.

A major overhaul of the national healthcare system seems unlikely, but a new type of health insurance plan may offer some hope for reform. Stephen Parente, assistant professor of finance, is researching how the emergence of consumer-driven health plans is changing the marketplace by making consumers active participants in their own healthcare planning.

In consumer-driven health plans, employers allocate money for each employee that goes into a healthcare reimbursement account. Each employee pays for healthcare costs out of their account up to a pre-determined level, while catastrophic insurance covers more expensive procedures. Unused funds roll over into the following year's accounts. The theory behind the plan is that employees become directly involved in their healthcare decision-making by shopping around for the best prices on healthcare--a benefit that is most helpful for purchasing prescriptions. In addition, consumer-driven health plans do not require patient referrals, giving even more decision-making power to the patient.

As principal investigator on a grant funded by The Robert Wood Johnson Foundation's Healthcare Financing & Organization Initiative, Parente and co-investigators Jon Christianson and Roger Feldman are evaluating the impact of these plans on health insurance choice and medical care use. And by looking at multiple consumer-driven health plans, they will predict whether or not these plans are viable in the long-term. Six large employers are part of this study, with three in Minnesota--the University of Minnesota, Medtronic, and Ridgeview Medical Center.

In early research, Parente and his colleagues studied Minnesota-based Definity Health, the nation's first consumer-driven health plan. Introduced in 2000, Definity has set the trend for the development of similar plans--a trend that looks to heat-up after the company's recent acquisition by UnitedHealthcare. According to Parente, the $300 million purchase of Definity was a wake-up call for the insurance industry as Definity's innovative product has now jumped to the mainstream population.

Early users of consumer-driven health plans

In their research on early adopters of Definity Health, Parente and his colleagues found that the young and healthy did not disproportionately choose the new plan, as many initially hypothesized. Instead, predominately higher-income families and 35- to 44-year-olds elected the plan. They also found that employees and employers had positive opinions about the plan, but not more so than employees and employers using HMOs or preferred provider organizations.
For employees, three key features drew them to a consumer-driven health plan: their doctor was in the plan (77 percent), no referrals were needed (51 percent), and preventive services were covered (47 percent).

Overall, employee payments to Definity were the same or slightly cheaper than payments to other managed care plans. Patient expenses, including prescription drug costs, were also similar. But consumer-driven health plans showed an increase in demand for services, particularly prescription drugs, over time.

Parente explained that these plans were not entirely meant to save money, at least initially. Instead they were expected to provide an alternative to managed care, and the research found that Definity does provide a suitable alternative to other insurance methods. Parente noted, however, that some employers hope to see a long-term economic benefit by raising employee awareness about healthcare costs.
In the second phase of their study, Parente and his research team will use interview data to assess the experiences of other employers and early users of consumer-driven health plans.

The next phase

With UnitedHealthcare's stake in the market and other insurers offering their own versions, consumer-driven health plans are poised to play a much more prominent role in healthcare benefit offerings nationwide. Parente views the growth of these plans as a potential first step toward healthcare reform in the U.S.--reform that could help all but the roughly 10 million chronically uninsured. He conjectured that consumer-driven health plans might prompt a return back to traditional health insurance, which covered catastrophic events and required a larger initial payment from the consumer. "If you are hurt, you want to have your health restored. When managed care and HMOs came around, it reduced the barrier for preventive care. But, people have lost touch with the actual cost of healthcare and frequently do not have any way to know that the actual price of a drug can vary from $5 to $500 per monthly dose," said Parente. "You want the insurance function first and foremost."

In the next few years Parente and fellow researchers will gather more definitive data for projecting the long-term effects of consumer-driven health plans--effects that will be highly dependent on benefit design. In addition, they will advise the federal government on the target market and projected costs for tax-subsidized health savings accounts (HSAs), as proposed by President Bush.

In the long run, Parente speculated, these accounts, along with consumer-driven health plans, could reduce the number of uninsured and underinsured. The team's research showed that HSAs could ultimately reduce the 45 million uninsured by 4 to 16 million. Consumer-driven plans could contribute because they may be more affordable for some of the uninsured and for small companies currently unable to offer health insurance coverage to their employees. And both HSAs and consumer-driven health plans may help people who typically lose health coverage when moving from job to job by allowing the benefit to move with them.

With a philosophy that puts the employee in the driver's seat, consumer-driven health plans may be the choice small businesses and the uninsured have been waiting for.
For more information about consumer-driven health plan research at the University of Minnesota, go to www.ehealthplan.org.

WRITTEN BY AMY DANIELSON