High Deductible Health Care Coverage: Snapshot of Some Mixed Evidence

April 2011

Table of Contents

For more than 10 years, there has been movement toward placing greater control of health care in the hands of consumers. A hallmark of this change was the introduction of consumer-driven health plans (CDHPs) into the landscape of health insurance. CDHPs generally comprise a number of variable components designed to give consumers more decision-making power, responsibility, and spending options. They typically include tools to assist consumers in making informed choices about providers and treatments, as well as incentives that encourage consumers to make cost-conscious healthcare decisions. Contained under the umbrella of CDHPs are high-deductible health plans (HDHPs); these plans offer consumers protection from the cost of catastrophic health events at a significant savings over the cost of traditional insurance coverage. HDHPs have high deductibles and limits on out-of-pocket costs. Also falling under the CDHP umbrella are a variety of accounts designed to help consumer spend their health care dollars more efficiently. The type of account most commonly used in conjunction with HDHPs are health savings accounts (HSAs) that allow consumers to set aside tax-free monies for medical expenses. HSAs are owned by the consumer, but the government sets the level of annual contribution a consumer can make. Flexible spending accounts (FSAs), like HSAs, allow consumers to use pre-tax dollars for medical costs, but funds cannot be carried over from year to year. FSAs are owned by the employer and the employer sets the limits on contributions. Through health reimbursement accounts (HRAs), consumers pay for their care up front and are subsequently reimbursed by their employer. 

The large body of evidence examining the various components of CDHPsmay help inform policymakers who are exploring the advantages and disadvantages of offering high deductible plans within states’ health insurance exchanges. While HDHPs are structured in such a way to promote cost savings and protect against the financial burden of a catastrophic medical event, the evidence on the success of these goals is mixed.  
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CDHP2 products were first introduced to the market in 2001, when a small group of self-insured employers began offering health reimbursement accounts (HRAs).3  HRAs soon gave way to Health Savings Accounts (HSAs) when provisions in the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 provided for employee contributions to these accounts. By combining the option of an HSA with a high-deductible, employers were able to provide comprehensive care to employees at a substantially reduced price.4  It was anticipated that introducing a higher deductible would create an incentive for enrollees to economize their use of medical care, reduce consumption of low-value health services, and stimulate a preference for low-cost and high-quality care.5  

Since their inception, interest in CDHP products has steadily increased in the employer-based health insurance market. According to surveys conducted by the Kaiser Family Foundation (KFF) and Mercer Human Resources Consulting, the number of employers offering CDHPs increased by approximately 10 percent between 2005 and 2009. This growth was seen consistently across large and small employers.6  According to the National Center for Health Statistics (NCHS), as of 2007, 17.3 percent of people under the age of 65 with private health insurance were enrolled in a CDHP.7  Additionally, of all people under the age of 65 with an individually purchased health plan, 40% were enrolled in a CDHP, compared with about 15 percent of persons under 65 years of age with employer provided health insurance.8  While growth has slowed,9  this type of insurance product will likely remain a potential tool to help control rising health care costs.10 

Due to their popularity, lower premium price, and potential for cost savings, high deductible plans are an attractive option for the insurance exchanges being developed by states. However, evidence on the true cost-saving potential of these plans, and the potential for unforeseen health and personal financial consequences has been mixed.
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Early Evidence

Between 2002 and 2008, HCFO funded several studies exploring the development and impact of CDHPs. Stephen Parente, Ph.D., examined how CDHPs would impact quality of care, cost, and utilization of health care in the long term; Arnold Milstein, M.D., evaluated the efficacy of early models of CDHPs; and Judith Hibbard, Dr.P.H., assessed the validity of the underlying assumptions of CDHPs. The evidence on cost-savings in CDHPs was mixed in these studies. 

In his first HCFO study, Parente sought to provide early evidence of the factors affecting the choice of individuals into a defined contribution or consumer-driven health plan as well as the impact of the plans on employee cost and utilization for a set of regional and national employers. He found that CDHPs did not attract a significantly healthier risk pool. Additional analyses showed somewhat favorable selection associated with the CDHP, but the CDHP population quickly proved to be higher utilizers, despite their initial behavior before selecting the CDHP. Parente also found that CDHPs were less resource intensive than preferred provider organizations (PPO) and point-of-service (POS) plan designs, but hospital costs were shown, after risk adjustment, to rapidly increase. Subsequent analysis found the CDHP more expensive than the POS plan design, but less expensive than the PPO design in overall expenditure. Parente also found that people choosing CDHP plans were just as satisfied as other health plan enrollees and had little difference in satisfaction from other populations.11 

