This Week's Herman Trend Alert

Leadership in Normal 2.0

  The Herman Trend Alert

August 16, 2006

Consumer Driven Health Care---A Confusing Opportunity

The issue of rising healthcare costs is second only to employee retention in the list of challenges facing employers today. Thus it is no surprise that employers are looking for all kinds of ways to make employees responsible for a larger share of healthcare costs.

Enter: Consumer Driven Health Care. Theoretically, the greater the employee participation---through higher deductibles, etc.---the more carefully they will shop for quality and price. Objectives of this strategy are to…

  1. Get the consumer more directly involved in making healthcare decisions through larger personal financial risk/expenditure;

  2. Make health insurance more like other insurance by covering the more "catastrophic" expenses but not the routine ones (using deductibles in the $2,500-5,000+/year range); and

  3. Use tax-favored savings/investment plan options for the routine expenses, e.g., Medical Savings Accounts and Flexible Spending Accounts, etc.

For employers, this approach makes healthcare insurance more of a defined contribution rather than defined benefit, enabling them to control costs and budget more effectively. However, there are several problems.

The first problem is that people don't really understand healthcare costs. The descriptions of medical problems are complicated and bewildering. Once basic medical information is understood, employees must gather all the numbers and make decisions about where they or their beloved family member should be treated. Often workers are left to compare providers, both facilities and individual physicians, with inadequate information.

How many of us feel competent to make a decision between licensed physicians? Now, those people who were already confused have to decide about medical procedures, often when they are under stress, worrying about themselves or about loved ones.

Let's try a simple decision first. Given a choice, would you select a Flexible Spending Account, a Health Reimbursement Account, or a Health Savings Account? Do you even know the difference?

Consumer-driven healthcare is currently the fastest-growing benefits process in the country and will continue to be that way for the next several years. If we are unable to understand our healthcare coverage, we will soon rely on specialists who will be hired—-like accountants or attorneys—-to guide us through the maze.

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