Risk aversion, ERs and climbing toddlers

Last night as my wife and I were relaxing after dinner and before bath time, we saw Kid #2 toddle to the bathroom. 

Bump, thump, bump….

Kid #2 lugged the foot stool out of the bathroom and dragged it across the living room.  Kid #1 decided to tell Mom and Dad that her little brother was breaking informal social norms of keeping the foot stool in the bathroom.  She was not amused that we were amused. 

He dragged the stool to the kitchen and placed it underneath the counter cabinet that contains the fruit cups and forks.  He then went to the bar and dragged a bar stool next to the foot stool.  He then began his ascent to the counter-top.  Quickly he conquered his summit as I silently spotted him.  He stood up, opened the cabinet and pulled out a package of peaches and a spork.

“Eaches, dada, dada, eaches….open dada”

I opened the peaches for him as I  brought him to the floor.

He will eventually climb Half Dome.

Kid #2 has already had one good fall several months ago that led to a six hour emergency room visit.  That visit turned out to be purely an observational visit as the only thing that was seriously hurt was his confidence for a couple of days.  I took him to the ER because the fall happened after his pediatrician’s office closed for the weekend and potential head injuries (including concusions) scare me.  But it highlights a problem with high deductible plans.

A friend of mine is a pediatric emergency medical doctor and when we discussed what Kid #2 did, she noted that in 99% of cases, there is not much wrong, but 1% of the time there is a need for significant follow-up care.  Of that 1%, some of it is blindingly obvious that care is immediately needed ( things oozing out of the head, seizures, loss of consciousness etc) but a decent percentage of the 1% of “oh shit” scenarios the symptoms are not immediately obvious, especially in a toddler.  And once those symptoms have become obvious to an untrained eye, significant injuries have occurred that will require significant interventions and rehabilitation.

A $150 co-pay and deductible was worth peace of mind if nothing was wrong with him.   I am lucky that my family has the resources where we could afford to be risk averse.  Risk aversion is why people actually buy insurance — they are willing to take a guaranteed small loss in order to avoid the possibility of a massive loss.  I was willing to pay $150 to see if I could avoid several weeks of Kid #2 in the hospital and a $60,000 medical bill. 

However the combination of risk aversion, uncertainty and high deductible plans can produce some nasty but predictable consequences when analyzed through an empircal and behavioral economics lens but are glossed over when performing an Econ 101 gliberterian analysis that assumes near perfect rationality and very low information costs. 

High deductible health plans do a good job of reducing immediate health care expenditures because they promise to inflict a lot of pain early on and people like to avoid pain unless that is the best course of action.  However the high deductible plan design has a significant flaw — it assumes that people know exactly what is wrong with them and can make an informed and accurate assessment as to whether or not the offered care is appropriate. There are two problems with this assumption. The first is that people seldom know what they will be charged, or even more basically, what services will be perfomed on them.  This problem has been known forever as part of the Rand Insurance Experiment — high deductibles reduce utilization fairly indiscriminately with minimal regard to quality or appropriateness. 

Secondly, a collective action problem is created.  In my son’s case, unspecified fall injuries if quickly observed to be nothing much are cheap to deal with, but if there is something going on and it is unobserved for twelve hours, it is extremely costly.  Systemically it is cheaper for one hundred and fifty to two hundred false positives to be observed and quickly released than for a single real problem to be unobserved for twelve hours.  However on the individual level, the incentives in a high deductible plan is to take the risk that there is nothing going on and bypass the observation at the ER.  This dodges the deductible.  But it systemically bites costs in the ass when that one kid who has a serious problem but is not observed for half a day or a day goes from being a $10,000 case to a $75,000 case.

