Consumer Driven Group Health Plans (CDHPs): How and Why They Miss the Target
by Michael Chapman

The rising expense of group health insurance is a big issue for most small businesses businesses (businesses with 500 or fewer employees. Companies of this size represent 95% of all businesses in the US.) The percent of small businesses offering group health insurance plans has fallen steadily. Today half of small businesses offer group health insurance plan for their employees, down from 70% a decade ago.

The only effective way that a company can reduce the cost of group medical insurance is if their employees have fewer medical insurance claims. This can lead to a reduction in the overall increase in the cost of group health insurance for the company the following year, when the company signs a contract at new rates for the next year. While there may not be a cost reduction, fewer claims should mean a lower than normal premium increase.

“Consumer driven group health plans” are plans that pass on more cost to the employees in the form of higher deductibles and higher or no prescription or doctor visit co-pays, and “incentives” to reward employees for reducing their medical insurance claims. These incentives include monetary and tax incentives approved by the IRS that reward the employee for controlling the cost of their medical claims.

The idea is that if more of the health care costs are shifted to the employee, and if the employee makes fewer medical claims, they are rewarded with tax-favored savings. The thinking is that if the employee is a “good consumer,” they will find ways to keep more of their tax-favored savings that they can use in future years rather than use it for health care.

Consumer driven group health plans couple a high deductible health plan with one or more of the following types of IRS approved programs: Health Savings Accounts (HSAs), Health Reimbursement Arrangements (HRAs), and Medical Expense Reimbursement Plans (MERPS).

Companies that select consumer driven group health plans (CDHPs) generally see a significant, but moderate and often short term, reduction in the inflationary increases in group medical insurance expenses. However, we now believe that CDHP advocates are making the wrong argument, and are missing the point.

While CDHP advocates might be winning a lower rate increase for a year, they are losing the war on affordable health care and health insurance, and are only motivating the proponents of universal health care and nationalized health insurance to work harder to get their candidates elected in 2008.

We feel that consumer driven group health plans do not do enough to control the cost of group health insurance. Even if company receives a premium group health insurance premium increase of 7% instead of 15%, that is still a doubling in rates by the year 2015. Clearly, that is too much.

We feel that the basic premise of CDHPs is wrong. The challenge is not to make the employees pay more for group health insurance, and then reward them for shopping for less expensive health care and avoiding medical claims. CDHPs represent short-sighted thinking and bandaid fix for group health insurance.

We feel that the only way to achieve a fundamental change in the cost of employee group health insurance is to make employees accountable for maintaining healthy lifestyles. Fully 75% of all diseases in the US are preventable. Group health insurance plans that reward employees for preventing diseases represents could truly reduce health care expenses for employers and employees alike.

Employers should be able to hold their employees accountable for their own lifestyles. A group health insurance plan that rewards tobacco-free, obesity-free living, and rewards employees and dependents for maintaining an active, healthy lifestyle is the goal.

With this type of plan, employees could avoid or minimize the chance of their family’s suffering and the cost of diseases such as diabetes, diseases of the heart and circulatory system, stroke, and cancer-related diseases. Plus, employers would benefit from a true systemic reduction in medical insurance expenses, and reduce lost time productivity and wages due to sickness.

Employees who choose a healthy lifestyle would receive tax-favored incentives for losing weight for stopping use of tobacco, etc. Those incentives would effectively lower the cost of the employee’s out of pocket medical expenses to below what they would otherwise spend.

Those employees who choose not to live healthy lifestyles would not reap the rewards and incentives that the employer’s plan offers, and would pay more for their health care. Or they could choose to seek employment elsewhere with a company or organization that offers a group health insurance plan that does not reward healthy employees with lower cost health insurance and incentives for a healthy lifestyle.

This simple concept, for employers to reward employees who choose to live healthy lives with lower health care expenses, represents a major departure from the current CDHP movement. Forward-thinking CEOs can now have a major impact on permanently reducing the cost of group health insurance, can improve their company’s bottom line, and can play a major positive role in improving the lives of their employees and their families.

We will elaborate on this concept in future articles and will show employers how step by step how they can implement employee wellness as a key driver in their company’s employee benefits and human resources plan. Individuals interested are encouraged to contact for more information.