In about a month my eldest will be setting up a new home in a different state. It won’t be her first time living in another state, and it won’t be her first apartment. It will, however, be her first apartment as an entrant into the full-time career workforce, and so the criteria — and budget — are quite different than our past experiences. And while she’s done a great job of constructing a budget (including savings), I can’t help but notice that she also spends “her” money a little differently than when Dad was footing the bill.
My daughter’s spending inclinations aren’t unusual, of course. As parents we tried to give our kids a sense of the cost of things, certainly as they grew older. There were, however, plenty of times over the years we didn’t share that information, either because it wasn’t important or, in some cases, because we didn’t want them to make a decision based solely on price.
“Consumerism” is sometimes touted as a rationale behind the new wave of retirement plan fee disclosures — the presumption being that, if individuals (and plan sponsors) knew, and better understood, what they were paying, they might make different, “better” decisions. There’s a similar logic afoot with consumer-driven health plans (CDHPs). Advocates of these programs[1. A recent EBRI report notes that employers have now been using CDHPs for over a decade. In 2012, 22% of smaller employers, 36% of larger employers and 59% of jumbo employers offered some form of a CDHP, and nearly one in five workers were enrolled in one.] contend that providing participants with an account and subjecting their health insurance claims to high deductibles will induce enrollees who would likely be spending more of their own money (than might be the case with traditional health coverage) to make more cost- and quality-conscious health care decisions. On the other hand, CDHP skeptics caution that these individuals lack the kind of information they need to make good decisions — and, worse, might make cost-centric choices that aren’t the best health care choice, and might even prove to be less cost-efficient over the longer term.
In one of the first studies of its kind, EBRI analyzed detailed claims data over a five-year period from a large midwestern employer that adopted a high-deductible health plan with a health savings account (HSA) for all employees in place of its traditional health care offering. The research, published in EBRI’s July Issue Brief,[2. “Health Care Spending after Adopting a Full-Replacement, High-Deductible Health Plan With a Health Savings Account: A Five-Year Study” is available online here.] found that in this case, where the HSA plan was the only type of health plan the employer offered, it reduced the plan’s total health care spending by 25% in the first year ($527 per person in the aggregate). Moreover, the cost savings continued over the succeeding three years — albeit at a slower pace.
The study also found that each category of health spending experienced statistically significant reductions in the first year of the HSA plan, with the exception of spending on inpatient hospital stays. Spending on laboratory services and prescription drugs had the largest statistically significant declines (36% and 32%, respectively). Indeed, reductions in pharmacy spending were large and mostly sustained over the four years after the HSA was adopted. In the first year of the HSA, pharmacy-spending reductions were 40%-47% for individuals in all but the highest quintile of spending.
There are some limitations to what can be inferred from this particular study, which focused on the experience of a single large employer, and participants with continuous coverage throughout the study period, among other things. While it did not allow for distinguishing utilization of discretionary from necessary services, the data suggest that the highest users were least affected and that moderate users were most vulnerable. If the cost savings trends don’t necessarily speak to the quality of those health care decisions, the report clearly adds to the CDHP literature, and our understanding of how these programs can influence cost and utilization — information that’s essential to our understanding of the value of account-based, high-deductible plans.
After all, when you don’t know the cost of something, it’s hard to appreciate the value.
Footnotes
