This trend could transform both the health industry and employers' health responsibilities to employees.

All businesses in America, especially small ones, are concerned about health care costs and the related problem of attracting and keeping the best, front-line, service employees. Because of critical and still climbing health insurance costs, there is a justifiable and growing buzz about “health savings accounts” (HSAs) as a tool for reducing health insurance costs. But HSAs are more than a short-term, cost-control tool, they may be the catalyst that will power a trend that already has traction called “consumer-driven health care” (CDHC). This trend could, in turn, transform - not reform - both the health industry and the health responsibilities of employers to their employees. All businesses will do better in the people talent war if they can correctly read and catch this wave.

What's CDHC?

“Consumer driven” simply means that the customers spend their own money their way on some good or service to achieve their personal definitions of: best total value, convenience, choice and control. Most goods and services in the United States are bought this way, but health care, as well as government monopoly services like the postal service and public school education, are not. Because of “third party payment” for medical services by paternalistic corporations on behalf of their employees or by governments on behalf of their Medicare or Medicaid receiving citizens, we don't get “consumer driven” benefits with health care. The health providers have evolved, instead, to please big intermediary buyers like HMOs, big corporations and Uncle Sam. The unintended consequences of our health care system's evolution are: climbing sick-care costs, declining wellness statistics, and consumer frustration with network provider choices, required and often inappropriate medical decisions and bureaucracy.

In the '80s and '90s, “market-driven health care” created enormous consolidation of both buying power for health services through HMOs and PPOs and of integrated health provider services. Delivering one-stop-shop, integrated services efficiently “utilized” was the name of the game. Until the mid-1990s, HMOs delivered less inflation in costs than all other alternatives. Since then, however, HMOs have raised prices as fast as alternatives, and all provider solutions have averaged double-digit growth rates for the past six years.

Is CDHC A Trend? With Traction?

One of the earliest prophets who foresaw CDHC as an eventual solution to our current mess was Regina Herzlinger, a Harvard Business School professor. In her book, “Market-Driven Healthcare: Who Wins, Who Loses in the Transformation of America's Largest Service Industry,” which was published in 1997, she predicted among other things:

  • The demise of HMOs

  • The malfunction of integrated health systems

  • The emergence of “focused factories” and

  • The rise of CDHC.

Most people thought she was crazy at the time, but she's looking smarter now. She had a second book ready to be published in 2002 titled “Consumer-Driven Health Care,” but it wasn't released until April 2004 because she thought that the targeted audience was not ready for its visionary contents. Her faith in the power of consumers and free markets to change U.S. health care hasn't wavered. But, how big is this wave and how long will it take to get here? Will CDHC starring HSAs make a dent in our health care system or transform it? The answers depend upon a lot of issues and questions. Here are a few to consider:

  • Will the Bush administration continue to legislate enabling refinements for HSAs and push government procurement choices towards CDHC?

  • Will the states' health regulations and tax policies change to enable or hinder HSAs?

  • Will corporate America embrace HSAs?

  • Will insurance companies race to offer competitively priced HSAs that will shrink their total premium volume and administrative activities?

  • Will third-party administrators for HSAs offer competitive service fees, debit cards, checks and an array of investment vehicles for the funds that accumulate in HSAs?

  • Will health care providers figure out and share their prices for all of their services in some consumer-friendly way?

  • Will corporations learn: how to 1) shop for HSAs, 2) sell them to employees, 3) migrate ever more employees to them, and then 4) follow up with new necessary support services: improved wellness programs, education on how to fund HSAs and how to shop for health services?

  • Will employees shoulder the responsibility for spending the company's traditional premium dollars that are now passed through their own HSAs?

Based on what I've been reading and learning from client experiences, the answer to all of these questions is “YES,” although at different speeds for different members in every group, including state governments. The slow movers in every group - state governments, insurance providers, administrators for HSAs, health providers, businesses and even employees - will find themselves left behind because the underlying power of turning over a big percent of the gross national product to let consumers buy their own health care on their terms will be huge.

How Fast Will All Of This Happen?

Who knows? There are lots of interdependent variables that are being stirred and heated in this health care industry stew, so forecasting dates is difficult. From a big corporate perspective here are a few recent news bits that suggest “bigger and sooner” than most people think:

  • Aetna, the country's largest independent health insurance carrier, has more than 1,000 people working on “CDHC products” and Web-enabled support services. Right now, 50% of its Request for Proposals (RFPs) from national accounts are requesting some sort of CDHC product.

  • United Healthcare, another top 5 carrier, paid more than $500 million to buy Golden Rule, the insurance company with the most historical experience in CDHC products, and it is starting up its own bank to offer integrated administration services for HSAs.

  • Regence BlueCross/BlueShield of Oregon is getting out of the fast-fading HMO business and making a huge play for CDHC products. This is a turnaround story and not at all typical of most of the Blues, which have been slow to offer CDHC products and not aggressive in their initial pricing for premiums on policies that qualify for HSAs. All Blues intend to offer HSAs by January 2006.

  • Countless big banks and investment firms have announced that they are offering administration and investment services for HSAs.

Here are some findings from grass roots surveys:

  • A Hewitt survey determined that 8% of companies offered HSAs as an option to their employees in 2004, and another 18% will offer them in 2005 for a cumulative total of 26%. If you put this finding next to Aetna's experience in point No. 1 above (50% of national accounts), it would suggest that the vast majority of small firms - that could potentially get the biggest human resource benefits from HSAs - are still not offering insurance or clued into the total strategic potential of HSAs.

  • In the 2005 “Annual Benefit Buying Trends Study” by the National Association of Health Underwriters (NAHU: the independent insurance brokers or “producers”), 77% of the respondents see CDHC as the solution to the national health care inflation problem. This is an increase of 12% over the year before. That's a huge increase for “bigger and sooner” from a group of highly pragmatic people who intersect with a lot of businesses across the country!

From personal interviews I've run into some firms that are interested in HSAs, but frustrated because they are in high-regulated, high-insurance-cost states like New Jersey, New York, Massachusetts, Rhode Island, Hawaii, etc. In these states, HSAs are not affordable, or in some cases yet available. Ten states, including Wisconsin and California, do not yet allow contributions into HSAs by either the company or the employee without paying state income taxes. States unfriendly to HSAs will lose jobs to other states that embrace them (as well as to Asian countries with no employment overhead costs). If your firm is in a CDHC-unfriendly state, make your political voice heard. The National Association of Wholesaler-Distributors (NAW) and the National Federation of Independent Business (NFIB) are examples of two small business groups that are aggressively supporting more enabling legislation for HSAs and Association Health Plans (AHPs). Association Health Plans used to be effective buying groups for small business health insurance in 1990 before a growing patchwork of state regulations made them uneconomical. New legislation in the congressional pipeline would make AHPs even more valuable than they were in 1990. Find out more at and


The CDHC trend has traction. HSAs are growing faster than all experts predicted one year ago. Make this trend your strategic friend by looking at HSAs through bifocal lenses. Through the short-sight lens see HSAs as a tool to trim health insurance costs. Through the long-sight lens see HSAs as a way of promoting better health and savings wealth for all employees. See the transition from paternal health care to self-empowered health care as a several-year, migratory process, but get started now. Every company's longer-term goal should be to attract and keep higher-energy, more self-responsible employees while letting slumbering competitors be(come) a home for passive, dependent people who are looking for someone to take care of them at a higher total health cost. Remember, though, to catch a wave, you have to see it, build the right board and paddle into position to catch it. <<