CDHC and Your Practice

Plans Meant to Change Consumer Behavior Will Affect Your Practice

By Linda Farrington, CPC, CPC-I
Our industry is flooded with acronyms, as is the relatively new world of consumer-directed health care or consumer-driven health care (CDHC). CDHC refers to a concept in health insurance raising the awareness among patients regarding their care costs and allowing various methods to pay for that care such as a Medical Savings Account (MSA) or a Health Reimbursement Arrangement (HRA). The range of products from which employees can choose typically includes a catastrophic health insurance policy with a high deductible, motivating patients to take charge of their health care budget and, some say, their health as well.

CDHC Takes Hold

The concept began in the late 1990s as a business model for health e-commerce ventures with cost and quality information available to consumers via the Internet. Legislation was passed in 2003 giving tax incentives to people choosing CDHC plans (CDHP). These products were enhanced in 2007 with tax breaks for premiums, health savings accounts (HSAs), and tax subsidies for the catastrophic insurance premium for lower income individuals. By April 2007, about 4.5 million Americans were enrolled in HSAs. Health reimbursement arrangements and employer-funded accounts also sprang up, giving the employer tax benefits.
According to Aetna, 56 percent of employees offered a CDHP for 2005 enrolled in it. By 2007, an estimated 3.8 million U.S. workers, or 5 percent of the covered workforce, were enrolled in CDHPs and about 10 percent of firms offered such plans to their workers, according to the Kaiser Family Foundation. In April of this year, Blue Cross Blue Shield (BCBS) reported 3.1 million of their members being enrolled in CDHPs. Estimates show by 2012 more than 18 million will be covered by CDHPs. It is also estimated the market will expand to as many as 30 million in the next 10 years, according to the RAND study of 2007.
A demonstration program for Medicare Advantage began in June 2007 that included a personal health record (PHR). According to a recent announcement by Health and Human Services (HHS) Secretary Mike Leavitt, this program will expand to Arizona and Utah in January 2009. “We believe that it will empower consumers to manage their health,” Secretary Leavitt said. This concept is growing. Also in August, the governor of Minnesota, Tim Pawlenty, announced a HRA plan for 50,000 state employees beginning in 2009 and promises PHRs to every citizen of Minnesota by 2011, calling it “consumer-friendly” health care.

Cost Increases Prompt CDHPs

Health care spending increased 184 percent from 1960 to 2006. Historically, when consumer costs decrease, utilization increases. The thinking is that by increasing consumer costs with higher deductibles and out-of-pocket expenses, the incentive will be reversed and utilization will decrease.
Proponents say most Americans will pay less for health care due to lower premiums on high deductible insurance. Consumers will control costs by shopping for quality and alternate treatment options at the best price. They believe that competition will lower the price of health care and stimulate improvement in the quality of care.
Critics say the less wealthy and the less educated will avoid necessary care because of the financial burden and the challenge of making informed choices. According to the RAND study of 2007, “About half of Americans find it difficult to understand health information, which likely hinders their ability to obtain high-quality care.” Critics also believe those with chronic illnesses can never save in their accounts because they access care too frequently and pay more out-of-pocket costs. They also state employers are the ones who will save money and may not adequately fund the accounts.
(Note: Some CDHPs are not prefunded by the employer and employer contributions are optional. See sidebar “Find Out What CDHPs Offer Your Patients.”)

Minor Complaints May Dwindle

Considering the list of 213(d) eligible medical expenses that consumers pay for out of pocket (see sidebar “Find Out What CDHPs Offer Your Patients”), it appears that some patients are motivated to avoid doctor’s visits for minor ailments, and instead self-diagnose to treat these seemingly minor conditions. You may see a decline in the number of patients presenting with minor complaints. This causes a concern that seemingly minor conditions left untreated can become life threatening diseases.

Good-to-know Facts on Practice Impact

With CDHPs, insurance companies market directly to your patients via snail mail and online. If you do an Internet search of the major health plan sites, you’ll discover treatment cost estimators, health plan comparisons, prescription drug pricing, hospital cost comparisons, personal health analysis, personal health managers, personal health statements, some PHRs, consumer coaches, health information libraries, and treatment options.

Read the Fine Print

Insurers may add CDHC products to your contract. Look out: There may be a clause in the insurance contract stating that if you do not respond to a notice from a contracted plan within a defined time frame, you may be legally responsible to care for these patients under their chosen CDHP.
Do you know what you can collect at the time of service under each CDHP? What if the plan prohibits collecting at the time of service and wants you to bill the balance to the patient based on the Explanation of Benefits (EOB)—even if it all goes toward the deductible? Know your contract language.

Prepare for Price Negotiation

Patients now financially vested in their care will want to discuss the cost of that care. They now have information from their insurance company and may want to bargain and negotiate your fees. They may choose to go elsewhere if their questions cannot be adequately addressed. This puts a whole new spin on patient customer service—proving quality and justifying cost.

Patients Consult Dr. Internet for Answers

Patients will search the Internet for answers to their health care questions. They may come into your office with downloaded health literature from the Internet, some from reputable sites, some not so reputable. They might want to discuss alternatives to your treatment recommendations. They may know a lot about their condition and about your practice and its providers. If they find a facility on the Internet with better outcomes or lower costs for the procedure, they may request it.

