Rhetoric vs. Reality: Employer Views on Consumer-Driven Health Care

Originally published by the Center for Studying Health System Change (HSC) as Issue Brief No. 86, July 2004.

Employer Views on Consumer-Driven Health Plans and Tiered Networks

With health insurance premiums climbing rapidly, employers were investigating new approaches that could maintain workers' broad provider choice while making employees more aware of health care costs through increased financial responsibility. Employer awareness of new health plan products, including consumer-driven health plans and tiered-provider networks, had grown considerably in recent years, according to findings from HSC's 2002-03 site visits to 12 nationally representative communities.

Consumer-driven health plans typically combined high-deductible insurance policies with employer-funded spending accounts, known as health reimbursement accounts. Once an employee exhausted the spending account, a coverage gap existed where the individual bore full responsibility for costs before the high-deductible policy began covering care. These plans also offered consumer information on provider price and quality.

Employer Skepticism About New Products

Despite growing awareness, employers expressed substantial doubts about both consumer-driven health plans and tiered-provider networks. Regarding consumer-driven plans, employers were concerned that implementation would require considerable effort without producing meaningful cost savings. They worried about potential adverse selection, where healthier employees might gravitate toward the new plans while sicker employees remained in traditional coverage, potentially destabilizing the risk pool.

Employers also questioned whether employees had enough information to make informed health care purchasing decisions. The promise of consumer-driven health care rested on the assumption that patients armed with cost and quality data would shop for care more wisely, but employers doubted that the necessary transparency tools were sufficiently developed. Many felt that asking employees to navigate complex medical decisions based on limited price and quality information could lead to poor choices that would ultimately increase costs.

Tiered Networks Face Similar Doubts

Tiered-provider networks, which categorized hospitals or physician groups by price and quality and assigned different levels of patient cost sharing to each tier, faced their own set of skepticism. Employers questioned whether health plans could accurately capture both cost and quality information in a way that patients could readily understand and act upon. The methodology for tiering providers was not standardized, and employers worried that the distinctions between tiers might reflect negotiated prices more than actual differences in quality of care.

In practice, most employers had responded to rising premiums by simply increasing patient cost sharing within existing plan designs rather than adopting fundamentally new product structures. Higher deductibles, copayments, and coinsurance were the primary tools employers used to manage their benefit costs. This incremental approach was seen as less risky and more immediately effective than the uncertain payoff of newer, more complex products that had not yet been tested on a broad scale.

Implications for Health Care Markets

The gap between the rhetoric surrounding consumer-driven health care and the reality of employer adoption pointed to deeper challenges in transforming how Americans purchase and use health care services. For these new products to gain traction, employers needed credible evidence that they would produce net savings without harming employee health or satisfaction. The infrastructure for providing consumers with meaningful price and quality information remained underdeveloped, and until that changed, employers were likely to continue relying on familiar cost-shifting strategies rather than embracing more ambitious product redesigns.

Sources and Further Reading

Trude, Sally, and Leslie Jackson Conwell, "Rhetoric vs. Reality: Employer Views on Consumer-Driven Health Care," Issue Brief No. 86, Center for Studying Health System Change (July 2004).