Academic journal article Journal of Healthcare Management

Association between Employee Earnings and Consumer-Directed Health Plan Choices

Academic journal article Journal of Healthcare Management

Association between Employee Earnings and Consumer-Directed Health Plan Choices

Article excerpt


This study explores the relationship between employee earnings and choice of a consumer-directed health plan (CDI IP) verses a managed care plan in an employer-sponsored insurance (ESI) program. The increased variation in healthcare insurance plan designs over the past decade has led to a greater need to understand the impact of consumer choice with respect to health insurance plans. CDHPs are associated with plan designs that incorporate high deductibles and greater cost sharing. Researchers have consistently found that employee earnings are positively associated with CDHP enrollment (Barry, Cullen, Galusha, Slade, & Busch, 2008; Buntin et al., 2006; Cohen & Martinez, 2009; Dicken, 2006; lx) Sasso, Rice, Gabel, & Whitmore, 2004; Parente, Feldman, & Christianson, 2004a, 2004b, 2008; Tollen, Ross, & Poor, 2004). However, it is unclear if variations in CDHP choice are discernable at all levels of employee earnings.

CDHPs emerged in the early 2000s as an alternative healthcare insurance plan design intended to slow the persistent cost increases of ESI, which have nearly doubled since the late 1990s (Claxton et al., 2014). From 2006 to 2014, CDHP enrollment for ESI plans has grown from 4% to 20%, with 27% of employers offering at least one CDHP plan (Kaiser Family Foundation, 2013). Through high deductibles and greater upfront cost sharing by enrollees, CDHPs encourage consumer engagement in healthcare decision making to presumably lower discretionary healthcare use and facilitate better healthcare choices, thus reducing ESI costs or slowing their rate of growth.

Health Reimbursement Arrangements and Health Savings Account-Eligible Plans

Health reimbursement arrangements (I IRAs) and health savings account (1ISA)-eligible high-deductible plans have become the two primary CDHP models. From the perspective of enrollees, HRA designs are similar to HSAs relative to the financing arrangement or savings account, but unlike I IS As, I IRA funds are not owned by employees and do not require coupling with a highdeductible plan (Bloche, 2006).

HRAs emerged in 2001 and were modeled on the 1996 medical savings account (MSA) pilot program that was part of the Health Insurance Portability and Accountability Act (Parente et al., 2008). Although I IRAs can be offered as a stand-alone, defined-contribution vehicle, they usually are coupled with a high-deductible plan. Employers finance the HRA to offset enrollee out-of-pocket costs; however, a gap or "donut hole" in coverage remains. The donut-hole phase-the employee's high-deductible period-takes place when I IRA funds are exhausted and before plan indemnity begins.

HSAs were established as part of Medicare legislation passed in 2003 (Parente et al., 2008). HSAs introduced employee funding and ownership of the medical spending account, which is portable, may contain investment characteristics, and allows greater employee control over the level of funding to subsidize healthcare costs. The level of employee funding, and annual accrual of such funds, determines enrollees' exposure to out-ofpocket costs during the high-deductible period.

Association Between CDHPs and Enrollee Earnings

Research findings show a positive association between CDHPs and enrollee earnings, which may suggest favorable selection (Barry et al., 2008; Buntin et al., 2006; Cohen & Martinez, 2009; Dicken, 2006; Id Sasso et al., 2004; Parente et al., 2004a, 2004b, 2008; Tollen et al., 2004). Individuals in higher socioeconomic groups are generally healthier and require fewer healthcare services than do those in lower socioeconomic groups (Bloche, 2007; Hughes-Cromwick, Root, & Reohrig, 2007; Marquis et al., 2006). Alternatively, households with higher earnings may have a higher risk tolerance or premium cost elasticity, meaning they are less willing to pay higher premiums for lower cost-sharing risk (Callan & Johnson, 2002; Parente et al. …

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