Is Indiana’s Consumer-Driven Health Plan Experiment the Right Model for Other States?

In his Wall Street Journal op-ed article, Indiana Governor Mitch Daniels stated that “(t)here will be no meaningful cost control until we are all cost controllers in our own right.” This belief has shaped Indiana’s health care reform experiment, which strongly encourages state workers to participate in a high deductible, low premium consumer-driven health care plan combined with a health savings account as opposed to the traditional PPO plan.

The idea behind consumer-driven health care is that if people must pay for a larger portion of their health care out-of-pocket, they will be more conscientious regarding which services they elect to receive and will be less likely to overspend on services that are not necessary. Many, such as Daniels, believe that the majority of plans, which require patients to pay less out-of-pocket, encourage wasteful health care spending and the perception that the individual can “buy health care on someone else’s credit card.”

Under Indiana’s highest deductible consumer-driven plan, a non-smoking employee’s premium for family coverage is $10.16 bi-weekly, in contrast with the state’s traditional PPO premium, which is $289.04 bi-weekly for a non-smoker. The plan pays 80% of medical costs after the insured meets a deductible of $5,000. To assist the employee in meeting the deductible, the state contributes approximately half of the deductible amount to the employee’s health savings account. Employees may contribute pre-tax dollars to the health savings account and any unused funds are carried over.

Indiana has seen unprecedented success in employee enrollment in the consumer-driven plans, which have been offered since 2006, with over 70% of state workers electing them over the traditional plan in 2010. According to Mercer Consulting’s 2010 case study, the consumer-driven plans were projected to save Indiana $17-23 million and state workers and their families $7-8 million that year. Mercer concluded that the savings were due to significantly less usage of health care resources and services compared to those insured under the PPO plan; however, Mercer did not find evidence that participants in the consumer-driven plan were avoiding care due to the higher deductible.

Given the savings demonstrated for both the state government and the insured employees, one may expect that other states in the union would be rushing to implement such plans in their public sectors. However, evidence shows that employee support has been poor, with merely 2% of state employees enrolling in consumer-driven plans offered in other states.

So why has Indiana succeeded where other states have failed?

According to Stateline, Indiana’s success can be largely attributed to its intensive effort to educate state employees on the consumer-driven programs and its contributions to health savings accounts. Other states may be reluctant to request legislators to make room in already-overstretched state budgets to take the initial risk of funding employee accounts. One of Governor Daniels’ first acts when he took office was to eliminate collective bargaining rights for state employees, which may also be a contributing factor to the success of the experiment. However, in many states, such attempted measures have been hotly contested and many unsuccessful. Additionally, there is a concern that along with greater participation in consumer-driven plans will come higher costs.

Do you think that consumer-driven health plans in the public sector are the answer for other states attempting to cut health care costs? Is it a model for federal health reform?