In a subsequent HCFO grant, Parente found that, when examining the three-year spending and utilization trends by employees of a large organization offering both a CDHP and a point of service (POS) plan, spending was considerably higher for individuals in the CDHP for hospital care. However, spending was lower for individuals in CDHPs for prescription drugs. In comparison, Mercer Human Resources Consulting, Inc., and Humana, Inc. compared CDHPs with PPOs; survey results showed that CDHPs were less expensive than PPOs. The results, however, did not account for differences in enrollee characteristics that could influence health care costs. Moreover, the study controlled only for annual deductible, only one of multiple plan characteristics. Humana compared the behavior of enrollees when given a choice between two PPOs, one HMO, and one CDHP, and found that offering this combination of choices lowered cost trends for HMOs and PPOs by almost 10 percent. Relatively few beneficiaries were enrolled in the CDHP and its characteristics were not typical of this type of product.12  

In his analysis, Milstein found weaknesses in the design of CDHPs to reduce health care costs. Early models of CDHPs did not adequately provide comparative quality measures to consumers, which would allow them to discern between high- and low-value health care services, and they did not incorporate enough cost-sharing flexibility to accommodate low-income beneficiaries. Milstein asserted that, while these flaws weakened the strength of CDHPs to control health care costs, they were correctible.13  

Hibbard’s analysis focused on the role of CDHPs relative to consumer behavior. The basic underlying assumption behind CDHPs is that they stimulate consumers to become more active and informed participants in their health care consumption. In a longitudinal study of employees of a large manufacturing company who were offered a choice between two CHDP products (one with a high deductible and one with a lower deductible) and a traditional preferred provider organization (PPO), Hibbard examined employees’ level of activation prior to and following enrollment. She found that those participants who achieved higher activation scores prior to enrollment were more likely to choose the CDHP. However, enrollees in the CDHP were not significantly more likely to become actively engaged in their health care consumption than those in the PPO after one year.14  
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New Evidence

In a HCFO-funded study, Alison Galbraith, M.D., of Harvard Medical School and the Harvard Pilgrim Health Care Institute and colleagues analyzed the financial impact of HDHPs on families with chronic health conditions. The research team used survey results, individual interviews, and Harvard Pilgrim Health Care claims data from 494 families; 151 in HDHPs and 345 in traditional health plans.15  The researchers found that more than twice as many families in HDHPs reported financial burden than families in traditional plans (48 percent compared with 21 percent). Financial burden was defined as difficulty paying family medical bills, participating in payment plans with a doctor’s office of hospital, and difficulty paying other necessary bills (e.g. rent, groceries) because of medical bills. Additionally, families in HDHPs paid double the out-of-pocket expenses of families in traditional plans. Among low-income families, those in HDHPs were more likely to have out-of-pocket health care expenses greater than 3 percent of total annual income, when compared with low-income families in traditional health plans.16  These findings suggest that, while HDHPs may help to reduce health care costs, those results are not consistent across all populations. To the extent HDHP products become more widespread as part of implementation of the ACA and the development of state exchanges, policymakers will need to consider the potential for adverse financial consequences for certain enrollees, including those with chronic illnesses.17  

More recently, the RAND Corporation released findings from the largest-ever study of HDHPs in the American Journal of Managed Care. The research team examined more than 800,000 U.S. families insured during 2004 and 2005 through one of 53 large employers. Approximately one-half of these employers offered a HDHP option.18  The findings showed that while overall health care spending grew across all types of health plans, it grew at a 14 percent lower rate for those in HDHPs. Families in HDHPs spent less on both inpatient and outpatient medical services, as well as prescription drugs.19  However,  families in HDHPs received less preventive services, including childhood vaccinations and cancer screenings, than those in traditional health plans. While spending decreased over the limited study period, lack of preventive services could lead to much higher medical costs in the long term. The researchers note that the drop in preventive care occurred even though the HDHPs involved in the study waived the deductible for preventive services.20  This raises questions about whether there was a lack of understanding about plan benefits. The finding suggests that there may be a need to increase education and communication about the new ACA provisions regarding coverage of preventive services absent copayments or deductibles.21  
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While HDHPs are heralded by supporters as a market-based solution to overuse of unnecessary medical services and a mechanism to bring down health care costs, the evidence is still inconclusive. As policymakers consider the role of HDHPs in state insurance exchanges, they will need to balance the cost containment potential of these products with the potential for negative unintended consequences. Details on related HCFO studies can be found at http://www.hcfo.org
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Related HCFO Grants

Title: Study of the Effects of High-Deductible Health Plans on Families with Chronic Conditions
Grantee Institution: Harvard Pilgrim Health Care, Inc.
Principal Investigator: Alison Galbraith, M.D. 
Grant Period: February 2007 - July 2009

This project analyzed the impact of high-deductible health plans on families who do not have a choice in health plans. The researchers examined the effect of high deductibles on family health care decision making strategies, unmet health care needs, and the financial burden for families relative to that of traditional plans. They also explored whether one family member’s health or resource use influences that of other family members, particularly when one member has a chronic condition. The objective of the project was to inform policymakers about the potential advantages and disadvantages of high-deductible plans for families dealing with chronic conditions, especially when they have no choice in health plans. 

