Consumer-Directed Health Care: The Next Big Thing?

Some market-oriented economists have long contended that the best way to get a handle on rising health care costs is to give patients more control over the type of services they consume and the prices they pay for them. There are increasing signs that the market is gravitating in this direction. In the last several years employers have been setting up so-called “consumer-directed” plans, which put more responsibility for selecting the appropriate provider at the right price in the hands of employees—in exchange for potential financial gains.

The Federal Employee Health Benefit Program now offers a consumer-directed option to federal workers and retirees. The Medicare Modernization Act enacted in 2003 is supposed to give consumer-directed health a shot in the arm by creating Health Savings Accounts—tax-free accounts to be used for medical expenses. A patient must first have a high-deductible health plan to be eligible, which typically covers major medical expenses, including surgery costs and hospital stays, while leaving the individual responsible for at least the first $1,000 a year in ordinary expenses.

To what extent have employers and employees embraced consumer-directed health care, and what are its prospects for growth? Can consumers make better choices than employers? Who is enrolling in them — young, old, healthy or sick — and how will this affect the risk pool? To what extent can consumer-directed health care control costs, given that the vast majority of expenditures are incurred during the last days of life? What role are financial institutions playing in setting up HSAs?

To help examine these questions and others, the Alliance for Health Reform and The Robert Wood Johnson Foundation sponsored a July 9, 2004 briefing. Panelists were: Paul Ginsburg, who heads the Center for Studying Health System Change; Michael Parkinson, chief medical officer at Lumenos, a leading consumer-directed health firm; and Gary Claxton, vice president at the Kaiser Family Foundation. Linda Bilheimer, senior program officer at The Robert Wood Johnson Foundation, offered introductory remarks, outlining the major questions that need to be asked and answered about consumer-directed health plans. The Alliance’s Ed Howard moderated.