Mortgage Payment Replaces Health Care

Perhaps the most concerning aspect of CDHC is that patients may choose not to fund their account. They may need to make their house payment instead. In three of the products—HSAs, FSAs, and MSAs—the employer and employee contributions are optional. This poses many concerns for the provider:

  • What if the account has not been funded?
  • What if the office does not perform eligibility and fund balance checks?
  • Can the office or the patient check the balance?
  • What will the policy be if you cannot determine the amount in the account?
  • What if the patient is unable to pay?

You might offer an alternative, such as a medical credit card application. It may also be a good idea to consider implementing a requirement for the patient to sign a financial responsibility form.

Do Your Homework

What can you do to prepare for CDHC? Go to your contracted plan websites as a consumer to see what they tell your patients and how they educate them. Find out how they represent your providers to the consumer. Know your contracts and each product under that contract. Have an action plan for checking eligibility and verifying funds every time so there aren’t any surprises. Have a process for collecting at the time of service, if and when you can.
Bargain shop your high dollar, high volume procedures to confirm you are competitively priced in the market. Be prepared to produce a fee schedule, if asked, and know the allowed amounts by contracted plan for your most common procedures. Be receptive when your patients come in with downloaded medical literature they want to discuss with you. Know the information available about your practice and providers on the Internet.
If you have not started quality reporting, consider it now. Many new codes have been added to CPT® Category II this year. How you report the quality care provided to your patients on your claim forms may soon be visible data to consumers. Know how area hospitals are ranked for your high dollar, high volume hospital procedures for cost and quality. If you don’t already do so, consider taking credit and debit cards in your office and consider partnering with a medical credit card company so you can offer a solution to patients unable to pay at the time of service. Consider transferring your records to an electronic medical record (EMR). Studies have shown that EMR can help reduce costs and improve quality, which is exactly what patients are looking for in the world of CDHC.

Find Out What CDHPs Offer Your Patients

There are many CDHPs offered to patients. For a comparison of each plan, see the AHIA chart.
High-deductible insurance is defined by the U.S. Treasury as insurance with a deductible of $1,100 or greater in 2007; typically the deductible for this type of insurance is $3,000 to $4,000 per year. In 2008 employees may contribute on a tax-free basis $2,900 and families $5,800 per year.
IRS Allowable 213(d) Medical Expenses
Internal Revenue Service (IRS) Code, Section 213(d) has a somewhat surprising list of allowed and disallowed medical expenses. For example, if the installation of an elevator needed for medical reasons increased the value of your home by $8,000, you would have no medical expense for the cost of the elevator. However, the cost of electricity to operate the elevator and any costs to maintain it are medical expenses as long as the medical diagnostic devices reason for the elevator exists.
Depending on the individual benefit package, the following items may be deductible medical expenses: air conditioners, “autoettes” (three-wheeled vehicles), dental care, drugs, eyeglasses, fluoridation units, lead paint removal, lodging (away from home for outpatient care), special school costs for the handicapped, telephone or TV equipment (to assist the hard of hearing), transportation expenses, and prescribed vitamins. You cannot pay in advance for following years’ services. Athletic club memberships and weight loss programs are not deductible. You cannot pay premiums for life insurance, income protection, disability, limb or sight loss, or similar benefits. You can, however, pay for LTC insurance from all of the accounts but the FSA.
In any situation, a withdrawal from an MSA must be a qualified medical expense or the employee can be taxed on the amount of the withdrawal. For more information, refer to IRS Publication 502, “Medical and Dental Expenses.”
OTC Drug Coverage
The list of eligible over-the-counter (OTC) drugs includes cough drops, throat lozenges, nicotine medications, nasal sprays, wart removal medication, and hemorrhoid suppositories and cream. The list of ineligible OTC drugs includes toiletries, cosmetics, acne treatments, lip balm, suntan lotion, medicated shampoos and soaps, daily vitamins, etc.
For the Record
Per Section 213 of the IRS Code, “Allowance of deduction: There shall be allowed as a deduction the expenses paid during taxable year, not compensated for by insurance or otherwise, for medical care of the taxpayer, his spouse, or a dependent to the extent that such expenses exceed 7.5 percent of adjusted gross income.” Keeping track of eligible expenses for income tax deduction is essential.
Referenced Websites:
Council for Affordable Health Insurance (CAHI) Policy Brief:  “What Is Section 213(d) of the Internal Revenue Code And How Does It Relate To MSAs?”
Consumer Driven Health Care, a Special Project of the National Center for Policy Analysis
Consumer Directed Health Care, Inc.
Physician for a National Health Program, “Consumer Directed Health Care and Health Savings Accounts”
Senior Journal, Medicare News, “Medicare Seeks Proposals for Consumer-Directed Health Plan Demonstration”
“Consumer Directed Health Care: Pressure for Accountability in 2008,” Outlook for 2008
“Consumer-Directed Health Care: Early Evidence Shows Lower Costs, Mixed Effects on Quality of Care”
Health Affairs—The Policy Journal of the Health Sphere, “Consumer-Directed Health Care: Early Evidence About Effects on Cost and Quality”
Value-Driven Health Care
Hospital Compare (Compare Hospitals)
Ambulatory Quality Alliance (Physician Services Standards)
Hospital Quality Alliance (Hospital Care Standards)


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