A study of US companies that have adopted consumer-directed health plans¹ (CDHPs) suggests that the key to maximizing their impact is to design and manage them as an integrated performance transformation program involving substantial senior-executive leadership. The piecemeal method that many companies use makes these programs significantly less effective, the research found. Companies that take a programmatic approach were more than twice as likely as others to report that CDHPs had been “very successful” in both reducing costs and improving the health outcomes of employees. Such findings offer cause for optimism against a backdrop of rising US health care costs and widespread apprehension among executives thinking about implementing—or expanding—consumer-centric health plans.

To learn more about the experiences of companies with CDHPs and other consumer-centric health plans, we surveyed nearly 700 executives and human-resources benefits managers of employers that have adopted them.² The study examined the plans’ cost trends for companies, as well as enrollment levels, the health status of employees, and their degree of financial accountability. We also studied the way companies handled four components of these plans: benefits structures, information and tools, funding mechanisms, and incentives. To supplement the analysis, we conducted six focus groups comprising more than 50 benefits administrators whose companies either have implemented a CDHPs or are thinking about implementing one.

Among the focus group participants, the plans evoked considerable ambivalence: when asked what word or phrase they call to mind, for example, benefits managers responded with words such as “unpopular,” “more work,” and “complex to communicate,” as well as positive attributes such as “healthier employees” and “lower premiums.” Some participants doubted whether employees were prepared to assume more responsibility for their health care spending, while others worried that the education and communications efforts associated with instituting the plans would raise costs for employers. Many expressed hesitation to adopt the plans or expand existing ones. A benefits manager who described consumer-directed health insurance as “the way of the future” added, “I don’t think our company is going to be the first guinea pig.”

Such sentiments are common among executives as they weigh the evidence that CDHPs do succeed—both in cutting costs and in improving the health of employees³—against the additional effort they require. The responses of our survey participants (Exhibit 1) confirm that these plans are more challenging to implement. Likewise, respondents found it harder to educate employees about them—a crucial requirement for success.

We suspect that such challenges contributed to the difficulty some companies had in implementing the plans, but when we looked closer we found a more obvious problem: many companies appear to be taking a piecemeal approach. Specifically, they failed to adopt enough of the components of successful CDHPs and other consumer-centric health plans (Exhibit 2, part 1). Among companies that adopted two of the components (say, a cost-sharing benefits structure and a health savings account), about one-third of the respondents felt that the plan had been “very successful” in controlling costs. Among companies that adopted all four components, 44 percent did. Interestingly, this synergistic effect is even more pronounced for improving health outcomes—an observation that held true for consumer-centric health plans in general (Exhibit 2, part 2).

Why did so many companies in our survey approach the plans halfheartedly? In our view, corporate HR departments (and the insurance companies selling the plans) often treat the individual components as discrete products and don’t consider them as synergistic components of an integrated program, let alone promote the mind-set and behavioral changes required of employees. But when the CEO spearheaded the introduction of a CDHP and it was communicated to employees in an active, high-touch fashion, respondents reported enrolling 30 percent more eligible employees during the first year than did respondents from companies whose plans were led primarily by HR or benefits committees.⁴ Furthermore, respondents from companies where CEOs led the introduction were up to 25 percent more likely to deem the plans very successful in controlling costs.

Such findings, which our experience confirms, lead us to conclude that companies achieve significant, enduring, and positive change in the area of health benefits costs by approaching the issue as they would any properly structured—and led—performance-improvement program. Success requires hard work and leadership, but the results are well worth the effort, to employers and employees alike. For a midsize Fortune 500 company, we estimate that the difference between a successful and an unsuccessful rollout of a CDHP ranges from $25 million to $50 million in savings during the first year alone. For employees, the benefits of consumer-centric health plans apparently extend to financial as well as physical health. Nearly one-third of the benefits managers we surveyed reported that after their companies implemented CDHPs, employees contributed more money both to 401(k) retirement plans and to other voluntary plans offered by employers (Exhibit 3).