Barriers to Enrollment In Consumer-Directed Plans Remain

The rising cost of health care coverage will likely fuel enrollment in consumer-directed health plans (CDHPs), but the appeal of these plans could be limited by state and federal regulatory hurdles, complex plan design, and the high costs associated with these plans for frequent users of medical services, a recent report by the U.S. Government Accountability Office (GAO) concluded.

Prepared for the House Budget Committee, the study looked at data on CDHPs from publicly available surveys and from employers, insurance companies, and financial institutions.

According to the report, the number of enrollees with CDHP coverage grew from around three million in January 2005 to between five and six million in January 2006. Total CDHP enrollment was found to be almost evenly split between health reimbursement arrangements (HRAs) and health savings accounts (HSAs) in January 2006, but researchers observed that enrollment numbers appear to be growing faster for HSA-based plans. In 2005, the report said, HSAs were available in the individual market in 40 states, in the small-group market in 44 states, and in the large group market in 46 states.

Brokers who sell CDHPs on behalf of insurance companies told GAO researchers the individuals who purchase HSA-eligible plans are mainly interested in lowering their premiums, accruing tax-free savings for health expenses and retirement, and gaining greater control over their health care decision making.

The percentage of employers offering CDHPs increased from about 1% in 2004 to 4% in 2005, the report said, but larger employers that self-fund their health coverage were found to be far more likely to offer a CDHP option than smaller employers that purchase their insurance. The study found that most employers offering a CDHP also provided employees with at least one other option and that most employees preferred to remain with traditional plans. The data further showed that, in 2005, around two-thirds of employers offering HSAs contributed to their employees’ accounts, making an average contribution of $553 for single and $1,185 for family coverage.

When asked to name their key reasons for offering a CDHP, employers interviewed by GAO researchers cited reducing company spending on health care coverage, promoting cost-consciousness among employees, lowering the cost of health insurance coverage to employees, and attracting and retaining employees.

The GAO study also concluded, however, that many enrollees in HSA-eligible plans are not using the plans as intended. According to the report, the share of all HSA-eligible plan enrollees who actually open and contribute to an HSA could be as low as 50% to 60%, which would force these participants to cover plan deductibles out of pocket. Moreover, researchers said, some highly compensated individuals who contribute to HSAs use their accounts primarily as a tax-advantaged savings vehicle, rather than to pay for medical expenses.

When asked what factors they believe could limit the appeal of CDHPs, industry officials and CDHP experts interviewed for the report cited a lack of flexibility in the federal statutory provisions and guidance establishing HSAs and HSA-eligible plans, insurance or income tax regulations in eight states that do not reflect federal statutory provisions for HSAs, the lack of transparency in the pricing of medical services, and the high prices of some high-deductible plans.

In addition, some industry experts told GAO researchers, certain segments of the population—especially those who are older, sick, or on lower incomes—may not be inclined to choose a CDHP because they are confused by the complexity of these plans, have little interest in managing their own care, or prefer plans with lower and more predictable out-of-pocket costs.

Executive Viewpoints, Vol. 49, No. 7 Copyright @ 2006 Liberty Publishing, Inc.