HCS 490 Week 2 Consumer-Driven Market Example

Do Deductibles Make Patients Shop? What the Evidence on High-Deductible Plans Shows About the Consumer-Driven Health Care Market, and What an Employer Should Do With It

[Student Name]

University of Phoenix

HCS/490: Health Care Consumer - Trends and Marketing

Week 2 Assignment

[Instructor Name]

[Date]

The employer and its benefit decision are composites written for a model paper; research findings come from the sources listed.

A composite manufacturing company with 2,400 employees pays for its workers' health care directly as a self-insured employer. Costs have risen 9% a year, and a benefits consultant recommends replacing the company's low-deductible plan with a high-deductible health plan paired with a health savings account. The consultant says employees will become smarter consumers, comparing prices and avoiding waste. Before deciding, the human resources director wants to know whether that is what actually happens. This paper examines the consumer-driven health care market through the evidence on high-deductible plans.

How Consumer-Driven Plans Work

A high-deductible health plan requires members to pay the full negotiated price for most services until they reach a deductible, often several thousand dollars, after which insurance shares costs. Preventive care is usually covered from the first dollar. When the plan meets federal requirements, members can open a health savings account, contributing pretax dollars that grow tax-free and can be spent tax-free on qualified medical expenses; unused balances roll over and belong to the employee (Internal Revenue Service, 2024). Many employers contribute to the account to soften the deductible.

The Theory

The theory behind consumer-driven health care is that when people spend their own money, they will compare prices, choose lower-cost providers, question unnecessary services and push providers to compete on price and quality. The market as a whole would become more efficient. The theory assumes that consumers can find prices, judge quality and tell necessary from unnecessary care.

What the Evidence Shows

Brot-Goldberg et al. (2017) studied a natural experiment at a large self-insured firm that moved its whole workforce off a plan that charged nothing at the point of care and onto a high-deductible design. The switch reduced total spending by between 11.8% and 13.8%. The researchers then asked where the savings came from. They found that the reduction came entirely from people using less care, and they found no evidence that employees shopped for lower prices, even after two years in the new plan. Employees cut back across the board, including on services that are generally considered valuable, and the reductions were concentrated early in the year, when employees were far from meeting their deductibles, even among those who would eventually exceed them.

Why Consumers Did Not Shop

Several obstacles explain the finding. Prices were hard to find and harder to compare. Quality information was scarce. Much care is not shoppable: an emergency, a hospitalization or a referral from a trusted physician leaves little room for comparison. And people are often poor judges of which services are necessary. Faced with a large deductible and little information, many consumers did the simplest thing, which was to use less care.

Implications for Consumers

For healthy employees, a high-deductible plan with a generous health savings account contribution can work well. For employees with chronic conditions, such as diabetes or asthma, the deductible can mean paying hundreds of dollars early each year for medications and visits, and some will skip them. Kyle and Frakt (2021) found that administrative and financial barriers already lead many adults to delay care; a deductible adds to that pressure. Employees with lower incomes also gain less from the tax advantages of health savings accounts, because they pay less in taxes and have less money to contribute.

Implications for Providers and the Market

If consumers use less care rather than choosing cheaper providers, the market pressure the theory predicts does not appear. High-priced providers do not lose patients to low-priced ones; all providers see some reduction in visits. Providers also carry more bad debt, since patients with high deductibles owe larger balances that they may not be able to pay. Many hospitals now collect deductibles at the time of service or offer payment plans, shifting more of the collection work to the front desk.

Steering Instead of Shopping

Because consumers rarely shop on their own, many employers and insurers now try to steer them. Some pay members a cash reward for choosing a lower-cost imaging center or surgical site. Others set a reference price for shoppable services, such as knee arthroscopy or an MRI, and require members to pay the difference if they choose a more expensive provider. Narrow networks limit choice to providers that accept lower rates. These approaches work better than a deductible alone because the employer does the comparing and hands the consumer a simple choice with a clear reward. They also raise concerns: consumers may give up a trusted physician, and a low-price provider is not always a high-quality one, so steering programs need quality screens as well as price screens.

Recommendations for the Employer

The evidence does not mean the company should never offer a high-deductible plan, but it should design the plan carefully. First, apply value-based design by covering medications and visits for chronic conditions before the deductible, which federal guidance permits for certain preventive care for chronic conditions in health savings account plans. Second, make a meaningful employer contribution to each account early in the year, when employees are most likely to skip care. Third, offer a price and quality tool together with a nurse advice line, since information alone did not change behavior. Fourth, keep a lower-deductible option for employees who expect high costs, and monitor use of high-value services, such as diabetes medications and cancer screening, by plan type.

What to Measure After a Switch

Measurement should begin before the switch, so that the year after can be compared with a clear baseline.

If the company adopts the plan, it should track total spending, use of high-value and low-value services, emergency visits, employees' out-of-pocket costs by income band and complaints about affordability.

Conclusion

Consumer-driven plans lower spending, but the best evidence shows they do so mainly by reducing how much care people use, not by turning patients into price shoppers. For an employer, that means designing plans that protect high-value care and supporting consumers with information and money, rather than assuming a deductible will make the market work.

References

Brot-Goldberg, Z. C., Chandra, A., Handel, B. R., & Kolstad, J. T. (2017). What does a deductible do? The impact of cost-sharing on health care prices, quantities, and spending dynamics. The Quarterly Journal of Economics, 132(3), 1261-1318. https://doi.org/10.1093/qje/qjx013

Internal Revenue Service. (2024). Publication 969: Health savings accounts and other tax-favored health plans. https://www.irs.gov/publications/p969

Kyle, M. A., & Frakt, A. B. (2021). Patient administrative burden in the US health care system. Health Services Research, 56(5), 755-765. https://doi.org/10.1111/1475-6773.13861