During the ‘90s, a new type of medical plan, called Consumer Directed Healthcare (CDH), was introduced to the market. CDH plans are based on the premise that through a high deductible coupled with a funded account, employees will be incented to become better consumers of healthcare.

To maximize the account dollars, employees access a transparency portal either through their carrier or a private vendor. The idea is that the transparency tools will help consumers make more informed healthcare decisions. The hypothesis is that physicians and hospitals will be motivated to win patient volume by competing on price and quality. The hope is that healthcare costs will finally be reduced via the consumerism movement.

Based on the “2015 Employer Health Benefits Survey” from the Kaiser Family Foundation, the cost for an employee enrolled in a high deductible plan with a funded account is 18% less than a PPO plan. The early adopters in the purchaser community benefitted from these savings and many employers touted that their employees became more aware that there are cost variations in the charges from network providers. Over the past 20 years, employers have slowly migrated their workers into consumer-directed plans and CDH enrollment is now at 24% (almost double the enrollment since 2010), while the PPO enrollment dipped to 52%.

Studies show that 4 out of 5 employees are enrolled in the wrong health plan—many are over-insured. Employers have struggled with how to get employees to analyze which medical plan is right for them, in part, because most employees just stay in the current option. The Exchanges are promoting the enrollment time as one of the advantages to their platform since individuals are doing the math to determine the plan and features that are most appropriate for their needs. So while employers can provide their employees choices with HMO, PPO, POS, and CDH plan options, it is a balancing act to avoid too much confusion with the healthcare basics of a plan selection.

It takes work to change medical plan offerings and to educate employees on their responsibility for healthcare decisions. For an 18% savings, can we really afford not to? A CEO from a mid-size employer made the decision to move all their employees into a consumer-directed plan rather than just add a CDH plan option alongside their PPO offering. The HR lead was very concerned with their employees being able to understand the nuances of a consumer-directed plan, and they hired temp resources in their call center to handle the spike in call volumes. After a couple of days with a handful of calls, the temp resources were dismissed as the employees were actually able to grasp the high deductible and account concept.


Has the consumerism hypothesis been proven?

So, has the consumerism hypothesis been proven? A recent article from Health Care Cost Institute (HCCI) reported that only 43% of healthcare expenses are for services that may have been shopped by a motivated employee.

For the 8% of the population consuming 80% of plan dollars, how motivated are they to shop for healthcare services if they are receiving 100% coverage once their deductible is satisfied? For the remaining 92% of the population accounting for 20% of the spend, how much savings can be attained for the 43% of their “shoppable” healthcare services? Let’s see…43% of 20% is 8.6% shoppable services. This percentage does not generate a significant savings opportunity. So should we be surprised that providers have not changed their billboards to tout their quality results and costs for common medical procedures, beyond the elective services (i.e., Lasik surgery)?

If the majority of a covered population accesses healthcare on an occasional basis, how are they supposed to remember which of the various portals and 800#s they should access to check the cost and quality of the recommended provider? How does infrequent healthcare use correlate to the effectiveness of the transparency portals?

One of the private transparency portals recently released their 4th 2015 quarter results. And for the quarter, they experienced a net decrease in user count (number of clients). Despite the vendor’s significant investment in marketing, employers are realizing that a portal solution may not be the holy grail. The terminology can cause significant anxiety in just trying to remember the right words being used by a physician. And the fact that specialists may perform certain tests and procedures at different locations based on the day of the week, each with different prices, adds another layer of confusion to the consumerism process. Employers have a greater appreciation that healthcare is complex, and the interaction with a healthcare supplier is not like booking a transaction on a travel website.


Challenges remain

A question for consideration. On average, is Consumer-Directed Healthcare generating the 18% savings from the cost shift of a higher deductible? If so, how do we solve the healthcare challenge since most individuals are not regular healthcare users?

Personally, it is a constant reminder for my family to pose the “how much” question to a provider, and we have been enrolled in a consumer-directed plan for over 10 years. Plan designs do impact the user’s decision process. We still laugh about having our children at Cedars Sinai for a $5 copay when the parking was $15. Fortunately, we are infrequent healthcare users, so peace is kept in the household. Like every other insurance coverage, we have to balance what an individual can afford versus accessing care in excess due to a low out of pocket cost.

So how do we address the 80% of the spend coming from the 8%? What role can a primary care physician play to educate the patient on the cost and quality of providers and to impact the “8%-ers”?

Similar to most other industries, the purchaser (the employer) has the opportunity to work more closely with the supplier (the providers) to drive the removal of the non-value added waste and the cost inefficiencies. The silver bullet to solving the healthcare challenges is the employers! There are employers taking this logical next step to address their challenges. Are you ready for meaningful solutions?

Tom Emerick and David Toomey
Thomas G. Emerick is the President of Emerick Consulting, LLC and Host of Cracking Health Costs. Tom has served on a variety of employer coalitions and associations, including being on the board of the influential National Business Group on Health, the U. S. Chamber of Commerce Benefit Committee, and many others. David Toomey is a senior healthcare executive with 30 years of extensive healthcare expertise in addressing the fragmentation within the healthcare system. He spent 25 years with two national insurance companies, before he spent close to 5 years in an early stage healthcare company. His experience includes revenue/P&L management and business development, with products ranging from transparency, wellness, performance networks, medical cost management, and clinical management programs.


  1. […] is a great signal – but there’s much more to consumerism. For one, transparency tools have their limits.  Secondly, not all Americans enjoy access to the tools yet – this was nicely highlighted in a […]


Please enter your comment!
Please enter your name here

This site uses Akismet to reduce spam. Learn how your comment data is processed.