Obamacare avoids some of the known problems with high deductible plan designs in one significant way.  Obamacare mandates preventative services that are rated as highly effective to be covered without cost sharing.  This means the annual PCP, OB/Gyn visits for adults, pediatric wellness visits and vaccinations for kids, and a number of screenings.  Recently, this also means that women who are a high risk for breast cancer will get preventative drugs with no deductible, no co-pay and no cost-sharing.  This removes the incentive for these women to gamble that they’ll get lucky which is the incentive that high deductible plans push and instead looks for system savings by improving health and avoiding some number of cancer diagnosises and treatment regimes.

As far as managing the problem that people operate generally with bounded rationality and can’t effectively make perfect decisions under uncertainty, this is where system level reform, medical management and probably a decrease in reliance on high deductible plans as a cost control panacea for at least certain populations comes into play.  For instance, it might make sense to make high deductible plans hard to access for people over fifty as they are statistically the most likely to get sick with complex interacting conditions where undertreatment on one condition to save deductible money leads to systemic complications and thus more expensive aggregate treatment costs. 


57 replies
  1. 1
    Tata says:

    That insurance is designed as a betting game the subscriber always loses instead of as a guarantee of care is one more reason why no one needs health insurance or health insurance companies, since every single person needs health care. We are not risks. We are human beings.

  2. 2
    Mathguy says:

    Thanks again for a really informative post.

  3. 3
    Richard Mayhew says:

    @Tata: Okay, then how do we get to that system from today’s system? Remember these numbers 218, 60, 1, 5.

    You need to get 218 Representatives to agree with 60 Senators, 1 president and 5 Supreme Court justices on a plan.

    If I am being generous, I’ll knock it down to a hypothetical 51 Senators in a filibusterless world.

    How do we get there from here is my biggest question (and then how as a society do we pay for it would be my follow-up.)

  4. 4
    gene108 says:

    One of the problems with our medical insurance system is it is in the advantage of the insurer to reduce visits. This is one reason they will substantially reduce premiums for higher co-pays (back when we had those ;-) and higher deductibles more than just what the out of pocket outlay for the insurer is.

    Higher co-pays and deductibles discourage usage, so the insurer is less likely to incur paying out for a claim.

    I’m not really sure how to counter this, because as medical costs have been skyrocketing the more higher co-pays/deductibles have been put in place because of the cost savings in premiums for customers that comes from insurers reduced chances of incurring a claim.

    Also, insurers do have a means of estimating of how much a $10 increase in co-pays or $500 increase in deductible will discourage usage, to figure out what to charge. I always found that part of actuarial work unnerving, when dealing with what underwriters would come up with, with regards to renewal rates and plan rejiggering.

  5. 5
    Linda Featheringill says:

    Oooh, I like the two stools placed with considerable effort to offer access to #2’s goal! Very good!

    Maybe you have an engineer coming along?

  6. 6
    Violet says:

    Richard, I posted to you a few days ago with this question in a previous thread but it was at the end of it and I think you didn’t see it. Wonder if you could help explain this situation:

    Do you know if the healthcare law has affected the ability of people who are on Medicare to get supplemental insurance? A friend of a friend is 66 and apparently got turned down by five health insurance providers due to her pre-existing health issues.

    My friend told me her friend was turned down for pre-existing conditions and I told my friend that couldn’t happen due to the new law. Then I found out her friend was 66 and on Medicare and was looking for supplemental insurance. I didn’t know if the new healthcare law affects that demographic. Can they still be denied coverage due to pre-existing conditions? Any info? Is it state by state? Thanks for any insight.

  7. 7
    Richard Mayhew says:


    Also, insurers do have a means of estimating of how much a $10 increase in co-pays or $500 increase in deductible will discourage usage, to figure out what to charge. I always found that part of actuarial work unnerving, when dealing with what underwriters would come up with, with regards to renewal rates and plan rejiggering.

    That is not my area of expertise, but yes, insurance companies have an excellent idea of what moving co-pays and co-insurances and deductibles will do to general usage over a large population.

