What 401(k)'s Can Teach Us About Consumer-Driven Health Plans

Shifting financial responsibility to individuals has been an uphill climb.

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I've written in the past about how consumer-driven health plans haven't exactly caught fire with consumers. Turns out the high-deductible health plans often end up costing consumers more out-of-pocket than they can afford, especially if they actually, you know, get sick and need to use them. Plus, the plans are complicated: You've got your high-deductible plan, with its myriad coverage rules and limitations, and then you've got the tax-advantaged health savings account that goes along with it, which has its own raft of rules.

No wonder consumers to date haven't embraced these plans, no matter how much employers try to encourage their use. What we're experiencing with consumer-driven healthcare, benefits consultants say, is very similar to what happened 30-odd years ago when employers began to shift away from regular company pension plans and into 401(k) plans. Remember those days, when you not only had to start funding your own retirement but also learn the intricacies of asset allocation and rebalancing your portfolio? A similar shift is happening today with consumers and healthcare, these experts say.

Expanding on that idea, now the Employee Benefit Research Institute and Behavioral Research Associates have released a paper that examines the healthcare lessons that can be learned from the transition to 401(k)'s. It finds that it may be harder than many expect to make the shift to a healthcare system that requires you, the consumer, to play a starring role in directing and paying for your own care. Here are some of the lessons from 401(k)'s that these researchers report may be problematic in the transition to consumer-driven healthcare. Sound familiar? Chances are, even if your employer's plan isn't strictly consumer-driven, you may already be grappling with some of these issues:

  • More choice is not always better. In one study, for every 10 funds added to a retirement plan, the likelihood that someone would participate in the plan dropped by 2 percent. Similarly, if people are trying to choose among different health plan deductible and copayment options, and then among providers and treatment options, "It could get really difficult to navigate," says Paul Fronstin, director of EBRI's health research and education program and coauthor of the study. "They're just going to shut down."
    • When a complex decision needs to be made, people oversimplify it by reducing it to one key factor that they can get their heads around. In healthcare, that's often the monthly premium. But opting for a low monthly premium could mean that you pay much more out-of-pocket in the long run.
      • Education doesn't necessarily lead to action. You may know what you should do, but that doesn't mean you'll do it. There's a lot of talk about the lack of informational tools to help people in consumer-driven health plans make smart choices based on quality or cost-effectiveness. But according to this paper, when workers at one company were given comprehensive educational tools explaining their retirement plan and how to invest, only a tiny fraction actually followed through on their intentions to enroll in the 401(k) or change the funds they invested in, among other things.
        • Financial incentives like tax breaks don't necessarily motivate people to act in their best interests, either. We see this already with consumer-driven plans: Even though contributions to a health savings account are tax free, 42 percent of people who are covered by a health plan that qualifies them to open an HSA don't do so.
        • It's too soon to know whether consumerism, as it's called, will reshape the healthcare landscape. If it doesn't lead to lower healthcare spending, it may join tightly managed care on the scrapheap of ideas that didn't pan out as employers and others hoped, at least partly because they proved to be unpalatable to the consumers who were supposed to embrace them. What do you think? What would make a consumer-driven plan work for you?