Title: Involving Consumers in Physician Choice: Making Data into Useable Information for Chronically Ill Patients in Consumer-Directed Health Plans
Grantee Institution: Massachusetts General Hospital
Principal Investigator: David Blumenthal, M.D.
Grant Period: March 2006 – August 2007

What tools will consumers need to help select high performing physicians, within CDHPs? Physician performance data is one of the tools that can be used to help consumers make these decisions. However, there are important opportunities and challenges facing consumer-directed health plans (CDHPs) trying to engage consumers in using physician performance data (PPD). The specific aims of the project were: 1) to develop methods for informing consumers about physician clinical performance; 2) to test the effectiveness of these methods in helping consumers with chronic conditions in CDHPs to make an informed choice of primary care physician (PCP); 3) to explore how consumer characteristics affect their ability to understand PPD and their response to that data. The objective of this study was to understand how and whether PPD can be appropriately and effectively used in CDHPs.

Title: The Impact of Multiple Consumer-Driven Health Plans Beyond Early Adoption: Here to Stay or Market Fad?
Institution: Regents of the University of Minnesota
Principal Investigator: Stephen M. Parente, Ph.D.
Grant Period: December 2004 - November 2007

How will consumer-driven health plans (CDHPs) impact quality of care, cost, and utilization of health care in the long-term? Will the impacts vary by CDHP design? Researchers from the University of Minnesota explored the long-term impact of consumer-driven health plans (CDHPs), specifically their impact on quality of care, cost, utilization, and variation in these outcomes by different CDHP designs, including Health Savings Accounts (HSAs). Building on another past HCFO grant, the researchers examined claims and employer data from the six employers included in their previous study (offering Definity Health) and six new employers using CDHPs from Destiny Health, Blue Cross Blue Shield and UnitedHealth Group. They examined four research questions: (1) what is the long-term effect of CDHPs on health care cost and use; (2) are other CDHPs, including newly legislated HSAs, producing different results than Definity Health's CDHP; (3) what is the quality of care for CDHP enrollees with chronic illnesses such as diabetes and heart disease; and (4) how do consumers manage their CDHP spending accounts in the long run, and can this knowledge be used to design an "ideal" CDHP? The objective of this study was to provide objective empirical analyses of the impacts of CDHPs and newly developing HSA products on consumers.

Title: How Valid are the Assumptions Underlying Consumer-Driven Health Plans?
Institution: University of Oregon
Principal Investigator: Judith H. Hibbard, Dr.P.H.
Grant Period: May 2004 - April 2007 
How valid are the assumptions underlying consumer-driven health plans? The researchers used both qualitative and quantitative methods to examine the key assumption underlying consumer-driven health plans (CDHP). If consumers are given financial incentives, choices and information to support these choices, they will take charge of their health and health care and make prudent choices. Working with Definity Health Plan and Whirlpool (which offers their employees a choice of Definity and a PPO option), the researchers followed one cohort of employees who enrolled in Definity and another cohort who enrolled in a PPO plan. The objective of the study was to compare the knowledge, use of information, satisfaction with care, cost-effective utilization, and costs of care for persons enrolled in Definity and the PPO over time.

Title: An Early Portrait of Consumer-Directed Health Benefits: Design, Integration, Penetration, and Effects
Grantee Institution: Mercer Human Resource Consulting
Principal Investigator: Arnold Milstein, M.D.
Grant Period: May 2003 - December 2003

What is the prevalence of consumer driven health benefits (CDHBs) in the market and what is the early evidence about how the movement toward CDHBs has affected cost and quality? The analyses included three categories of CDHBs: health retirement accounts, tiered or flexible benefit design products, and tiered network or treatment option models. Specifically, the researchers 1) assessed the enrollment in and features of different types of CDHBs, 2) assessed the effects of these newly-introduced products, 3) generated hypotheses about the longer term prospects and impact of CDHBs, and 4) derived policy recommendations aimed at maximizing the value of CDHBs. This study provides purchasers and other private and public decision makers with early information about what consumer driven health benefit plans are and how they affect cost and quality.