  8. 8
    Richard Mayhew says:

    @Violet: Supplemental policies are not primary policies by definition. PPACA’s regulations overwhelmingly impacted primary major medical policies (some impact on dental/vision etc, but overwhelmingly the impact is on primary major medical policies.) My inclination based solely on logic and not knowledge is that the supplemental market is still lightly regulated.

    Contact a Federal rep or Senator’s office for confirmation though.

  9. 9
    sparrow says:

    Very interesting post, thanks!

    I successfully enrolled my (semi-wingnut) mother in a cheap Bronze plan last night, to start Feb 1st when my dad retires and get on Medicare.

    They will get a $150/mo subsidy on the plan which brings it down to $185/mo. That’s not too bad of a cost considering I (healthy 29 year old) bought short-term catastrophic coverage for that much last year.

    But I’m wondering if someone can explain to me how these Bronze plans are significantly better than the old “catastrophic” plans? For my mom, her deductible is pretty high at $6000 and if I read the prospectus correctly, she will pay full price for doctor’s visits until the deductible is reached.

    So effectively, it seems to work as a catastrophic plan. I guess there are some guaranteed coverages that I need to understand better. Will she be able to see her OBGYN for free, for example? Because that is her yearly checkup, usually. Are medications available at a reduced rate?

  10. 10
    Tata says:

    Richard, the system pits us against one another. The first thing that has to happen is someone has to say it’s not me against you. It’s us. We need healthcare. No one needs insurance. The second thing that has to happen is that you have to stop saying, “Yes, but…” because that traps the conversation in the situation as it is currently framed, which means nothing will change.

    But it can change. Vermont is a fine example.

  11. 11
    Violet says:

    @Richard Mayhew: Thanks, Richard. I’ll let my friend know. I suspect you’re right, based on this friend of a friend’s experience.

  12. 12
    stinger says:

    “He will eventually climb Half Dome.”

    Oh, are there peaches at the top of Half Dome? Did not know that.

    Love these posts, Richard!

  13. 13
    WereBear says:

    @gene108: One of the problems with our medical insurance system is it is in the advantage of the insurer to reduce visits.

    That was the original idea behind HMOs. They would save money by keeping you healthy. However, when the Republican party and business schools and other forces enshrined psychopathic thinking; it became even cheaper to just let you die.

  14. 14
    Shakezula says:

    Another thing – Medical practice staff hate these plans. They are a huge administrative headache that seem designed (more than traditional insurance) to make sure the policy issuer pays no money, ever.

  15. 15
    Mike E says:

    btw Richard, I enrolled at the Dec deadline in a silver “advantage” plan after a couple of fits and starts but succeeded in about 2 hours to finalize the whole process…I even signed up for a gold dental plan, bringing my total monthly premium to just under $200. Many thanks to you and fellow B-J’ers for the helpful tips!

  16. 16
    kshay says:

    I’m surprised there isn’t more discussion about the fact that prenatal care is not considered preventive care under high-deductible plans.

    These plans are marketed as ideal for people who are young and healthy… turns out there’s a perfectly normal, predictible condition that a young and healthy person can have that nevertheless requires (if you’re following generally accepted medical recommendations) a dozen or more doctor visits, a few rounds of medical imaging, plus a hospital stay. And that’s without any complications.

    In other words, if you get pregnant, you are going to hit that deductible. Just hope you aren’t due in January right after it’s rolled over.

  17. 17
    ericblair says:


    That was the original idea behind HMOs. They would save money by keeping you healthy. However, when the Republican party and business schools and other forces enshrined psychopathic thinking; it became even cheaper to just let you die.

    I think it was more about the fact that people (or more correctly their employers) in many states tended to change health plans on a regular basis, so the incentive was to skimp on paying for preventative care and let the insured blow up a few years later when they’re safely on some other company’s plan, or Medicaid/Medicare.

