Consumer Driven Health Plans [ CDHP ]

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Do you know that skyrocketing health care costs have been draining the federal government and employer's exchequers over the last couple of years? The health care costs account for 15.5 percent of U.S GDP and is the most expensive benefit paid by employers, seriously affecting their competitiveness in the global market. Health care spending is projected to top $1.9 trillion in 2005, about twice the amount being spent on education. According to the Employment Policy Foundation, employers have spent $331 billion last year for health insurance, a 50 percent increase since 1998. All of these never-improving alarming statistics did result in designing the Consumer Driven Health Plan (CDHP), making the insured person an active member in controlling the costs, rather than being passive and relying on the managed benefit program. The idea was pioneered by Definity Health in Minnesota in the year 2000 and has seen a rapid adoption by the employers/employees over the years due to its inherent cure-for-all strategy.

CDHP ( ) is all about transferring the reins of health-care costs to the participating individual, thereby making him an active and informed decision maker for his/her heath-care needs. Consumer-directed health plans (CDHPs) are typically a combination of a high-deductible medical insurance plan coupled with an employer sponsored reimbursement account (HRA) or a health care savings (HSA) plan that consumers access to pay for eligible medical care expenses. Unutilized funds may be carried over for health care expenses for future years, encouraging the participants to use the accumulated asset in a wise manner. The plans would also include coverage for any preventive care services such as annual health-checkups, immunizations and childcare. The money from the savings plan can also be used for tax-free reimbursement of post-retirement insurance premiums. In the HRA version of the plan, the employer sets aside a pre-defined set of dollars for usage by the employee. The HRA plan is not transferable between employers. When the amount is exhausted, there is some out-of-pocket expenditure incurred by the participant. Employers are now able to control the health-care costs, and the member is encouraged to wisely utilize the money using the annual rollover feature to save for possible major future expenses.

The HSA based plan, involves contribution to a savings account on a pre-tax basis, by the employer and/or employee and is portable as the participant changes employer / plan. The member also has the flexibility to select the investment options for the savings account. In either of the plans, the participant has to pay the pre-defined level of annual deductible and the remaining expenses are reimbursed by the plan on a co-payment basis, subject to a maximum level of out-of-pocket payment. The member's incentive of maintaining the assets in the account encourages proper scrutiny of health-care related bills, costs and/or evaluation of the necessity of visits to the doctor. Inherent to the design of the plan, the participant is rewarded through increased savings by judiciously controlling his/her medical expenses.

HSA is a comparatively newer development in the insurance industry, resulting in a usual time lag of adoption by the employers. As per a recent survey conducted by America's Health Insurance Plans, 79 percent of the HSA adoptions were by individuals. Even though the number of employers offering HRAs outnumber those that offer HSAs, but in the long-run it is estimated that the latter will take over due to its simplicity and popularity among the consumers as they have more control on the accumulated medical dollars.

Another recent survey of employers conducted by Mercer Human Resource Consulting, reveals a preference of HSAs being offered by as compared to the other plan by the year 2006. According to Charles Koser, Infinisource Vice President of Business Development, 40 percent of businesses with less than 10 employees do not offer health insurance based on a recent study done by the National Federation of Independent Businesses [ NFIB ]. He further states that, HSA is a very affordable option for these employers and probably proves the point when the study also reveals that 32 percent of HSA adopters were uninsured.

Proper Communication is probably the key factor in ensuring adoption of CDHPs in an organization. According to Sara Taylor, national leader for annual enrollment at Hewitt Associates "Employers aren't going to see much enrollment in consumer-driven health plans, if it's only one option out of 15 plans?.Having a choice between a consumer-driven plan and a traditional health plan is a better way to drive employee enrollment to HSAs and HRAs". Also, the initiatives must stress on building a healthier and health-care-cost-conscious workforce with cheaper access to preventive care with a CDHP. Over the next couple of years, we are probably going to see more adoptions of CDHPs by the major corporations, giving the employees direct control of the medical dollars and controlling the investment opportunities for the accumulated assets. A recent survey was conducted by Aon Consulting and International Society of Certified Employee Benefit Specialists (ISCEBS), in January and February of this year. The survey of 208 benefit managers revealed that 22 percent of the businesses offered a CDHP to their employees. To indicate that CDHP has gained significant popularity in recent years, the survey also mentions that 74 percent of the corporations offering a CDHP started doing so in 2004 and 2005, with over half that group having started in January this year.

As per a Forrester Research study, about $88 billion of insurance-premium dollars are estimated from adoption of CDHP model by 2007. With a gradual adoption of CDHP model among the employees - an organization of about 10,000 employees, incurring about $8,000 per employee annually ? can save up to $10 million over a period of four years.

At the same time, consumer needs to make sure they at least get a PPO ( ) style negotiated price through their health insurance carriers before they meet their deductibles ? otherwise savings of the affordable health insurance may go way. More and more doctors and hospitals are getting it in writing from the patients that they will be paying usual and customary charges instead of lower PPO negotiated prices. This trend itself can make Consumer Driven Health and Medical Insurance unattractive.

To sum it up, CDHP seems to be offering a reliable antidote for the raging health-care costs in corporate America and create a new pool of cost-conscious consumers.

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