Why haven't consumer-directed health plans taken off?

A recent study conducted by The Commonwealth Fund and the Employee Benefit Research Institute reveals that enrollment in high-deductible health plans (HDHPs) and consumer-directed health plans (CDHPs) is up this year by a meager 1%.  (Be sure to read the summary on the first page of the study report.)  One would think that the tax benefits and low premiums would sway consumers, but this has not happened in significant numbers.  This fact is bemoaned by the analysts (e.g., HFMA) and the advocates (e.g., Health Care For All).  President Bush has been pushing CDHPs as part of his program of personal responsibility (heralded at various times, including the signing of the HIT/EHR executive order back in August, as noted here), but the public isn’t buying it.

Why is this so?  There are a couple of possible explanations.  Depending on which one you believe, there may be more movement over the next year.

One possible explanation is that fuller engagement with the whole idea is possible only now that the IRS has provided clarity regarding tax treatment of health savings account (HSA) contributions, and the real effects of this policy clarification will not be seen until the next plan year.  This is because most groups had already made health insurance commitments for 2007 before the IRS acted.

A related possible explanation is that the tax benefits for HSA contributions were not generous enough, and now that the lame duck Congress enacted a $1 billion giveaway in its final hours (as elucidated below), more folks will contribute to HSAs.

The boondoggle du jour is explained in today’s Washington Post as follows:

Under current law, annual contributions to the accounts are limited to the amount of a person’s annual insurance deductible and cannot exceed $2,700 for an individual or $5,450 for a family.

Under the new law, if it is signed by President Bush as expected, any health savings account holder could choose to shelter the maximum amount, which is scheduled to increase next year to $2,850 for individuals and $5,650 for families.

Some say that HSAs and HDHPs are working for some people, though some would say they’re working best for the people who need them least (see my earlier post here, including a link to the RAND report on the subject).

Now that the IRS issues are out of the way, and Congress has made HSAs even more attractive, the financial services industry is likely to fill the void and market HSAs more aggressively.  (See Health Affairs Blog post on the subject.)  As a result, many small employers and individuals who have not been interested in HSAs to date are likely to get into the game.  Matthew Holt, who puts out The Health Care Blog, commented on that Health Affairs Blog post and seems unwilling to trust the health care – financial services cabal to do the right thing.  I share the concerns of the commenter on the post linked to above on Health Care For All’s A Healthy Blog who observed that getting data on health plans and providers isn’t like asking the greengrocer for information about today’s produce selections.  It’s not a face-to-face interaction, and the average consumer may not be able to make informed choices about health care options.  In fact, uninformed choices may have lifelong negative ramifications.

All of this leads me to the final possible answer to the question of why more people don’t enroll in HDHPs and CDHPs:  Maybe they’re just not a good idea.  The HSA-HDHP concept has been advanced as a political response to an economic issue.  While there is a long history in this country of dealing with health care in this fashion, perhaps this is one circumstance where we can "just say no."  Now that the lame duck Congress added a few last curveballs to the mix, it will be interesting to see whether the new Congress will be able to make sense of this morass.

— David Harlow