  18. 18
    wvng says:

    Of course the balancing act is between the base premium cost and the deductible. If I pay $10k per year for a plan with a $1k deductible, that is $11k out of pocket every year that I have $1k in medical expenses, with a minimum of $10k. If I pay $2k for a plan with a $6k deductible, that is $8k out of pocket every year that I spend $6K in medical expenses, with a minimum of $2k.. In that case the high deductible plan saves boatloads of money in every instance. If I look at it rationally, I can justify going to the doctor whenever I feel the need and still be ahead of the game.

  19. 19
    Chyron HR says:

    Your story was okay, but I think it would be better if there was a dotted line showing the route your kid took around the house. And then he says, “daddy, how do the trees grow the peach cans?” Maybe grandpa’s ghost (or Jesus) could be following the kid around keeping him from falling.

  20. 20
    Mike E says:

    @Chyron HR: Instead of “Not Me!”, the real culprit behind it all would be OBAMA!

  21. 21
    rikyrah says:

    The Medicaid Cure

    Something really interesting is happening on the health-care front: costs are rising much less rapidly than anyone expected. This is good news for the budget; it’s also good news for Obamacare. There was much skepticism about promises that health reform would “bend the curve”, reducing cost growth; well, the curve is bending, and it’s likely that the cost control measures that are part of Obamacare (and have been in effect for several years) are part of the reason.

    One thing I haven’t seen mentioned much, however, is that another aspect of recent developments — the rapid rise in Medicaid enrollment, despite Republican efforts to block it — adds to the prospect of continuing good news on health costs.

    Medicaid gets a bad rap. It’s a poor people’s program, and it’s widely assumed that this means poor care. In fact, there’s not much evidence that this is true, and claims that Medicaid patients can’t find care are greatly exaggerated. Beyond that, however, Medicaid is the piece of the US health care system (aside from the VA) that does the best job of controlling costs. It does this by being able to say no. For example, it’s able (in a way Medicare so far can’t) to say that it won’t pay for me-too drugs that are far more expensive than equally or almost equally good alternatives. This ability to say no, combined with its size, means that Medicaid covers people far more cheaply than private insurance, and probably than Medicare.

    One way to think about this is that Medicaid is actually the piece of the US system that looks most like European health systems, which cost far less than ours while delivering comparable results.

    Now, expanded Medicaid is a key part of Obamacare — and so far, despite GOP obstruction, Medicaid enrollments have outpaced insurance through the exchanges. This is often reported as if it were a bad thing — as if Medicaid were somehow a fake solution, as if only purchases of private insurance count. But Medicaid is good, very cost-effective coverage! And rising Medicaid enrollment is, aside from a huge benefit to the previously uninsured, a step toward better cost control in the system as a whole.

    So liberals, don’t apologize for Medicaid growth. In economic and human terms, it’s just what the, um, doctor ordered.


  22. 22
    MomSense says:

    @Richard Mayhew:

    Yes, I would love to have single payer or Medicare for all AND I would like to be alive to see that happen which is why I am so grateful for the ACA.

  23. 23
    MomSense says:


    Vermont is a fine example.

    Vermont is a fine example even though they are having big problems with their health program there. Vermont is not, however, representative of where the nation is as a whole. Neighboring NH is very different on attitudes toward provision of health care for example. We should all be praying that VT gets it right so that it isn’t the poster child for the ills of single payer also, too.

