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Why High Deductible Plans Matter

Someone once showed me an analysis that demonstrated that the sum of workers’ salaries and benefits has stayed remarkably constant in real terms over the last two decades.  This means that companies have compensated for the increasing cost of health insurance over time by holding back on wage increases.

You can understand this.  After all, if companies are not able to increase the price of goods and services they sell to the public, they need to hold factor costs relatively constant.  So if it was costing them more and more to provide health insurance to their workers, an offsetting amount would have to be removed from possible wage increases.

This dynamic is still in place, but it is showing up in a different way, by shifting costs to workers in the form of higher deductible health insurance policies.  Deductibles are different from co-pays, where you plunk down $15 or $20 for each appointment or prescription.  With deductibles, you pay the first costs incurred as you and your family make use of the health care system, the entire cost of the office visit or of the prescription, until a preset amount is reached.  After that level is reached, you still pay the co-pays.  A recent story in the Washington Post documented this trend.

Currently, this kind of high-deductible policy is often combined with health saving accounts that are funded by the employer.  These accounts let patients buy medical services and drugs with pretax dollars.   So, although your insurance plan might require you to pay more of a deductible out of your own money, you could still use the HSA to cover those out-of-pocket expenses.

But the article suggested that this remaining employer contribution, the HSA, is likely to evaporate over the coming years.  “Half of all workers at employer-sponsored health plans — including those working for the government — could be on high-deductible insurance within a decade, according to a new paper from Rand Corp.”

Is this good or bad?  Supporters of high deductible plans say that the only way to make sure consumers have some “skin in the game” when it comes to society’s rising health care costs is to assign some of those costs to the consumers.  If you know, for example, that you will pay for the first $1000 of your annual health care costs, perhaps you will shop around when you need that MRI.  Instead of going to the local hospital, you will go to a specialized imaging center.  Perhaps, too, you will be less likely to go the emergency room for something that could wait a day or two.

On the other hand, opponents say that this kind of approach is unfair to people with chronic diseases like arthritis or diabetes.  They argue that these people make fewer discretionary choices when it comes to treatment.

Some people suggest that companies are “word-smithing” the trend to make it sound like it is in the public interest, even though it is really driven by corporate finances.   The article quotes Jonathan Oberlander, a health policy professor at the University of North Carolina. “Employers like it because they’re providing less coverage. If they can relabel it as consumer-driven then it even sounds good.”

One variant on high deductible plans is to allow consumers a lower deductible if they get their medical care at a “limited network.”  This would be a group of doctors and hospitals that agree to charge the insurance company less than a group of higher paid doctors and hospitals in the community.  You, as consumer, would choose.  If you really wanted to go to Dr. Really Famous at the local academic medical center, you would be responsible for the much of the cost, but if you went instead to Dr. Relatively Unknown at a community hospital, you would only be responsible for a small co-pay.

Perhaps, too, your deductible would be waived if you agreed to participate in an annual health care assessment.  The Post article told of one such plan:  “Chrysler introduced a preferred-provider plan with family deductibles as high as $3,400 for salaried workers…. The deductible falls to $1,000 for in-network care if employees receive a physical and take other steps such as completing an online health assessment.”

Of course, none of this works at all if the rates and charges assessed by doctors and hospitals are not transparent to the public . . . and if we have no quality indicators that tell us what we are getting for our money when we choose between Dr. Famous and Dr. Unknown.  Thus far, where such information is available, it is woefully out of date, often two or three years old.  If high deductible plans are coming our way, we should be demanding of our state government that both real-time price and quality data be available for all to see.

Paul Levy is the former President and CEO of Beth Israel Deaconess Medical Center in Boston. For the past five years he blogged about his experiences in an online journal, Running a Hospital. He now writes as an advocate for patient-centered care, eliminating preventable harm, transparency of clinical outcomes, and front-line driven process improvement at Not Running a Hospital.

