The Coming Revolution in Consumer Driven Care
From time to time I like to check in with Bill Boyles to find out what is happening in the market.
As you know, Bill is the publisher of the Consumer Driven Market Report (for subscription information, e-mail ipropubs@gmail.com.) He has been writing health care newsletters since dinosaurs walked the earth. He’s seen a lot of things come and go and has earned his skepticism the hard way. So when he identifies a revolution I take him seriously.
I called him this time because I was on my way to Pittsburgh to keynote the annual conference of the Pittsburgh Business Group on Health. I’ve had a pretty good idea of the direction the market is taking for quite a while, but Bill was able to provide some sharper focus. Here is what I took away from our discussion −
- Employees are extremely skeptical of and even hostile to the “legacy” players in health benefits including both government and insurers.
- Employers are flocking into defined contribution approaches to benefits, in which they make a fixed contribution and their employees decide how best to spend the resources.
- As part of that, employers are offering three different account options — Flexible Spending Accounts (FSAs), Health Reimbursement Accounts (HRAs), and Health Savings Accounts (HSAs).
- There is a new industry of “CDHC account administration firms” to manage these accounts and provide support services. [CDHC=Consumer Driven Health Care.] Bill recently completed a survey of these companies.
The survey was of the 10 largest CDHC administrators: WageWorks, HealthEquity, Evolution1, Alegeus Tech, SelectAccount, Aetna PayFlex, ConnectYourCare, United UMR, Bloom Health, and Acclaris. It found that these firms reported a total of 24 million CDHC accounts as of January 2013.
The largest firm had 9.1 million accounts, while the smallest had 330,000.
Bill says these CDHC firms are taking over private insurance. They added 4.9 million accounts in a 12-month period and grew from 11% to 15% market share in one year. The number of accounts increased by 25.7% from January 2012 to January 2013, and is projected to reach 42 million accounts by 2016.
All three types of accounts are growing fast. The number of HSAs grew 34.3% in one year, HRAs by 30%, and FSAs by 18.3%. FSA, remain the most common type of account at 42% of the total, but the others are rapidly catching up.
These firms offer integrated platforms for the three accounts and support consumers with website management, debit and credit cards, and increasing cost and quality information. The last is helped considerably by CMS’s decision to open up its data files to all users.
Notice several things here:
These approaches are protected under the Affordable Care Act. Provided the account is funded by the employer, it does not count against the out-of-pocket limits of the ACA.
Insurance companies are relatively minor players. The core benefits are the accounts, and the insurance may end up wrapping around the account, rather than having the account supplement the insurance.
This means vast amounts of money being controlled directly by the health care consumer. We can’t yet know what impacts this will have on health care delivery, but some of it is already obvious –
- Concierge medicine.
- Cash-only physicians.
- Medical tourism, domestic and foreign.
- Physician-owned specialty hospitals.
- Retail clinics.
- At-home and smart phone lab testing.
- Brokerage firms to match up patients and providers.
- Telemedicine.
- New responsibilities for service providers to manage debts and receivables.
- Chronic disease services that are more like social work than medicine.
Throw in a growing demand for published prices, and we are off to the races in the greatest transformation of the health care system we have ever seen.
I wish the concept of consumer driven health care had more fully developed prior to passage of the PPACA. Employers and individual policy holders are warming to the idea. But, bureaucrats and public health advocates have resisted the idea for many years.
It is too bad. Hopefully the increase in interest coupled with an ObamaCare failure will get us there.
Big changes are always dependent on the right things being done at the right time.
“These approaches are protected under the Affordable Care Act. Provided the account is funded by the employer, it does not count against the out-of-pocket limits of the ACA.”
This is very good news. If ObamaCare accidently pushes people into more CDHC, then we are fortunate.
True, although, I worry about other ramifications. For many people HSA’s, HRA’s and FSA’s are valuable, but we should be wary of over-incentivizing these to people who don’t belong here. We could end up with worse health outcomes and the blame falling on spending accounts.
Good point, there may also be negative political effects to ObamaCare getting all of the credit for the successes of spending accounts.
Doesn’t that seem to be how it always is? The free market gets the blame for government meddling and government gets the credit for free market solutions.
The list of free-market solutions is particularly interesting in this setting. Since health care is such an important field, there is a lot of incentive to come up with creative solutions to government perversions.
Hopefully we keep having options, but I don’t think that the left will stop until we remove all choice and all alternatives.
“Employees are extremely skeptical of and even hostile to the “legacy” players in health benefits including both government and insurers.”
This is an important development. Real change starts with the consumers, we need to be demanding real health care.
The more freedom the better.
HSAs FSAs and HRAs are all excellent vehicles.
In order to get to one’s destination faster, though, one needs a race car, not a Smart car.
Paid-up insurance benefits build much faster than cash, for we have the advantage of pooling insurance with the law of large numbers.
Working with Milliman, we have found that the employee pays 100% for paid-up benefits, but each dependent need only pay 20% of the employee’s contribution to build the same paid-up benefits.
In addition, paid-up benefits grow faster with our unique, patented “multiplier” than with the piddly interest rates.
Don Levit
CDHC and account based plans are growing and are terrific plan designs. We are approaching the 10th anniversary of HSA and should celebrate its success. I would only add that account based plans are a subset of the larger mega-trend towards what I call “Healthcare Consumerism.” That is, designs (regardless of whether or not an account based plan) that provide financial involvement and information for consumers of health and healthcare to make more informed choices and to be compliance with treatment plans. Fonancial involvement could be reduced premiums, lower cost-sharing, or other rewards. Tax advantaged accounts are terrific, but not the only way.
That’s right, Ron. They are not the only way. There are plenty of ways to finance health care services — installment plans, bank loans, credit cards, regular savings, etc. There is no particular advantage to “prepayment” over “post-payment.” The critical thing is to let consumers control the money and buy what they want.
Would love to see more about concierge care!
This is good news Greg. I have some misgivings about the following though:
“Insurance companies are relatively minor players. The core benefits are the accounts, and the insurance may end up wrapping around the account, rather than having the account supplement the insurance.”
As long as the ACA limits the deductibles under HSA to a couple of thousand dollars, the carriers will still be the 800 pound gorilla in the room. Am I wrong?