- - Wednesday, July 18, 2012


The good news: Two recent studies show that some types of health insurance are succeeding at containing health care costs without sacrificing quality of care.

The bad news: Rules and restrictions in Obamacare undercut these plans and could drive them out of the marketplace. So much for “bending the health spending curve down.”

What’s working so well to hold down costs are what’s known in the trade as consumer-directed health plans.

Typically, the most well known of these plans offer consumers comprehensive health coverage by combining a high-deductible insurance plan to cover major costs with tax-preferred accounts — either health savings accounts or employer-funded health reimbursement accounts — used to cover ordinary medical expenses.

In these plans, families and individuals directly manage their own accounts. Unlike traditional insurance options (which leave patients largely in the dark about — and, therefore, insensitive to — the full cost of medical services), consumers covered by plans with one of the options know exactly what they have budgeted for normal health expenses, and see exactly how much and how quickly they are drawing down the allocated funds.

This knowledge enables consumers to spend more prudently.  For example, patients who can see prescription costs subtracted from their personal accounts will tend to go with the less-expensive generic, rather than with a name-brand drug.  Similarly, they are more likely to use primary-care physicians instead of specialists.

This isn’t just theory. It’s happening today. A 2010 study by Mercer Health and Benefits, a human resources consulting firm, concluded that consumer-directed health plans in Indiana had generated huge savings because of “better use of health care resources and more cost-conscious decision making.”

The Mercer study examined the effects of a 2006 health reform that enabled Indiana to offer health savings accounts as a coverage option for state employees and their families. It compared the costs of the two new state savings accounts with the long-established, preferred-provider organization option. The plans had comparable actuarial value, but average premiums for the PPO were far higher than those for either health savings account.

From 2006 to 2009, average costs for the PPO were more than double that of the savings account with the highest deductible ($12,317 versus $5,462). Even the accounts with the lower deductible cost, on average, nearly $3,000 less than the PPO.

That translated to big savings for the state as well as for state workers and their families. Mercer estimated that, in 2010 — when fully 70 percent of all state employees would have opted for health savings account coverage — the state would save in the neighborhood of $20 million. Enrolled consumers would save $7 million to $8 million.

All of these savings were realized without sacrificing the quality of care, and Mercer found no evidence that consumers were avoiding care to husband funds.

Now a second study, published in the May 2012 issue of Health Affairs, shows that expanding access to health plans with either savings or reimbursement accounts could significantly reduce the nation’s health care bill. The five researchers, all from leading universities and think tanks, examined the economic effects of increasing the coverage from current levels (13 percent of the employer-sponsored market) to 50 percent of the market a decade from now.

Their conclusion: Health spending would decline, on average, $57 billion annually. Employers would save 7 percent of their health care budget, while consumers would pare their health expenses by 4 percent.

Unfortunately, Obamacare is on track to reverse the successes of consumer-direct health plans. The law bars consumers from using health savings account funds to buy certain basic products, such as over-the-counter medicines. A new medical loss ratio requirement, which requires health plans to spend a certain percentage of premiums on medical expenses, also could threaten these plans, since the requirements do not take into account their unique structure.

If Washington truly wants to “bend the health cost curve down,” the smart move is to repeal Obamacare and embrace insurance reforms that embody the tried-and-true principle of consumer choice.

• Kathryn Nix is a policy analyst in the Heritage Foundation’s Center for Health Policy Studies.

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