NCPA - National Center for Policy Analysis

"Consumer-Directed" Options for Employee Health Insurance

October 17, 2001

The current health care system has particularly disenfranchised two groups, the uninsured and retirees -- especially with escalating medical costs, changing consumer expectations, the backlash against managed care, the increasing burden of health care benefits administration and threat of liability on employers.

A new publication, "Employer's Guide to Consumer-Directed Healthcare Approaches," identifies a range of options to improve conditions by using defined contributions, in which an employer makes a core contribution to a plan (health insurance plan, HMO, etc.) or an account (e.g. a personal health account), then gives the employee choices about how the money is spent.

These so-called "consumer-directed healthcare benefits" offer several key features:

  • Employer-only dollars set aside for medical expenses can be accumulated from year to year, and don't have a "use it or lose it" requirement.
  • The accounts can be used to purchase health insurance and, at the employer's discretion, can be portable after employment ends.
  • Use of web-enabled decision support tools makes it easier for employees to make informed decisions about coverage more independently, possibly reducing employers' administrative burden.

CDHBs options range from least to most consumer-directed:

  • Multi-Plan Option, in which the employee chooses from among health plans selected by the employer and pays any difference in cost.
  • Multi-Plan Option "Supermarket" plus Personal Health Account (PHA) and/or Flexible Spending Account (FSA), with a more comprehensive menu of choices and direct consumer participation in making cost/benefit choices.
  • High Deductible Plan plus Health Account (PHA or FSA), which is similar to the Medical Savings Account in use today.
  • PHA plus FSA, the most consumer-directed plan, which removes the requirement that an employee purchase insurance with the employer's core contribution, although the employee can choose to do so.

Source: Wye River Group on Healthcare, "An Employer's Guide to Consumer-Directed Healthcare Approaches," October 2001.


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