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NickAffordable Health Insurance FLSteveHPeter1Bill Springer Recent comment authors
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Nick
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Nick

The real problem with high deductibles is the issue of doctors billing unnecessary fees. For instance, I go to a specialist and pay $175 for the visit. He looks at me ( by look I mean sits ion his chair and uses a stethoscope once. Then I get a bill for $35 after the visit. Maybe he was upset because I cancelled the visit since he wanted a return visit of $1200 to put a camera down into my stomach to figure out what’s wrong. The big issue is that patients will start toughing it out instead of paying (… Read more »

Bob Hertz
Guest

thank you Barry!

it is high time that someone provides solid actuarial proof that the Republican litany of “more skin in the game” is so much baloney!

Affordable Health Insurance FL
Guest

I have lots of clients on high deductible plans. It is a good way to save middle class Americans money on their monthly insurance costs and still covers doctors visits, and in a catastrophic situation they will only be out the cost on their deductible and not up to hundreds of thousands of dollars.

Barry Carol
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Barry Carol

“In his libertarian book The Cure, David Gratzer used an illustration where the premium would drop from $8000 a year for low deductible policy down to $3,000 for a $2500 high deductible policy” Bob – This defies common sense. Experts have told me in the past that if you take the first $5,000 of medical claims incurred by an insured population, including the first $5,000 for the very expensive cases, it would amount to between 25% and 33% of total medical claims and probably closer to the lower end. Presumably, insurers expect to earn the same profit margin from its… Read more »

bob hertz
Guest

I just went onto ehealthinsurance.com, and I plugged in an imaginary family of 2 forty year olds in good health and two children. For a premium of $650 a month, they could get a policy with a $4,050 deductible. For a premium of $360 a month, they could get a policy with a $14,200 deductible. Several thoughts come to mind– a. on the latter policy with the huge deductible, I assume that the insurance company makes out like a bandit. They will almost never have to pay a claim. b. This sure was not what the early advocates of high… Read more »

Bob Hertz
Guest

Without employer assistance or government subsidies, people buy what they can afford. It is no different than food or cars. A person whose income is $2000 a month can afford about $150 a month for health insurance. Go on any health insurance website, and the only plans available for that amount will have very high deductibles. The ACA has a million imperfections, but one thing to its credit was that it at least acknowledged the inadequacy of the free market. If the ACA subsidies survive, then the person making $2000 a month will pay $150 and then the government will… Read more »

SteveH
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SteveH

I was at a small, rural hospital a few weeks ago talking to the CEO. He said a lot of families in his area are buying high-deductible plans (up to $10,000 in a deductible). Really bad for his hospital because they don’t have the 10 grand and when they come to the ER and get treated they don’t have much if any money, can never meet the deductible and his hospital ends up eating the loss for people who are supposedly “insured.”

Peter1
Guest
Peter1

Who’s selling these plans? Sounds like the health insurance equivalent to predatory lending.

That’s how I see these plans, great for financially secure people but a joke for those people without enough disposable income to make the plan work for them. I have a HD home insurance policy, but I have ample resources to cover an initial loss.

SteveH
Guest
SteveH

Don’t know who sells them. I agree, they don’t work at all if you don’t have a lot of money.

Nick
Guest
Nick

Good, maybe he will actually price things what their worth when a lot of people start coming in. I know several people who just tell the hospital they have no insurance when they have a high deductible plan. Saves then 80%. I don’t do it, but I hear people laughing about all the time.

Barry Carol
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Barry Carol

Steve – I’m all for listening to customers (patients) and trying to be responsive to their needs and concerns. Unfortunately, commercial payers historically considered the employer to be the customer and not the member. Employer and member priorities can be quite different and often in conflict. Public payers respond mainly to lobbyists for the various healthcare industry interest groups in formulating coverage and payment policy. If patients expect their needs to be addressed going forward, I expect them to develop some consistency between what they want and what they’re willing to pay for. Significant tradeoffs are inevitable and people must… Read more »

Bill Springer
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Bill Springer

Going for major healthcare procedures requiring extensive hospital inpatient care is not like running down the street for a gallon of milk or loaf of bread. We can’t afford a convenience store model of health care delivery, e.g., a tertiary care facility on every other block. To Steve’s point, the 79 year old patient with a spouse and pet at home will have to make arrangements, hopefully with the assistance of a health plan or hospital care manager, for transportation and other related costs.

