Posted on 12 April 2011
By Mark Miller
One of the central ideas in the Medicare revamp proposed by Rep. Paul Ryan (R-Wisconsin) is that consumers can do a better job managing health care than bureaucrats.
The House Budget Committee chairman hopes to replace fee-for-service Medicare with a voucher that seniors would use to buy private health insurance on a public insurance exchange. Another central — but unstated — idea is cost-shifting: projections show that seniors’ healthcare tabs would far exceed the voucher’s value, which means they’d have to cover the difference out of pocket.
Ryan’s plan faces an uncertain legislative fate. But we already have a large and growing consumer-driven health insurance experiment running in this country: consumer-directed health plans (CDHPs).
CDHPs are plans that exchange big breaks on insurance premiums for a very high deductible. While premiums can range 10 percent to 40 percent below traditional co-pay health plans, the consumer pays at least the first $1,200 in annual cost for individual coverage, or $2,400 for family coverage. That means a good deal of routine coverage is covered by the consumer out of savings on insurance premiums up to the deductible, with insurance covering 80 percent beyond that point up to an out-of-pocket limit.
CDHPs usually are coupled with Health Savings Accounts (HSAs), which were created during the Bush years. HSAs allow tax-free contributions and withdrawals so long as the funds are used to pay for healthcare. They also can provide a vehicle for long-term saving to offset health the rising cost of healthcare in retirement, since unused funds can be rolled over from year to year, and the accounts offer IRA-like portability. HSAs permit total contributions up to $3,050 (individual) or $6,150 (family); the numbers are $1,000 higher if you’re over age 55. And some employers make direct contributions to employee accounts.
Do CDHPs reduce health expenditures? For companies, yes. For consumers, the evidence is murkier.