Consumer-directed healthcare (CDH) accounts were created to engage consumers more directly in making healthcare decisions and choosing how, when, and where to spend their healthcare dollars. However, the direction of tax-advantaged CDH accounts has been changing in the face of evolving technologies, shifting economic conditions, and the COVID-19 pandemic. Where might they be headed over the next several years?
As the coronavirus moves steadily toward endemic status, we are finding more ways that the pandemic has permanently impacted the American psyche and way of life. The last two years have changed our tolerance for risk, how we evaluate and act on our needs, and our entire spectrum of purchasing behaviors. For example, eight out of 10 people say their shopping habits have changed. We now focus more on value-based purchasing and shop online more than ever.
Healthcare has been affected by a similar trend. McKinsey predicts that consumers who altered how they manage their healthcare during the pandemic will retain those behavioral changes. If true, then a brief examination of what’s driving changes in our industry, the technology enabling those changes, and how employee benefits will likely adapt in response can help us prepare for future impacts to the CDH market.
What new trends are driving industry change?
Telehealth as an Alternative
As we emerge from the pandemic, the impact from telehealth on healthcare is readily apparent. For example, the percentage of U.S. adults in 2019 who had ever used telemedicine or had a telehealth appointment ranged from a low of 1% among ages 65+ to a high of 16% between ages 18-34. Compare that to March 2021, when more than 61% across all age groups reported having used telemedicine or had a telehealth appointment at least once.
While telehealth usage has since declined, it remains two to three times pre-pandemic levels and consumers continue to see telehealth as an important option for future digital healthcare needs. Some of the pandemic-era regulatory changes that helped expand telehealth usage – such as the 2021 expansion of reimbursable physician telehealth codes by the Centers for Medicare and Medicaid Services (CMS) – are now permanent.
No More Surprises
Traditionally, consumers have not shopped for healthcare services, particularly in the case of urgent care. However, accepting services without knowing the total cost, or at least the out-of-pocket share, has exposed numerous consumers to major indebtedness and even bankruptcy.
To address this problem, Congress enacted the No Surprises Act in 2022. The Act requires providers and care facilities to make pricing available upfront in easy-to-understand terms. Implementation is underway, albeit going slowly. Here's an example of how the No Surprises Act will impact healthcare delivery and billing.
A patient is scheduled for an operation at an in-network hospital that will be performed by an out-of-network (OON) surgeon. Under the No Surprises Act, the OON surgeon cannot balance-bill the patient (bill directly for any amount above what their insurance pays) unless there is also a qualified in-network (IN) surgeon available at the hospital. Even then, the OON surgeon can only balance-bill if the patient expressly consents in advance to being balance-billed by the OON surgeon rather than switch to the IN surgeon.
Measuring Patient Satisfaction
Customer satisfaction can be more challenging to quantify in a service industry like healthcare than in product-based industries. For instance, a restaurant might receive a poor rating if a customer does not like his meal. Does it mean the food is terrible? Not necessarily. Taste is subjective.
A person’s healthcare tastes and preferences are also subjective. According to the Agency for Healthcare Research and Quality, the healthcare industry is responding to technological advancements in part by focusing on measuring consumer satisfaction in new ways. For example, new patient satisfaction metrics attempt to balance the provider’s view of whether a healthcare encounter met expectations against the patient’s perception of the experience.
How is technology driving digital healthcare changes?
In their 2022 Future of Healthcare report, the Healthcare Information and Management Systems Society (HIMSS) found that 80% of healthcare providers plan to increase their investments in technology, from personalized medicine to genomics to wearables.
Technological advances in artificial intelligence (AI) and sensors are helping millions of consumers avoid severe illness and manage chronic health conditions using coin-sized body patches, smartwatches, and other devices small enough to wear on the wrist.
However, a lingering skepticism from clinicians has prevented fast adoption of these technological advances by healthcare providers. Some providers have indicated that if a technology fails to increase efficiency or fit easily into their workflow, they are not interested in using it. Only 10% of doctors surveyed by Deloitte say they have integrated data from patient wearables into electronic health records. Still, the potential impact on patient wellness driven from these technological advances will most likely force adoption over the coming years.
The Six Dimensions of Patient Wellness
Valuing the wellness market at $1.5 trillion, McKinsey & Company determined in a 2021 study that consumers now look at wellness as having six dimensions:
Better health – going beyond medicine to using wearables, apps, and similar devices
Better fitness – choosing home-based solutions such as Peloton and Tonal in addition to traditional gym facilities
Better nutrition – looking to food to be convenient and help meet wellness goals, not just taste good
Better appearance – demanding more athleisure apparel, skincare products, and nonsurgical aesthetic procedures
Better sleep – consuming sleep-enhancing products such as medications, gravity blankets, sleep induction apps, and sleep trackers
Better mindfulness – using meditation-focused apps and classes and seeking more mindfulness products and services
Within each dimension, a higher number of respondents said they would be spending more in the future on associated wellness pursuits than spending less. This represents excellent growth opportunities for the companies that step up to meet this demand.
