CDHPs Affect on Health Care Spending


Ordinarily, I try to couple a picture with the content of my post, creating a theme of sorts.  This week, my selected picture IS the essence of the blog post.  The picture is a chart provided by the Centers for Medicare and Medicaid Services (CMS) showing the slowing of health care spending from 2002 to 2013, by nearly 90%.  A previous blog post addressed this topic (click –
One of the factors contributing to the slow down in health care spending cited in this post (titled appropriately – What’s Causing Health Care Spending to Slow?) is the growth in popularity and implementation of so called high deductible health plans with accompanying tax preferred spending accounts.  Better known as Consumer Driven Health Plans, or CDHPs, these plans affect both the demand and supply of health care, and as time, data, and logic has now proven, THESE PLANS REDUCE HEALTH CARE COSTS WITHOUT COMPROMISING CARE!

According to Kaiser Family Foundation ( data, nearly 30 million Americans are now covered by CDHPs, and more impressively, 1/5 of all workers are now enrolled in these plans.  And I remain convinced that if health insurers had been quicker to adopt CDH plans and make them part of their product offerings, and Agents/Brokers/Consultants were more willing and able to promote/sell/install them, these enrollment figures would be double or even triple.

Health Savings Accounts, or HSAs, are in my opinion the best of the IRS sanctioned, tax preferred spending arrangements (the others being Flexible Spending Accounts (FSAs) and Health Reimbursement Arrangements (HRAs)), that are usually coupled with higher deductible plans, creating a CDHP.  Such an arrangement has a number of attributes:

  1. generally lower premiums for the high deductible health plan, versus lower deductible, copay laden traditional plans;
  2. incentives for smarter, better, and more prudent health care consumption;
  3. built in rewards for insured members who make better decisions relative to diet, exercise, and lifestyle choices;
  4. the ability to use pre-tax (or tax deductible) dollars versus after tax dollars, for health care related purchases;
  5. an interest bearing account health care purchasers can use to negotiate cash discounts, arrange payment plans, and plan for the payment of future health care purchases.

Now that the majority of health insurance plans are required by federal law to cover preventive care in full (i.e., no deductible, copay, coinsurance, or spending account dollars), individuals can rely on their insurance coverage for preventive care, and large, unanticipated, catastrophic health care events; and use/have their spending accounts for the lower cost, predictable, non-catastrophic needs.  And, with proper planning, implementation and communication, an employer health plan can “stack” multiple tax preferred spending accounts on top of each other, providing more than one account from which to cover the lower cost, predictable expenses…with tax preferred dollars!

While many in the media (and in Washington, D.C.) attribute the slowing of health care spending on the Affordable Care Act (ACA), or Obamacare, this simply is NOT true.  Remember, the ACA wasn’t even passed until 2010.  Medical Savings Accounts, or MSAs, and accompanying high deductible health plans, were introduced in 1997, and were replaced by HSAs in 2004.  In 2008, 8% of workers were enrolled in CDHPs.  In just 5 short years, this figure has soared to 20%.  Not coincidentally, during this same time frame, health care spending slowed considerably.

At the risk of ending on a low note, I would be negligent if I didn’t include the following –
According to the Bureau of Economic Analysis, spending on health care grew an astounding 9.9% in their advance estimate of first quarter, 2014 GDP.  This increase marks the largest quarterly jump since the third quarter of 1980 when it jumped 10%.  The story told by the picture included at the beginning of this post is most certainly NOT attributable to the ACA.  However the 1st quarter, 2014 spike in health care spending is most definitely due to the ACA.  The question is, are more people accessing health care, at a lower cost, with better outcomes, than before the ACA?  Time will tell.  I only hope we can keep the momentum going on the implementation of CDHP’s, a PROVEN health care cost reducer, and a means by which health insurance can be offered at significantly lower costs.