Enrollee Incentives in Consumer Directed Health Plans: Spend Now or Save for Later?

We propose a model of enrollee incentives in consumer directed health plans (CDHPs) and estimate the model with data from a large employer that offered a CDHP in addition to two traditional health insurance plans. In the CDHP a portion of the enrollee's pretax compensation is placed in an account that can be used to pay for out-of-pocket medical expenses or rolled over to the next year. In a multi-period model, healthy employees should save part of the account to pay for future medical contingencies. We measured health status by the employee's predicted medical spending in the year prior to the CDHP offering. We found that healthy CDHP enrollees tended to spend less in three post-enrollment years than a comparison group of healthy employees who elected to keep their traditional health insurance coverage. However, CDHP enrollees with high predicted spending—a measure of poorer health—spent more than their comparison group of traditional health insurance enrollees in the following three years.