Is consumer-driven health the Next Big Thing of the investment world? And if so, what will the market’s reaction mean to the consumers and HR executives directly involved in the plans?

Speaking at the Consumer-Directed Health Conference, Wall Street analysts Adam Miller, of The Williams Capital Group Ltd., and Ben Rooks, of Shattuck Hammond Partners LLC, offered views from the financial side of the burgeoning consumer-choice trend.

Rooks cited estimates that consumer-directed health premiums will swell from roughly $10 billion this year to $450 billion by 2010. Predictions of such rapid growth, he said, will certainly capture investors’ attention.

Miller, in his presentation, concurred, noting that consumer-driven health care seems to break down barriers to entry in a tough market.

But Rooks stressed that investors, having been “burnt” by recent markets, have raised their standards. Before buying a stake in consumer-driven health companies, investors will want proof that those companies have a sustainable business model, as well as relevance to both investment and consumer markets.

An additional reason for caution, said Miller, is the still-unknown effect of consumer-driven health care on the larger health care market. Potential issues include whether lower prices will reduce the revenue streams of health care companies and — depending on the demographics of new CDHP consumers — whether the risk profile will change for non-CDHPs.

Investors, said Rooks, will also seek security in the size of consumer-driven health companies, which may prompt those companies to expand their offerings, or to “simply bulk up through acquisition.”

Miller likewise suggested that acquisitions and consolidations could be in the near future for CDHPs, predicting that the industry winners will be those who adopt CDHPs early and those who can offer such plans on a large scale. He mentioned Lumenos, Definity, Destiny and others as possible candidates for acquisition.

Miller also raised the possibility that, as HSAs become more widespread, financial services firms such as Mellon will buy health care firms so as to provide integrated offerings of health insurance and savings accounts.

Talk of consolidation, Rooks acknowledged, may be a source of worry for HR executives in the midst of vendor selection. He offered several suggestions for due diligence to help employers choose vendors that “will still be there tomorrow”:

• Examine the vendor’s balance sheet closely. In particular, consider their R&D spending and their technology vision. (Numerous other presenters echoed the point that consumer-driven health care demands the innovative use of Web technology, both for patient communication and research and for ongoing administration.)
  
  
• Remember that investors “drive more” than consumers. To the vendor, share price may carry more weight than the number of enrollees.
  
  
• Take governance issues into account; “remember the lessons of Enron.” This year’s presidential election will also affect the market and the regulatory environment.
  
  
• If the vendor is a nonprofit organization, remember that their time horizon is different from that of both public and private for-profit companies.
  
  
• Finally, keep in mind that, as an HR decision maker, you are purchasing a product or service — not a stock. Share price and performance are “secondary at best” to the appropriateness of the vendor’s offering.

Both Miller and Rooks cautioned the audience that the CDHP model is so new that no one truly knows how it will play out in the market. HR decision makers, like employees, will have to educate themselves before their purchase.