Digital Healthcare Hardware Trends – Smartwatches and Medical-Grade Wearables
Fifteen percent (15%) of American adults owned a smartwatch as of the third quarter of 2021. About one in seven (15%) acquired their device since the pandemic began.
Deloitte predicts that by 2024, 440 million consumer health and wellness wearables will ship to consumers worldwide, a jump from 320 million in 2022. These include both medical-grade wearable devices and smartwatches, many of which now have heart rate monitors and similar tools by default.
Manufacturers are working to develop optical sensors for consumer use that can measure variations in blood volume and composition, heartbeat pattern anomalies, stress, and activity levels. They are also working to improve the ability of smartwatches to monitor blood pressure, which could explode the market by tapping into the 1.3 billion adults worldwide who suffer from hypertension.
Digital Healthcare Software Trends – Medical and Wellness Apps
In its 2021 Health and Life Sciences Experience Survey, Accenture surveyed nearly 1,800 adults to learn if digital adoption had become “a reaction or a revolution.”
They found that consumer use of mobile apps for healthcare and wellness services have actually decreased. Consumers are lagging in adopting mobile apps because they do not trust technology companies to safeguard the privacy of their healthcare information.
Even so, 33% of those surveyed said they would be more likely to use a digital healthcare app if specifically recommended by their healthcare provider, and 30% would do so if it meant getting better information about their health.
How are employee benefits adapting?
As priorities have shifted, there is already widespread evidence that healthcare consumers are forcing changes in employee benefit programs.
Physical Health Benefits
Coming out of the pandemic, consumers have become more engaged in their health and see technology as an opportunity to take charge of their well-being.
Distributed Care Will Grow
Distributed care means meeting patients where they are. During the pandemic, for example, personal protective equipment, testing supplies, and vaccines were accessible outside traditional healthcare delivery facilities, such as in homes and community centers. The move toward more distributed care lessens socio-economic disparity in healthcare access and is likely to continue.
Digital Healthcare Tools Will Expand
Expanding the role of telemedicine during the pandemic was essential to promoting personal health and safety. Perhaps counterintuitively, it also promoted stronger relationships between providers and patients by creating the opportunity for more timely and individualized care. Improvements in accessibility, connections, and quality of care driven by the sharp increase in pandemic-era telemedicine usage will propel this trend forward unabated. Consumerism has also driven demand for personalized products, such as at-home testing kits and online nutrition education.
Mental Health Benefits
Coming out of pandemic-related stress and anxiety, workers are demanding that employers give more attention to mental and emotional health and wellness. Thanks to new digital options, accessing mental health care has never been easier or more accepted. Talking with a therapist via video call has become commonplace, for example, and those who still feel a stigma related to seeking therapy can get help more privately.
The American Psychological Association reported in their 2022 Work and Well-being Survey that 81% of workers would look for employers who support mental health when seeking future job opportunities. Three out of ten (30%) said that employer support for mental health would influence their future job decisions.
In Mental Health in America: A 2022 Workplace Report, the Society for Human Resource Management (SHRM) summarized the state of mental health benefits as follows:
“In this hypercompetitive labor market, organizations must prioritize providing mental health resources. It’s a win-win situation – businesses can benefit by recruiting and retaining top talent, and workers benefit by having access to resources that will improve their lives.”
Employee Benefit Programs
Throughout history, employee benefits have evolved to meet changing needs.
Group Health Insurance
Before the 1920s, structured group health insurance did not exist. Medical science could not yet successfully treat many conditions, and there was little healthcare infrastructure.
Now, the biggest change in traditional group health insurance is that the percentage of Americans covered by such plans is expected to decline as employers embrace other options, notably the Individual Coverage Health Reimbursement Arrangement (ICHRA). Although not a response to digital healthcare advancements per se, the rise in ICHRAs does intersect with the simultaneous rise of consumer engagement in personal healthcare.
Lifestyle Spending Accounts (LSAs)
Although they have existed for some time and are post-tax accounts, LSAs are experiencing a sharp rise in popularity due to their flexibility and versatility. The lack of regulatory restriction makes it possible for employers to address all six consumer dimensions of wellness with a single benefit account plan. Additionally, since there is no calendar restriction on LSAs, employers can implement them at will to help support employee wellness incentives and usage of digital health tools such as smartwatches and other wearables, apps, and more.
FSA, HRA, and HSA Expense Eligibility
Expenses eligible for reimbursement under existing tax-advantaged benefit accounts – FSAs, HRAs, and HSAs – will most likely continue to evolve in response to the growth in digital healthcare technologies. For example, Section 223 medical expenses do not currently include smartwatches, regardless of the amount of health monitoring capabilities they have. For reimbursement consideration by these accounts, a letter of medical necessity is required. This and similar restrictions will likely change as the use of digital healthcare devices grow.
Key Takeaways
About the Company:
Founded in 1984, DataPath, Inc. is an administrative solutions provider for tax-advantaged healthcare benefit plans, including FSAs, HRAs, HSAs, COBRA, and other employer-sponsored benefits. The company also created the award-winning employee education and engagement program, The Adventures of Captain Contributor.