A solution to exorbitant health care spending?

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Americans spent $3 trillion on health care in 2014, or about $9,523 per person. That’s up 5.3 percent from the previous year. That increase isn’t expected to slow down; for about the next decade, the U.S. government  expects spending to grow 5.8 percent on average each year.

As policymakers look for ways to cut down this spending, one idea gaining traction is to incentivize consumer-directed health plans (CDHP). These high-deductible, low-cost plans are already growing in popularity. About 20 percent of people who are covered by employer-sponsored health insurance are enrolled in some type of CDHP.

In theory, CDHPs would reduce health-care costs because consumers would choose less expensive health care when they pay for it themselves. But does that theory pan out in practice? M. Kate Bundorf, an associate professor of political economy, examines the benefits — and the trouble spots. Bundorf is also a core faculty member at Stanford Health Policy.

How do consumer-directed health plans work?

A CDHP is one type of plan offered by an insurance company. The main idea behind CDHPs was, instead of putting decisions about cost and quality tradeoffs in the hands of the health plan, we’ll put them in the hands of the consumers. There are three features that are generally associated (with CDHPs): One is a relatively high deductible, the second is some type of a personal spending account, and the third is information tools for people to compare costs and quality when they’re choosing care.

People can make decisions that reflect their own preferences. Think about a person choosing between two different drugs to treat their condition. One drug is less expensive, but it has some side effects. Some people would be willing to pay the higher price for the drug without the side effects, and some people would prefer to spend less and be fine with the side effects. People might be very different in terms of the tradeoffs they’d like to make.

Read the full Q&A with the Stanford Graduate School of Buisness.