Barry Carol
Guest
Barry Carol

Steve – I hear you and I appreciate your perspective from the trenches. I think we will have to move away from the fee for service payment model over the intermediate to longer term. I could envision large hospital systems owning enough physician practices, labs, imaging centers, physical therapy centers, etc. to provide a complete but narrow network within its region. It may be able to perform the insurance function itself and sell policies directly or partner with an insurer with more expertise in risk assessment and estimating likely medical costs for a population. It would, in effect, then bid… Read more »

steve
Guest
steve

Maybe, but it would likely require several trips a day. Lots of older family go home during the day and come back so that they can take care of the family pet. I suppose we could then pay for pet care also, but really, my point is just that if we want to change things, we really need to know what patients and families actually want and do.

Steve

Bob Hertz
Guest

No one seems to be addressing my point yet, which is this;

how many people have a high deductible plan with no HSA whatsoever?

This may be a hard statistic to find, I understand that.

But I do think it is an important one.

As someone who has sold insurance to small groups, I will testify that plenty of them offer a high deductible with zero financial support.

Bob Hertz

Bill Springer
Guest
Bill Springer

When high deductible health plans were first rolled out about ten years ago, they were intended to be coupled not only with health savings accounts but with additional consumer shopping tools to help consumers make better decisions about health care. Larger health insurance companies such as UnitedHealth are deploying next-generation tools to provide consumer transparency into the costs of health care, not only for individual providers but at the episode of care level, to help us fully realize the benefits of more informed consumers making decisions about health care knowing that their financial resources are being spent via the health… Read more »

Miranda Spriger
Guest

High deductible health plans have been the only market-based approach that has gained traction so that patients have some “skin in the game”. This is important because you see providers and payers being squeezed economically. Furthermore, I would say a large percentage of providers resent the fact that they are more responsible for patient outcomes, even after patients leave the clinic/hospital, even though they can’t control what happens outside of their institution. As the article notes, the HSA/HDHP approach requires greater price and quality transparency as well as an educated public, and companies like Castlight Health and Sprig Health are… Read more »

Bob Hertz
Guest

In his excellent article, Paul notes that “this kind of high deductible policy is supplemented by health savings accounts funded by the employer.” This is not true in much of the country, and it is totally untrue in the individual market. Paul may only be exposed to larger and more generous corporations, and that is not his fault but it leads him to under-estimate the problem. I sell high-deductible insurance, and the vast majority of buyers that I see are going “naked” on the first $2500 or $5000 of exposure. The main reason is that the darned high deductible coverage… Read more »

Miranda Spriger
Guest

@Bob Hertz: America’s Health Insurance Plans Center for Research and Policy produces an annual report that explains the enrollment of HSA/HDHP plans across the US. Plans that combine these “products” have grown over 120% in the past 5 years, and growth has been seen across the US. Plans offered by small groups have grown about 66% in the same time period, so HSA/HDHP plans offered by smaller companies are still growing, just not to the same extent as larger companies.

Barry Carol
Guest
Barry Carol

Steve – I agree that the 50% of patients with the lowest health care costs consume only 3%-4% of total healthcare resources. Indeed, according to the Kaiser Family Foundation, in any given year, 25% of the population consumes no healthcare whatsoever. I think the potential savings from skin in the game, high deductible insurance plans, HSA’s, etc. are comparatively marginal in the scheme of things. The real savings will be driven by doctors doing a better job of ensuring that high cost patients get appropriate and necessary care from the most cost-effective, high quality providers. In your own group, if… Read more »

steve
Guest
steve

I have lunch every now and then with our marketing guys. All policy people should, IMHO, do something similar. What they always tell me is that it is very difficult to move market share. People, and insurance companies, are not moved very much by lower costs or quality or even by advertising with the best looking nurses. Geography and referral patterns are everything. We try to keep all of our heart patients within our system. That is what everyone does. It might be cheaper for the system as a whole if those cases were done elsewhere, but it would be… Read more »