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More choice, at a cost

Consumer-directed health plans give patients freedom to choose -- and a larger bill.

August 16, 2004|Shari Roan | Times Staff Writer

Expecting their first child last year, Danielle and Joe Padula got down to work, estimating how much money they could spend on obstetrician appointments, hospital and delivery fees and pediatrician visits.

Most insured couples wouldn't spend much time worrying about the costs involved, focusing first on nursery colors or strollers. But the Padulas' health plan is different from most. It requires them to manage the costs of their own care.

Instead of requiring the Padulas simply to meet a modest deductible before covering most of their costs, the couple's plan creates a large deductible -- which, in their case, is partially funded by the employer -- and provides incentives for them to spend their healthcare dollars wisely.

For example, the plan gives the Padulas $2,000 each year to spend on their choice of doctors and services. After that money is exhausted -- as it quickly was during Danielle's pregnancy -- the couple must pay the next $1,200 in expenses out of their own pocket. After that, insurance kicks in to cover any remaining expenses.

Of course, some plans already give consumers greater control over how their healthcare money is spent, offering more physician or drug choices in exchange for greater out-of-pocket expenses. However, the Padulas' plan, like a growing number of others, takes those choices a step further by doubling or tripling the deductible and providing incentives and support to help people manage their healthcare.

Such responsibility turned the couple into careful healthcare shoppers but gave them freedom as well, says Danielle, who gave birth earlier this year to son Jake.

For example, she opted to have ultrasound pictures taken during her pregnancy, although the pictures weren't a medical necessity. "That is something I didn't need but I wanted," she says. "A lot of people don't get that choice under their health plans."

Learning what a treatment or procedure costs -- then deciding whether to pay for it -- is a new step for most Americans with health insurance. Even traditional fee-for-service plans, in which consumers pay 20% of a bill, don't prompt most people to analyze a procedure's cost or their actual need for it, experts say. But when consumers are held solely responsible for a medical bill, they tend to think twice.

Having patients assume responsibility for such costs is the centerpiece of this increasingly popular type of insurance, called consumer-directed healthcare. Now a small part of the insurance market, about 2%, consumer-directed plans are expected to become much more common in the next few years as a way to potentially curb employers' rising healthcare costs. The plans could account for 7% of health insurance by 2007 and one-quarter in about five years, according to Forrester Research, an independent technology research company.

Eventually, about 40% of consumers who now use preferred provider organizations or point-of-service plans will likely opt for consumer-directed plans, predicts Brad Holmes, vice president and research director of Forrester, who has studied the trend.

The strategy, which takes some of the control over spending away from employers and insurers, typically allows people to select their own physicians and hospitals, avoiding "gatekeepers" who might limit their care.

In turn, consumers pay more up front -- such as the first $1,000 to $2,500 per year spent on healthcare -- and bear the responsibility to spend those funds wisely. Consumers can then find themselves considering whether to have that ingrown toenail treated or whether to choose a generic heart medication over a more expensive brand-name product.

"I think there is hardly an employer in the country who isn't considering some version of this approach," says Greg Scandlen, director of the Center for Consumer Driven Healthcare at the Galen Institute, a nonprofit health policy research organization in Alexandria, Va. "The notion that consumers can take charge of their own healthcare is what puts the sizzle behind this."


Financial incentives

The trend has both proponents and critics. Proponents say people will be more careful and cost-conscious if they have a stake in how far their money goes. Critics say such health plans simply foist a larger share of costs on consumers.

"Financial incentives are the key to these plans, whether they are spending accounts, tiered plans or plans with co-insurance," says Peter Lee, president and chief executive officer of the Pacific Business Group on Health, a healthcare purchasing coalition based in San Francisco. "Every one of those is a financial vehicle to help consumers understand that health care dollars are their dollars."

Interest in such plans got a jump-start last year with the creation of health savings accounts.

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