Consumer-Directed Health Plans

Although insurance carriers and employers offer several variants of  CDHPs in the private health insurance market, these plans generally  include three basic components—a health plan with a high deductible; an  associated tax-advantaged account to pay for medical expenses under the  deductible; and decision-support tools to help enrollees evaluate health  care treatment options, providers, and costs. Decision-support tools, including information on the price and quality of  health care services and providers, can help CDHP enrollees become more  actively involved in making health care purchasing decisions. Available Surveys Suggest That a Small but Growing Share of Privately Insured Enrollees and Dependents Were Covered by a CDHP

Although no national database of CDHP enrollment exists, we estimate  that the number of enrollees and dependents covered by these plans  increased from about 3 million in January 2005 to between about 5 and   6 million in January 2006, based on publicly available survey data. Small employers are more likely to purchase rather than self- fund their health insurance plans and are less likely to offer an HRA-based  than an HSA-eligible plan. Most Employers Contributed to Health Accounts, and the Share of Account Funds Spent by Enrollees Varied Widely

Most employers made a contribution to their employees’ health accounts,  and there was wide variation in the share of account funds spent by  enrollees. Early experience with HSAs suggests that some individuals are using  their account funds to pay for medical care, whereas others are choosing  to pay for care with other, out-of-pocket sources, rather than withdrawing  the funds from their HSAs. Based on HRA account data provided by three multistate insurance  carriers, the most common annual employer HRA contribution in 2004  ranged from about $500 to $750 for single coverage and from about $1,500  to $2,000 for family coverage. In 2004, most enrollees in HRA-based plans spent a portion of their  account funds. Not All HSA-Eligible Plan Enrollees Opened and Contributed to an Account

According to industry officials, not all HSA-eligible plan enrollees opened  and contributed to the associated HSA. CDHP experts and industry officials stated that some account holders are  primarily using HSAs as a tax-advantaged savings vehicle. Desire to Restrain Rising Cost of Health Care Coverage Is Primary Factor Driving Growth of CDHPs

The primary factor responsible for the growth of CDHPs is the rising cost  of health care coverage. CDHP experts also reported that  individuals were more likely to enroll in a CDHP offered by an employer  when the employer offered a generous contribution to the CDHP premium  and associated savings account, offered more comprehensive benefits, and  effectively educated its employees about the plans. In  addition, according to these officials, employers would be more likely to  offer a CDHP in the future if health care premiums continue rising  significantly or if CDHPs demonstrate the ability to reduce the rising cost  of health care coverage. Federal and State Requirements, Inadequate Consumer Tools, and Other Factors Could Limit the Appeal of CDHPs

Industry officials and CDHP experts we interviewed cited several factors  that could limit the appeal of CDHPs, including a lack of flexibility in the  federal statutory provisions and guidance establishing HSAs and HSA- eligible plans and insurance or income tax requirements in eight states  that do not reflect federal statutory provisions for HSAs. Officials of  provider associations and experts suggested additional factors, including  the inability of the patient or provider to know at the time service is  delivered the amount to be deducted from the patient’s CDHP account,  and the inadequacy of decision-support tools provided by insurance  carriers to help enrollees assess the cost and quality of providers and  treatment options. The  likelihood that employers will increasingly offer CDHPs may be influenced  by how, or if, the plans demonstrate cost savings. We received technical comments from IRS and AHIP, which we  incorporated as appropriate.
Why GAO Did This Study

Insurance carriers, employers, and individuals are showing increasing interest in consumer-directed health plans (CDHP). CDHPs typically combine a high-deductible health plan with a health reimbursement arrangement (HRA) or health savings account (HSA). HRAs and HSAs are tax-advantaged accounts used to pay enrollees' health care expenses, and unused balances may accrue for future use, potentially giving enrollees an incentive to purchase health care more prudently. The plans also provide decision-support tools to help enrollees become more actively involved in making health care purchasing decisions. Because CDHPs are relatively new, there is interest in the extent of enrollment and in other aspects of the plans. GAO was asked to review the prevalence of CDHPs, how the associated accounts are funded and used, and the factors that may contribute to the growth or limit the appeal of these plans. GAO examined survey data on CDHP enrollment and interviewed or obtained data from employers, insurance carriers, individuals, financial institutions, and other CDHP experts.

What GAO Found

Enrollment in CDHPs accounts for a small but growing share of the 177 million Americans with private health insurance coverage. From January 2005 to January 2006, the number of enrollees and dependents covered by a CDHP--either an HRA-based plan or an HSA-eligible plan--increased from about 3 million to between about 5 and 6 million. An increasing number of health insurance carriers and employers began offering CDHPs during 2005. Most employers made a contribution to their employees' health accounts, and the share of account funds spent by enrollees varied. Employers commonly contributed to their employees' HRAs from $500 to $750 for individual coverage and $1,500 to $2,000 for family coverage in 2004. Most HRA-based plan enrollees spent some or all of these HRA funds in that year. For HSAs, industry representatives noted that not all HSA-eligible plan enrollees opened and contributed to an HSA, and survey data indicate that two-thirds of employers offering these plans contributed to their employees' HSAs. Industry representatives indicated that while most HSA account holders withdrew a portion of their account funds in 2005, some account holders used other, out-of-pocket funds, rather than their HSAs, to pay for medical care. According to industry officials and experts, the primary factor responsible for the growth of CDHPs is the rising cost of health care coverage. Prompting the growth of enrollment among individuals is the desire to lower premiums and accumulate tax-advantaged savings, according to the officials. Experts noted that employers would be more likely to offer a CDHP if the plans demonstrate the ability to restrain rising costs, and employees would be more likely to enroll in a CDHP if employers offered more comprehensive CDHP benefits coupled with education about the plans. Experts and industry officials cited several factors that may limit the appeal of CDHPs. Certain federal requirements for HSAs and HSA-eligible plans may preclude changes desired by some, such as higher annual contribution limits for HSAs. Certain state insurance requirements or income tax laws in eight states do not reflect federal statutory provisions for HSAs and HSA-eligible plans. Insurers are generally unable to determine the amount to be deducted from the patient's CDHP account at the time of service or offer decision-support tools that provide enrollees with sufficiently detailed data on the cost and quality of health care. GAO received technical comments from organizations that provided data for this report, and incorporated the comments as appropriate.