Consumer-directed Health Plans

A man fills out an insurance application.

The managed care backlash of the 1990s combined with rising health expenditures led to the creation of consumer-directed health plans (CDHPs), which place greater responsibility for health care decision-making in the hands of consumers. CDHPs are intended to reduce health care spending by exposing consumers to the financial implications of their treatment decisions. CDHPs have grown in popularity since their inception, now enrolling about 17 percent of people with employer-sponsored insurance.

On average, CDHPs have reduced health care spending, with savings ranging from 5 to 14 percent. Savings are driven primarily by reductions in spending on pharmaceuticals and outpatient visits, and are concentrated among healthier enrollees. While some studies find that CDHP enrollees reduce the use of health care services indiscriminately, other studies find that the reductions are primarily among visits for low severity conditions. There is no evidence on the effect of CDHPs on health outcomes. CDHPs tend to attract higher income, more educated enrollees, but there is no evidence that CDHPs have led to risk segmentation resulting in eroded insurance coverage. At this time, almost all the evidence on CDHPs is from large, self-insured employers for whom favorable selection into a CDHP is not necessarily problematic.