Price Shopping in Consumer Directed Health Plans

Consumer Directed Health Plans (CDHPs), characterized by high deductibles and tax-advantaged personal health accounts, are becoming increasingly popular. From 2006-2012, enrollment in such plans rose from 4 to 19 percent of employees with employer sponsored insurance. The goal of CDHPs is to reduce health care costs while maintaining health care quality through the use of higher value services. Since CDHP enrollees are required to pay for more of their health services out-of-pocket, these plans are thought to incentivize “price-shopping” for medical services.  However, there is little evidence that such price-shopping actually occurs. In this study, we estimate the extent to which consumers in CDHPs price-shop for outpatient services compared to consumers in traditional health plans.

We use health insurance claims for employees continuously enrolled from the years 2004 - 2006 at 18 large firms dispersed across the United States. We compare outcomes from three employers that switched all employees to a CDHP plan (“full replacement”) in 2005 to outcomes from 15 employers that only offered a traditional health plan. Full replacement to CDHP plans takes away employee plan choice, which eliminates selection bias.

We estimate difference-in-differences equations to measure the effect of CDHP enrollment on prices paid for 9 common outpatient services relative to traditional plan enrollees, while controlling for firm and time fixed effects. In addition, we estimate differences in the share of claims that come from low cost providers and the savings from price shopping relative to choosing prices at random.

Preliminary results show that for 8 out of 9 services analyzed, prices paid by CDHP and traditional plan enrollees did not differ significantly; CDHP enrollees paid slightly less for office visits, but the difference, although statistically significant, was negligible.  Similarly, office visits was the only service where CDHP enrollment resulted in a significantly larger share of claims from low cost providers and greater savings from price shopping relative to traditional plans. We conclude that enrollment in CDHPs is not associated with greater price-shopping for most common outpatient procedures.