Title: Evaluation of Defined Contribution Plans on Health Insurance Choice and Medical Care Use
Institution: Regents of the University of Minnesota
Principal Investigator: Stephen M. Parente, Ph.D.
Grant Period: November 2002 – April 2005

What are the effects of consumer-driven health plans?  Researchers at the University of Minnesota conducted a two-part evaluation of Definity Health, a consumer-driven plan.  The researchers first assessed the service use and adverse selection of consumers who select a CDHP. They also assessed the experience of “early adopters” from the employer and employee perspective. The following research questions comprised the framework of the evaluation: 1) Who chooses to join CDHPs? 2) Do these plans attract the healthier employees in an employer’s health insurance risk pool? 3) How do cost and use differ among people in CDHPs versus other plans? 4) Do patterns of service use and medical care change for enrollees in CDHPs after enrollment? 5) How do employees and employers assess their experience in the plan?  The objective of the study was to provide private and public decisionmakers unbiased information on the effects of CDHPs in their early stages.
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1. This piece does not exhaustively examine the literature on consumer-directed high deductible coverage and related insurance products.  Instead we highlight some of the early evidence and more recent research relevant to the development of health insurance exchanges. Some of the studies we discuss are framed more broadly around the concept of CDHPs, while others focus more specifically on the HDHP component.
2. For the purpose of this article, CDHP refers generally to high-deductible products.
3. Fronstin, P. “What Do We Really Know About Consumer-Driven Health Plans?,” Issue Brief No. 345, Employee Benefit Research Institute, August 2010. Also see http://www.ebri.org/publications/ib/index.cfm?fa=ibDisp&content_id=4612
4. Andrews, M. “High-Deductible Health-Insurance Plans Grow More Attractive to Employers,” Washington Post, June 22, 2010. Also see http://www.washingtonpost.com/wp-dyn/content/article/2010/06/21/AR201006...
5. Feldman R. et al. “Consumer-Directed Health Plans: New Evidence on Spending and Utilization,” Inquiry, Vol. 44, No. 1, March 2007, pp. 26-40. ; Rosenthal, M. “A Report Card on the Freshman Class of Consumer-Directed Health Plans,” Health Affairs, Vol. 24, No. 6, 2005, pp. 1592-1600.
6. Fronstin, P. “What Do We Really Know About Consumer-Driven Health Plans?,” Issue Brief No. 345, Employee Benefit Research Institute, August 2010. Also see http://www.ebri.org/publications/ib/index.cfm?fa=ibDisp&content_id=4612
7. Cohen, R.A. and M.E. Martinez. “Consumer-Directed Health Care for Persons Under 65 Years of Age with Private Health Insurance: United States, 2007,” NCHS Bata Brief No. 15, United States Department of Health and Human Services National Center for Health Statistics, March 2009. Also see http://www.cdc.gov/nchs/data/databriefs/db15.pdf
8. Ibid
9. Fronstin, August 2010.
10. Andrews, M. “High-Deductible Health-Insurance Plans Grow More Attractive to Employers,” Washington Post, June 22, 2010. Also see http://www.washingtonpost.com/wp-dyn/content/article/2010/06/21/AR201006...
11. See multiple articles summarizing Parente grant findings at http://www.hcfo.org/grants/evaluation-defined-contribution-plans-health-...
12. Feldman R. et al. “Consumer-Directed Health Plans: New Evidence on Spending and Utilization,” Inquiry, Vol. 44, No. 1, March 2007, pp. 26-40.
13. Rosenthal, M. “A Report Card on the Freshman Class of Consumer-Directed Health Plans,” Health Affairs, Vol. 24, No. 6, 2005, pp. 1592-1600.
14. Hibbard, J.H. et al. “Plan Design and Active Involvement of Consumers in Their Own Health and Healthcare,” The American Journal of Managed Care, Vol. 14, No. 11, 2008, pp. 729-736.
15. Galbraith, A. et al. “Nearly Half of Families in High-Deductible Health Plans Whose Members Have Chronic Conditions Face Substantial Financial Burden,” Health Affairs, Vol. 30, No. 2, February 2011, pp. 322-331.
16. Ibid
17. Ibid
18. “High-Deductible Health Plan Study Finds Cost Savings, Less Preventive Care,” RAND Corporation, March 25, 2011. Also see http://www.rand.org/news/press/2011/03/25.html
19. Ibid. 
20. Ibid. 
21. "Preventive Services Covered Under the Affordable Care Act,” Healthcare.gov. Also see http://www.healthcare.gov/law/about/provisions/services/lists.html