Activating Consumers with Financial Control: Lessons from Health Savings Accounts

Wendy Lynch

Posted 3/6/12 on the Altarum Institute Health Policy Forum

Health Savings Accounts are growing up. No longer an oddity, millions of families have accounts funded by tens of thousands of employers (1). After almost a decade, the cumulative evidence about consumer-directed health plans is quite compelling. For those waiting and wondering if CDHPs “work,” three recent reports provide a convincing answer.

The Chief Medical Officer for Cigna health plans said this about one study: “Each year the evidence increasingly shows that properly designed consumer-driven health plans can lower health risks, reduce medical costs and drive engagement. The data once again shows that the combination of incentives, easy-to-engage health programs and consumer decision support tools can improve health while reducing costs.” (2)

Specifically, these reports from the Employee Benefit Research Institute, Cigna, and Aetna examined long-term trends and behaviors of people with health accounts (1, 2, 3). Consistently, these reports indicate that compared to similar consumers in PPO plans, those in CDHP plans:

  • Are more likely to get recommended preventive services
  • Are more likely to get evidence-based medical care,
  • Spend less money overall on medical care,
  • Use wellness programs more frequently,
  • Use decisionmaking tools (for price and quality) more frequently, and
  • Choose generic medications instead of equivalent brand-name medications more often.

Early after HSAs were approved in 2003, there were concerns about the potential for unintended consequences: What if someone facing a life-threatening illness can’t afford care? What if people don’t spend their money wisely, cash in the account and skip necessary care? What if having accounts reduces preventive care? These concerns discouraged many from considering CDHPs.

What is surprising is that, despite significant evidence to the contrary, many of the same suspicions and objections linger. Given strong indications that CDHPs encourage healthy behaviors and provide potential retirement funds while reducing spending, why the continued resistance?

Let’s examine some of the reasons often expressed when discussing CDHP with employers, labor organizations and policymakers:

1) The goal of these plans is simply to save money by shifting more cost to the individual. This perception evolved from the inaccurate classification of high-deductible plans, with no savings account, as a CDHP. They are not the same thing. A high-deductible plan is an option for those who want to have catastrophic coverage and a lower premium. This does not make HDHPs bad or good, but it does potentially discourage utilization of some medical services, especially those who have less discretionary income.

A well-designed consumer-directed plan includes an employer-funded health account (HSA or HRA) that covers a significant portion of the deductible. This provides funds that grow annually for most account holders, which the individual can choose to spend or not. Thus, the goal is not to shift cost to the individual, it is to shift control of spending to the individual.

2) CDHPs only benefit the young and healthy. Worries that account holders with chronic illnesses would skimp on necessary tests and treatments have not come true. Diabetic account holders in the Aetna study were more consistent with glucose monitoring and as compliant with their treatments as those with traditional insurance (3). There was no indication that those in the CDHP group avoided care.

While it is true that those with fewer health conditions (younger and healthier) will accumulate more funds over time, this simply means that dollars that once were spent on premiums held by the insurance company are now held in the HSAs of employees and serve as an incentive to stay healthy..

3) The majority of spending occurs at the high end of the cost spectrum, which won’t be affected by health accounts. This argument has merit, because 50 percent of medical dollars are spent by five percent of people. Annual costs for the most expensive cases far exceed most deductibles. Despite this, there are consistent indications in these recent studies that CDHPs result in lower average costs.

4) When patients are uncertain, spending their own money might make them avoid care they need. Frequently, people will invoke the RAND health insurance experiment as justification that individuals cannot be trusted with health decisions. The finding to which they are referring is that those who were required to pay for services (95 percent of the cost) sought fewer (both unnecessary and necessary) services than those who received care for free. True, the patients who paid full price did not seek as many services that were classified as necessary as those who got free care, and the differences were greatest for the poorest patients.

However, by focusing only on that one finding, we ignore the main implication of the RAND study: people who received free care consumed 40 percent more services (necessary and unnecessary) with almost no significant benefit to their health. Forty percent more, for little to no real return! CDHPs do not operate in the same way as the 95 percent-cost group in RAND. CDHPs cover all necessary prevention at no cost to the patient, and provide a health account to cover services the patient deems important. It is not the same situation. The lesson from RAND was not “we can’t trust patients to make any good decisions.” It was “without any cost consideration, people will over-consume by 40 percent. We need to find a way to make cost a consideration in care decisions, while encouraging the necessities.” This is what CDHPs accomplish.

5) These plans are disruptive and require time and effort to educate people. This may be the most common reason, and what underlies many of the other concerns. CDHPs require a change in mindset and, for those who dislike change, a disruption to the status quo. In fact, a report from the Society for Human Resources Management last year indicated that many HR professionals didn’t feel comfortable explaining these plans, which made them reluctant to make the switch (4).

Employees are quite willing to switch from traditional plans to CDHPs when they see how much traditional insurance premiums cost, how much they could gain through an employer-sponsored HSA, and how much would be freed for raises and bonuses. HR directors need to help educate employees on the real cost of their benefits.

The time has come

As evidence builds, it becomes harder to argue against CDHPs as an approach that can slow spending while encouraging greater individual involvement in care. Certainly consumers need even better information and tools than are available today, but these are expanding in parallel with the demand created by CDHPs.

Giving consumers some financial accountability encourages greater involvement in decision making and rewards prudent spending. Predictions that CDHPs would have a negative impact on health have not materialized. Further, consumers in these plans spend less and avoid unnecessary services.

Those who have been waiting on the sidelines to see what happens might want to take a look at the scoreboard. Consumer-directed plans are firmly established and growing, with good reason.


1. Fronstin, P. (2011, December). Findings from the 2011 EBRI/MGA consumer engagement in health care survey. EBRI Issue Brief, 365, 1-26. Retrieved from
2. Mondy, J. (2012, February 27). Cigna study shows consumer-driven health plans can save $9,700 per employee over five years. Retrieved from
3. Aetna HealthFund consumer-directed plans continue to reduce health care costs for employers. (2012, January 10). Retrieved from
4. Ivy, J. (2011, July 6). Employers hesitate to offer CDHPs: Lack of knowledge and desire to maintain status quo are barriers to offering these cost-saving plans. Retrieved from

2 thoughts on “Activating Consumers with Financial Control: Lessons from Health Savings Accounts

  1. The academic lit is mixed, and industry data is skewed. It is is still too early to generalize and very few studies show harm vs benefit–only savings or interim measures of questionable merit. The above assessment is a bit rosy an assessment from my perch. I hope for more and better data in the next few years.


  2. Tell your president and Sebelius to stop making it more difficult for hsa’s. We have known of the benefit of hsa’s for years now, but is seems the govt intends to take more control away from the individual regardless of the hsa data.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s