Consumer-Driven Health Care Plans Hit Obstacles
A small company in New Hampshire provided "consumer-driven health plans" to about 7,000 people, before it had to be assumed by a larger insurer. Those plans typically have high deductibles and some form of tax-advantaged health savings account.
The company's owner, Nick Vailas, says widespread adoption of the plans will drive health care costs down, because people will have to pay more out-of-pocket and will shop for the best prices. But he laments the obstacles that he feels are holding back development of the consumer-driven market.
One of his customers — the owner of a small diner — talks about why she chose her plan and how it has worked out, and a Harvard economist talks about the market from a wider angle.
Dianne Finch reports from New Hampshire Public Radio.
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Many of the largest U.S. companies offer what's known as consumer-driven health insurance. Consumers benefit by having lower monthly payments, but in return, they have higher deductibles. In New Hampshire, the former state health commissioner founded a company that offered such plans, but as New Hampshire Public Radio's Dianne Finch reports, he ran into some big obstacles.
DIANNE FINCH: At the Red Arrow Diner in downtown Manchester, New Hampshire, you can get any comfort food imaginable from banana pancakes to homemade Twinkies. Owner Carol Sheehan watches waitresses hustle to keep up with the crowds. But despite the steady flow of revenue, she says skyrocketing health care cost forced her to think about dropping the employee plan, but she was torn.
Ms. CAROL SHEEHAN (Owner, Red Arrow Diner): My employees are my biggest assets. I felt and still feel that it is important to, you know, be able to give them, you know, certain benefits.
FINCH: So Sheehan's broker suggested that she try a consumer-driven plan to save money.
Ms. SHEEHAN: You know, she says, oh, my gosh, there's this new insurance plan coming out called Patriot Healthcare. It was different because it, you know, it was a high deductible and then the health savings accounts to go with it. And if you just, you know, put money into that, your deductible will be right there if you need to use it, and you know, so on and so forth.
FINCH: Sheehan even put up some of the money to meet the deductible but not all employees like the plan. The manager says he spends 3,000 a year on medications, and he and his wife still have to spend another 2,000 to meet their deductible. Most of the other employees like the plan, and Sheehan's reduced her health care cost, but trouble was brewing elsewhere.
Patriot Healthcare, the insurer, was running in the red. Last year, the firm's cash reserves fell below legal limits, so the insurance commission assumed control and asked a larger insurer to take on Patriot's 7,000 customers including the diner.
Patriot's owner, Nick Vailas, said there were many reasons behind his company's failure. First and foremost, he says that he should have raised more capital.
Mr. NICHOLAS VAILAS (CEO, Patriot Healthcare): But at the same time, I'm not sure I could have raised the money given the rate of medical loss that was occurring at the time, so it was in a tough situation even though it was growing. And we had a plan to be profitable in a short period of time.
FINCH: And Vailas isn't alone. Melinda Beeuwkes Buntin, who co-directs RAND Corporation's Bing Center for Health Economics, says that many insurers offering consumer-driven plans have underestimated medical cost.
Ms. MELINDA BEEUWKES BUNTIN (Co-Director, Bing Center for Health Economics): Some people getting into this area felt that these types of plans would be mostly attractive to healthier and younger people. There's some evidence that that's the case. It's not overwhelmingly so. And so their cost might have been higher than they expected.
FINCH: Vailas was surprised by how many clients turned in claims for cancer treatments and other serious illnesses, and he says there are other problems. For one, he says that consumer plans rely on a free market where prices presumably drop when competition heats up. But for that to work, he says the consumers need access to price and quality information just like they do when they buy cars or airline tickets.
Mr. VAILAS: Can you imagine of all the sudden that there was an incentive in the health care system to be a lower cost provider? And there was greater transparency, not only on the cost but also on quality, like if you knew that the institution that you chose to have your care had a great track record in regards to managing its infractions. These are things that need to be disclosed to people.
FINCH: And a RAND study showed that large employers complained that their employees can't find prices and other information they need to make wise choices. Given that, it's not surprising that so far, only 5 percent of employees nationwide choose these plans when they have other options.
For NPR News, I'm Dianne Finch in Concord, New Hampshire. Transcript provided by NPR, Copyright National Public Radio.
