Let’s Jettison The Consumer Directed Health Plan (CDHP) Foolishness And Split Savings With Patients

By the early 2000s, both employers and health plans were beginning to realize that the managed-care jig was up. Managed-care organizations had seemingly wrung much of the obvious waste out of the healthcare delivery system, and measures designed to further tighten the noose — such as requiring that patients pass all care requests through gatekeepers — were proving to be very unpopular with consumers. As a result, prices were spiraling upward.

It was then that Regina Herzlinger, a Harvard Business School faculty member, published a paper that would serve as one of the touchstones for the next generation of health plan benefit design. In her July 2002 paper appearing in the Harvard Business Review, Herzlinger argued that it was time to “put consumers in charge of health care.”

Citing no direct evidence, the paper contended that employers could control healthcare costs in some important new ways, including:

*Giving employees the right to make more health coverage decisions, including their choice of health plan benefits, out-of-pocket maximums and provider organizations

* Charging employees actual premium prices rather than subsidizing those premiums

* Allowing providers to set their own prices for both integrated care bundles and individual episodes

* Providing employees with quality and price-efficiency ratings on specific doctors and hospitals

Since its publication, Herzlinger’s paper has been cited hundreds of times and has clearly had a major impact. However, health benefit planners, employers and even the architects of the Affordable Care Act seem to have lost the plan along the way.

Since then, most health plans have plucked a few premises out of this research and acted as though that would somehow magically be enough. Though there’s little or no transparent healthcare pricing available to most consumers, competition between insurance companies has fallen due to mergers and provider choices are more limited than ever, fans of this model still feverishly insist that consumers will somehow shift the entire healthcare cost curve by purchasing care differently.

Instead, the truth is that if anything, consumers are even less in charge of their health care spending than they were two decades ago. Despite decades of pro-CDHP/HDHP propaganda, nobody has convinced me that when you assault some average middle-class family a with $15,000 deductible, they’ll somehow become healthcare purchasing geniuses.

In fact, though I don’t have space or time here to cite research chapter and verse, the gist of what I’ve seen suggests that high-deductible health plans have exactly the effect you might imagine. Funny thing: It appears that if you make something super-expensive, people won’t buy it unless they are facing an emergency. And when grandma’s dying, they’re not going to spend time shopping around for a hospital or heart surgeon offering a discount.  (Oh, and by the way, isn’t it obvious that poor people don’t have enough money to pay the deductible in the first place?)

Because I loathe CDHPs/HDHPs and the fractured reasoning that went into adopting them, I could go on all day here. But instead, I’ll offer you an alternate model that just might work.

What if we gave consumers a share of the profits when they use care efficiently?  In other words, why not align their health purchasing incentives with employers and health plans?  Doesn’t that make a lot more sense?

Admittedly, this scheme only works if you give up on the insane idea of expecting consumers to pay first dollar healthcare costs for most of their healthcare expenses. Instead, it makes a sensible assumption, which is that health insurance companies should make money by keeping and getting people better.

Imagine we reset the health plan business back to where it was 20 years ago or so. While many plans still include features (such as lifetime caps on payouts) that can harm some consumers, out-of-pocket expenditures are relatively low.  And we resume treating health insurance as a place you turn to stay healthy, a model which the industry has sworn by since the 1970s or so.

Because we know by this point that fee-for-service reimbursement models are failing, we mix things up and give consumers a smart incentive to help plans control costs. How do we do that? One way to start is to give consumers a few choices of providers for given high-ticket services, then if they choose the less-expensive provider, they get to split part of the money saved.

Hey, employers have seen some success already by rewarding employees for having services and procedures performed by qualified overseas providers (e.g. smart medical tourism). Why can’t this work at home?

Yes, this approach doesn’t ask consumers to avoid needless expenses, but let’s be honest, how the heck were they ever going to be able to sort the needful from the necessary anyway? I’ve managed care for myself, my husband, my kids and adult parents, along with writing for health industry publication for 30 years, and I wouldn’t know where to begin evaluating price and quality trade-offs.

The truth is, most of the conditions necessary to make consumer control of healthcare prices possible aren’t in place – and many may never exist. But if we simply assume that health insurers should pay for necessary care and that managing care is between plans and doctors, we can turn this last bit of provider strategizing over to consumers.

About the author

Anne Zieger

Anne Zieger

Anne Zieger is a healthcare journalist who has written about the industry for 30 years. Her work has appeared in all of the leading healthcare industry publications, and she's served as editor in chief of several healthcare B2B sites.


  • Hi anne: Medicare has HSAs which allow patients to put aside some dollars for excessive expenses— if these are utilized with Medicare’s Perfectly Preventative Protocols Promoting Perpetual Panaceas (PPPPPPs) tied to blockchain tech will rapidly create ever-increasing health levels/outcomes AND ever-decreasing costs! Furthermore, there are DIY activities that can safely augment the above now which will dramatically reduce hospital admissions AND will reduce ALOS! OUR JOB–> daring, caring and sharing! #LetsMakeItHappenNow #ThisNegatesManagedCareAltogether walletswellness.com MediCARE FOR ALL

  • Anne there are ways to get patients involved and reward them just as you describe, look at VitalsSmartShopper.com, when the patient needs a procedure (such as day surgery which I just had) they can call and get options for where they can get the procedure done. Typically there are a mix of high cost (hospitals) and lower cost (ASC – Ambulatory Surgerical Centers) to choose from, if the patient selects a lower cost facility they get a check after the procedure has been done. In my case I got a check for $150 for using an ASC that was as good if not better than the hospital, closer to me and used many of the same doctors. It didn’t take me hours of comparing and reviewing facilities and I got great care! I’m sure it saved my insurance company $$ while giving the patient more control over their care.

  • Hi Anne – I am always happy to have someone else pushing back against the failures of FFS medicine. You are right that HDHPs in particular only demonstrate lower utilization across the board rather than lower utilization of unnecessary services. This is not in patients’ best interest. Conversely, Reference Pricing is a version of the plan you described in that patients are fully covered for specific services if they cost below a certain threshold and then responsible for all costs after that.
    I am also a huge fan of rewarding patients financially for making good decisions. However, think the devil is really in the details here. How do we ensure that patients don’t avoid necessary services or delay treatment for the financial benefit? Do people who have chronic disease get compensated more because they are sicker than healthy people? Additionally, will healthy people opt out of these plans because there is no increased benefit for them leading to higher premiums for the sick folks they attract?
    Ultimately, I am not sure putting these decisions in the hands of consumers is really the right path forward given the growing knowledge gap between clinical delivery and patient understanding. Patients certainly should have a choice, but informed choice is difficult without the right tools or information. Instead, I would like to see us do a couple of things in the managed care space:
    (1) Decouple insurance from employment completely. This will increase competition in the marketplace as people will have more to choose from. Group plans will still exist, they will just be wrapped around groups from communities or counties instead. This also reduces incentives for employers to shrink salary growth rates.
    (2) Improve Navigators / Care Management: Patients need help finding the best place to go for the right service at the right price and quality. I do not believe they can do this on their own. We need navigators that can help them determine the proper venue and we need care managers to ensure they stick to their care plans.
    (3) Ultimately, when you look at companies like Oak Street Health, you can see this already starting to happen. Patients are buying in to the “Gatekeeper” model where Providers, instead of payers, are the gatekeepers. This increases trust with consumers while also enabling Providers to make the best decisions possible that both increase health and increase profits (through cost reduction).

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