EBRI News Summary

As reported by The Insurance Newsletter -
WASHINGTON, July 30 /PRNewswire/ -- The rising costs of employment-based health benefits have led some employers to consider restructuring them in favor of a more consumer-driven approach, according to a new report by the nonpartisan Employee Benefit Research Institute (EBRI). However, the study also notes that the majority of health-benefit costs are incurred by a small minority of patients with chronic illness. Even if consumer-driven health benefits manage to control employer costs for health benefits, they are unlikely to control total costs unless some way is found to affect the spending patterns of the high users of health care services.

The July EBRI Issue Brief, "Can 'Consumerism' Slow the Rate of Health Benefit Cost Increases?" explores the major issues related to consumer-driven health benefits, including why the cost of providing health benefits is increasing, the spectrum of health plan options, and how increased consumer involvement may affect the cost of providing health benefits.

Some of the report's key findings:

Americans have been spending an ever-increasing amount of money on health care services. Health spending totaled $73 billion in 1970, rising to $1.3 trillion in 2000. Spending on health care accounted for 7 percent of gross domestic product (GDP) in 1970, rising to 13.2 percent of GDP in 2000. Health care spending as a percentage of GDP remained largely unchanged after 1993, but it is projected to reach 17 percent in 2011.

Technological innovation in health care accounts for between 49 percent and 65 percent of increases in health spending, while the comprehensiveness of insurance accounts for between 10 percent and 13 percent, according to recent research. Other factors include increased income of employees, differential productivity growth from medical care, and avoidable administrative expense.

The approaches to consumer driven-health benefits fall along a continuum of options. They include the traditional large employer health plan choice model, the out-of-pocket choice model, tiered provider networks, various health spending accounts, and vouchers. At one extreme, employers could provide an array of plan designs from which an employee can choose, as many companies now do. At the other extreme, an employer could simply give employees an increase in cash wages and not offer any health plan, requiring them to determine how best to spend that money on health insurance care services.

While various types of consumer-driven health benefit approaches might result in more efficient spending on health care services, it would not necessarily mean that spending will either decline or slow down. It is well known that a small fraction of the population accounts for a large share of health spending. Among the adult population with employment-based health insurance, the top 1 percent of spenders accounted for 20 percent of all spending in 1998. Overall, the top 10 percent of spenders accounted for 58 percent of all health care spending, while the top 50 percent accounted for 95 percent of all spending.

A movement to consumer-driven health benefits has implications for health benefit costs, utilization of health care services, quality of health care, the health status of the population, risk selection, and efforts to expand health insurance coverage.

Ultimately, the success or failure of consumer-driven health benefits will be measured by its effect on the cost of providing health benefits and its effect on the number of people with and without health benefits," said EBRI President and CEO Dallas Salisbury. However, he added, "Unless consumer-driven health benefits include incentives and tools to affect the spending patterns of high users of health care services, the total cost of providing health care benefits is unlikely to be significantly affected."

EBRI Issue Briefs are monthly topical periodicals providing expert evaluations of employee benefit issues and trends, including critical analyses of employee benefit policies and proposals. Others may purchase copies for $25 prepaid or Pdf's for $7.50 prepaid by calling 202-659-0670.