  24. 24
    rikyrah says:

    Did anyone else know about this? I found this in the comments at TOD:

    January 9, 2014 at 9:54 pm


    I know that you, Ms Chips and the other “blog tyrants” are already carrying a heavy load maintaining this site so brilliantly;

    However, since you have put together a number of different portions clarifying and advocating for ObamaCare, I am asking you to please, please, consider putting together another portion of Obamacare that has not received enough attention (in my judgment);

    Once you have put this together then it makes it easier for us to share it around;

    The portion I am talking about is HOW obamacare (ACA – Affordable Care Act) changes the options for former prisoners and has the potential to provide and incentive to stay out jail and also reduces prison costs;

    The role of Obamacare in reducing the rotating re-entry and health of former prisoners is as VP Joe would say a BFD;

    We need to add this to things we “shout from the rooftops “ and thanks President Obama, his team and Dems for making happen;

    I can’t find the audio of this report from NPR so if you can find it, I will be very grateful;

    I heard part of this report on NPR a few days ago (may be Monday or last week); If I am not mistaken the report was done jointly with Kaiser Health News

    Source: http://www.kaiserhealthnews.or.....e=1-2-2014

    The California Health Report: Parolees, Corrections To Benefit From ACA
    Recent parolees, a population in dire in need of improved medical care, could be among those poised to benefit most from the Affordable Care Act come Jan. 1. The full implications of how the law will affect this population are still hazy, as officials across all fields of corrections prepare for the changes. It is clear, however, that parolees are among those with a high rate of health concerns and are likely to fall into the categories qualifying for assistance under the new law. Roughly 1,000 inmates are released from California prisons each month. Many return to their communities and struggle to access health care or coverage for it (Wyman, 12/24/13).
    Earlier, related KHN coverage: Medicaid Expansion To Cover Many Former Prisoners (Gugliotta, 12/4/13).

    Another interesting paper about this is:

    “The Affordable Care Act and Criminal Justice : Intersections and Implications
    Source : https://www.bja.gov/Publications/ACA-CJ_WhitePaper.pdf

    If you are aware of other sources of information about this then please share it;

    If to other people want to contribute to this then please help out our already busy TOD Team.

    As an aside, during enrollment for our state, one of the questions the Obamacare phone team asks is if anyone in the household has been in incarcerated;

    It may also be of interest to some to know that the when the right-wing governor of Ohio was considering whether or not to allow Medicaid Expansion as part of Obamacare, a key persuasive arguments for him was ACA’s potential to reduce medical cost of prisoners (a gain in the budget which they state gop is pushing now to be used for – you guessed it a tax cut).

    thanks in advance to all who are going to help highlight this exceptional feature of Obamacare

  25. 25
    Gene108 says:

    @Richard Mayhew:

    Really drives home to me the negotiating advantage insurers have over small and medium sized groups, because there is only so much you can change before the insurer says, ” eh, won’t make much difference to us but you can go ahead if you want to”.

  26. 26

    What Wvng said. I sat down and compared the plans available at work, and calculated that when you added up premiums, deductibles, and maximum out-of-pocket costs, the High Deductible and the Fancy All-is-Covered policy came out to be about the same. So, if my family has a bad year, we pay about the same regardless. If we have a good year, health-wise, then the High Deductable is the more economically viable way to go

  27. 27
    JasperL says:


    I don’t know if you’re basing those numbers on actual quotes or just using them as an example. From what I’ve seen, high deductible plans ‘win’ only in years with relatively low healthcare costs. And anyone with a chronic condition (like I have – which requires a very expensive arthritis drug) is better off with low deductible plans. For us, the analysis hasn’t ever been close – we choose the lowest deductible offered, and it’s guaranteed to be the least expensive overall.

  28. 28

    My question about high copays and gig deductibles is, how many people really do “run to the doctor for every little thing,” which is what insurance companies claim is the reason for high copays or deductibles? Is this genuinely a thing, or is it just an excuse?

    I used to be a Kaiser member and one of the things I liked was that if you had a genuine reason to be in the ER, they would waive the deductible. So IIRC, after I went to Kaiser’s ER for my car accident (whiplash), cat bite, and chest pains (pleurisy), I didn’t have to pay the deductible, because I had a good reason to be there.

  29. 29
    Kylroy says:

    @ericblair: Bingo. There *are* economic incentives at the payer level to provide preventative care, but if 90% of your customers will be elsewhere in a decade, what you’re doing as a company is spending money now to save your competitors money later.

