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Although evidence is limited, early indications are that consumerdirected plans are having a moderating effect on costs and cost increases.by Melinda Beeuwkes Buntin, Cheryl Damberg, Amelia Haviland, Kanika Kapur, Nicole Lurie, Roland McDevitt, and M. Susan Marquis ABSTRACT: Demand for consumer-directed health care (CDHC) is growing among purchasers of care, and early evidence about its effects is beginning to emerge. Studies to date are consistent with effects predicted by earlier literature: There is evidence of modest favorable health selection and early reports that consumer-directed plans are associated with both lower costs and lower cost increases. The early effects of CDHC on quality are mixed, with evidence of both appropriate and inappropriate changes in care use. Greater information about prices, quality, and treatment choices will be critical if CDHC is to achieve its goals. Co n s u m e r-d i r e c t e d h e a lt h c a r e (CDHC) has emerged in recent years as one of the most potent ideas in health care reform. In the eyes of its champions, health care costs are high and quality is low because our current system of insurance fails to provide consumers with incentives to use care wisely and shop for high-value services. CDHC advocates argue that giving consumers incentives to be prudent managers of their own health and health care will engage market forces in controlling costs and improving quality and outcomes.A number of policy changes have already been implemented to facilitate a shift toward CDHC. Legislation enacted in 2003 paved the way for tax-free health savings accounts (HSAs) to be paired with high-deductible insurance policies, an arrangement intended to make consumers cost-sensitive without subjecting them to the financial risk of a catastrophic illness.w 5 1 6 2 4 O c t o b e r 2 0 0 6 C o n s u m e r -D i r e c t e d C a r1 The Bush administration has proposed making premiums tax-deductible for individuals purchasing HSA plans to bolster the nongroup market for consumer-directed policies and to expand coverage. Further, some policy experts have called for making all health spending taxdeductible, to reduce incentives to elect traditional employer-provided health insurance with generous up-front coverage.2 In addition, advocates of CDHC are seeking to apply its principles to Medicare and Medicaid beneficiaries with chronic diseases. 3Demand for CDHC is growing, and early evidence about its effects is beginning to emerge. In this paper we first examine recent trends in CDHC enrollment and then review the literature about the potential threat posed by adverse selection between consumer-directed and comprehensive plans. We also review the literature on CDHC's effects on health care use, costs, and quality. Finally, we present supplementary data on the role of information under consumer-directed plan designs. We conclude with recommendations for policy and future research.