NCPA - National Center for Policy Analysis

Renewed Interest in Consumer-Directed Health Plans

July 30, 2002

Faced with 15 percent annual increases in health care costs, the Washington Post reports that an increasing number of firms are looking to consumer-directed health care to motivate insured employees to search out the best prices commensurate with quality care.

  • The new plans revolve around health-spending accounts -- which, although the details vary, involve employers allocating an annual "allowance" to workers of, say, $2,500 per family annually for medical expenses.
  • Employees draw from this account to pay for necessary care and services -- but they can also use the money to buy services not covered under traditional managed-care plans, such as laser eye surgery.
  • Once employees spend the money in their accounts, they must dig into their own pockets until they meet an annual deductible -- ranging from a few hundred to a few thousand collars -- before a traditional plan kicks in.
  • Under a recent IRS ruling, any money left in the account at year's end can be rolled over to the next year -- allowing healthy workers to build a personal health-care bank account on which they can draw at will.

Employers hope the deductible will discourage employees from using up their allowance by rushing off to the emergency room for every sprained ankle.

Experts say it is still too early to determine if the changes will contain or reduce health-care costs.

The reason why is not mentioned in the Post article; but experts point out that these health reimbursement accounts are owned by employers and still have a use-it-or-lose-it feature: the money must be spent on health care (which may encourage unnecessary spending), and any balance remaining in the account if an employee leaves the firm reverts to the employer.

Source: Bill Brubaker, "Co-Pay, or You Pay?" Washington Post, July 28, 2002.


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