  30. 30
    Richard Mayhew says:

    @kshay: Some prenatal care is included primarily a pre-natal gestational diabetes screening and then at birth, lacation consulting and guidance is no cost share as well.

    I’m also surprised that more general pre-natal care is not fully covered.

  31. 31


    Given how many people in jails and prisons have serious mental health issues, this can only be a good thing for all of us.

  32. 32
    burnspbesq says:

    When we were looking at plans on Covered California, it took all of eight seconds to figure out that the additional annual premium cost for a platinum plan (vs. the same insurer’s gold plan) was approximately half the deffierence between the plans’ annual family deductible.

    Was not a difficult choice. Even with a six-figure income, $12k of uncompensated expenses is a budget buster. Can only imagine what it would do to a person making $45k.

  33. 33
    burnspbesq says:


    Dreams are great, but by definition they don’t reflect reality. I don’t doubt that sometime in my kid’s lifetime we will have a more rational health care system, but that doesn’t change the fact that in the short term it isn’t happening.

    Journey of a thousand miles etc.

  34. 34
    Karen in GA says:

    Here’s my question: hooray for preventive care being covered 100%. But if you don’t make a whole lot and you have a high deductible plan, what’s the point in going for the free preventive care? Either nothing’s wrong with you and you didn’t need to go to the doctor at all, or something’s wrong with you and now you have to start paying out money you don’t have. It’s human nature to go into denial and just tell yourself you’re fine.

    I also hate that you’re spending some four-figure amount out of your own pocket to meet your deductible before your insurance kicks in — and while you’re spending this four-figure amount, you’re paying a premium for the privilege of having insurance not pay for anything.

    The best, though, was the job I left earlier this year. Self-funded high deductible — wait, sorry, I didn’t use the eupemism, I meant consumer-driven plan administered by United Healthcare. With a health savings account. The company made a one-time deposit into your HSA (not enough to cover the deductible), if you opened it up with their preferred bank. Who owned the preferred bank? United Healthcare. Monthly fees? Of course there were.

    I quit the job because of that. Every day I felt like I was being ripped off just by showing up, and I felt like I was complicit in it by staying.

  35. 35

    @Mnemosyne (iPhone):

    Sorry, in the above I kept saying “deductible” for the ER at Kaiser when I actually had a copay.

  36. 36
    Karen in GA says:

    Euphemism. Not eupemism. That’s driving me nuts, and I can’t edit it for some reason. Dammit. Euphemism with an H.

  37. 37
    RaflW says:

    This is semi-off topic, but ACA related.

    Target is now indicating that up to 70 million people’s data, including home addresses, phone #s and more were taken in the data “breach” at Christmas.

    There will be some upset customers, and some changes at Target, and maybe even some (further?) loss of sales for Target (but not at similar stores, presumably).

    But I don’t think people will freak out that all corporations and all retailers are utterly incompetent, or that this breach shows that businesses are useless and should stay out of selling things or using customer’s credit cards.

    But the Exchange rollout fubar sure told people (ie: conservajerks, followed by a massive MSM pile-on) that government sucks, is always a disaster, and contemptible.


  38. 38
    artem1s says:

    I’m kinda looking at a similar predicament. I fell and injured my wrist before the first of the year. Most of the cost of the emergency room visit was paid as I had already met my deductible/co-pay for last year. This year I am looking at a new high deductible plan and starting at zero again. The injury has been x-rayed twice and I’ve been told by the orthopedic doc that even if the tiny indent on my radius is an incomplete fracture it wouldn’t change the coarse of treatment at this point. So now I am scheduled for a follow up and have been told that the doc wants another x-ray. I’m considering refusing. Can’t see the point of doing it again.

