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Discuss the economic implications of an evolution toward consumer driven health plans. What are the pros and cons as they affect the wide variety of players in the health care market?
Explain the key differences between fully insured and self insured health plans and discuss the respective advantages and disadvantages to each for large, mid-size and small employers.

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The solution discusses the economic implications of an evolution toward consumer driven health plans. The pros and cons that affect the wide variety of plays in the health care market are analyzed.

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First, consider the history of health plans and how it has evolved towards consumer health plans.

The late 1940s-1950s, saw an increase in employer-sponsored health care.
In the 1960s, Medicare and Medcaid were created. They reduced the need for employer fee-for-service plans.
In the 1970s, the Employee Retirement Income Security Act of 1974 (ERISA) was passed. This is a federal law that sets minimum standards for voluntary health plans in private industry to protect the individuals covered. Large employers introduced self-insured plans (described later in this document).
In the 1980s, managed care was expanded and the Health Maintenance Organization (HMO) was created. Some managed care plans controlled costs by limiting the supply of health care. HMOs controlled costs by paying doctors fixed salaries.
In the 1990s, Preferred Provider Options (PPO) were available. PPOs shifted the risk of healthcare to providers.
Starting from around 2008, there was an evolution towards consumer driven health plans so that consumers would take responsibility for their own health.
(source: https://www.businessgrouphealth.org/pub/f315acf5-2354-d714-51ed-8a85aa7ebea0)

A consumer-driven healthcare plan (CDHP) is a catastrophic health coverage plan with a high deductible that allows members to pay for health care expenses from a health savings account (HSA). By having a plan with a high deductible, the member is encouraged to make a personal effort to stay healthy.
(source: http://www.gbophb.org/assets/1/7/4087.pdf)

There are several economic implications in this evolution. Firstly, CDHPs are meant to reduce health care spending; by having a high deductible, consumers are more aware of the financial implications of their choice of treatment. Studies conducted by The Synthesis Project show that in the cases of outpatient services and pharmaceuticals, CDHPs have reduced health care expenditures, but other than that, CDHPs have not changed the health care markets much. The results of the studies showed varying levels of health care utilization by members. The evidence shows that CDHPs do decrease health expenses among low- and medium-risk members. Note that most of the healthcare ...

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J Pye, MSc
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  • MSc, California State Polytechnic University, Pomona
  • MBA, University of California, Riverside
  • BSc, California State Polytechnic University, Pomona
  • BSc, California State Polytechnic University, Pomona
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