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Consumer Directed Health Plans – unintended consequences

Consumer Directed Health Plans, or CDHPs, are the new thing in health insurance – and may have a significant impact on liability and workers comp claims. For those who may not follow the latest trends, these are simply very high deductible health insurance programs, with tax-favored accounts set up to cover most of all of the deductible. Sounds pretty basic, and underneath the marketing hype, that is all there is to CDHP.
Nonetheless, they are getting a good deal of press, are generating high valuations for companies selling them, and are creating a flurry of mergers and acquisitions as companies such as UnitedHealthGroup jump into the fray.
If you are suppressing a yawn, hold on for a moment.
Tom Barrett of Choice Medical Management (a Health Strategy Associates client) has an interesting perspective on CDHPs. His take is they will actually cause an increase in liability and workers comp claims, as participants, faced with high medical bills, seek to have others cover the costs.
Here’s an example. An individual with a $3000 deductible slips on a neighbor’s sidewalk, sprains their ankle, and goes to the ER. After an MRI and soft cast put on by the orthopod, the bill comes to $2200. The individual looks at their CDHP “account” and sees they have only accumulated $300, but the various medical providers want their money now. Like many Americans, the individual does not have an extra $1900 laying around.
Concerned, he talks to his neighbor, finds out they have liability coverage, and tells the neighbor they will have to file a liability claim. It’s nothing personal, just business.
The liability carrier sends a field adjuster out to the site, interviews the individual and the neighbor, prepares a report, and either accepts or rejects the claim. The injured individual either gets paid, gets an attorney, or ponies up the extra $1900 himself.
Far-fetched? I don’t think so. There are plenty of attorneys looking for work, lots of liability, auto, and workers comp coverage out there, and CDHPs are exploding in popularity (despite their rather limited utility).
What does this mean for you?
If you are a property and casualty writer, watch your new claims carefully. You likely won’t see a sudden leap, but rather a steady increase as people figure out to “go where the money is”.
The law of unintended consequences strikes again. Or, more cynically, perhaps the CDHP developers actually considered this potential outcome

2 thoughts on “Consumer Directed Health Plans – unintended consequences”

  1. Good catch Joe! I wouldn’t bet against this one. Wasn’t there some experimental work done about 10 years ago with ideas of combining coverages? If CDHP plans expand, it might be worth revisiting those ideas.

  2. John – I was involved in several experimental efforts to combine WC and group health, one of which (the ChamberOne program in FL, administrated by Unisource with health coverage from United and WC from AIG) was quite successful and one of which (AIG and United in GA) was not. These did not involve liability coverage, but tried to remove the silo mentality in the employer.
    Both have disappeared, falling victim more to the soft market in WC than to any programmatic deficits.

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Joe Paduda is the principal of Health Strategy Associates



A national consulting firm specializing in managed care for workers’ compensation, group health and auto, and health care cost containment. We serve insurers, employers and health care providers.



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