    I’m confident I’m making the right choice. Obviously this is a case of the medical professionals mistaking diagnostics with actual treatment. They’ve done absolutely nothing to treat me. Ordering rest isn’t the same as treatment. The x-rays were necessary initially to determine the extent of the problem but I certainly don’t need a third one. If I have problems with recovering full usage then I will consider physical therapy but I find it annoying that I have to talk the doctor out of unnecessary tests and visits because he only does bone crap.

    It’s true I wouldn’t be as concerned if I didn’t have to worry about the deductible or if I had had time to pad my health insurance savings plan. I’m just glad these decisions weren’t part of the equation when I first had the injury.

    I do like the idea of having the health savings plan with my new high deductible. I am however pissed at my employer that the only pre-tax payroll deduction option I can use is a plan with Melon that looks like it will cost me nearly a hundred a year in fees.

    I don’t get why my employer can’t send the payroll deduction to my bank’s health savings plan account. It really offends me that they established this contract with Melon without considering how it would impact their employees.

    I can set up a plan with a bank of my choice (doing that this weekend) but have to wait and claim the tax deduction at the end of the year instead of getting the pre-tax benefit. It is still better than giving the money to the insurance company.

    I’d be interested in knowing how others are being impacted by the new health savings plan options and how they are managing their health care choices because of them.

  39. 39


    This right here. I have medication that I take every day, so the high-deductible plan made zero sense for me — I would have ended up paying much, much more out of pocket even though my drug is a generic. It made far more sense to have more taken out of my paycheck every week and pay a copay than it did to pay regular price until I met my deductible. We’re talking $400 for a 3-month supply vs. an $8 copay for a 3-month supply.

  40. 40
    wvng says:

    @JasperL: We just gave up a $4.3k castrophic plan with a $10K deductible for a Silver plan that costs (subsidized) $3.4k with $3000 deductible – unsubsidized it would be $>10k. So we are better off under ACA all around, both in premium and deductible. We went on castrophic to not pay $18k for a COBRA plan with very low deductibles that would never have made any sense. But we are healthy 60ishers who so far have never had significant recurring medical expenses (he writes while furiously knocking on wood).

    But to your point that “And anyone with a chronic condition (like I have – which requires a very expensive arthritis drug) is better off with low deductible plans. For us, the analysis hasn’t ever been close – we choose the lowest deductible offered, and it’s guaranteed to be the least expensive overall.” I don’t see how that could ever be true if the base payment of premium plus deductible is lower under the high deductible plan, given equal co-pays once insurance kicks in.

  41. 41
    RaflW says:

    @Karen in GA: re: free prenventive care & your comment “Either nothing’s wrong with you and you didn’t need to go to the doctor at all, or something’s wrong with you and now you have to start paying out money you don’t have.”

    Well, for example you might find you have hypertension, which has very bad long term consequences if untreated. My high blood pressure medicine is about $10 per month. I don’t know for sure, but for a while it was part of a major retailer’s $5/month generics program. Now, that is money, but it’s still pretty affordable.

    Just one example. You might also find out you have high cholesterol. Sure, your doc may want to put you on expensive statins. But you can say “no thanks” and try diet, exercise and (per some people’s experiences in cluding my dad’s) try niacin supplements. A few bucks a month for a bottle of store-brand niacin pills.

    Not all diagnoses lead to expensive outcomes.

  42. 42
    catclub says:

    @Karen in GA: “I also hate that you’re spending some four-figure amount out of your own pocket to meet your deductible before your insurance kicks in — and while you’re spending this four-figure amount, you’re paying a premium for the privilege of having insurance not pay for anything.”

    Home insurance is insurance in case your entire house is destroyed, not maintenance. Some of healthcare insurance is now maintenance, but some is still true insurance against risks you cannot afford to even contemplate. You are paying that $6000 to avoid the risk of a $600,000 bill you can’t pay.

  43. 43
    catclub says:

    @RaflW: expensive statins.

    Simvastatin is off patent. Cheap now.

  44. 44
    japa21 says:

    Insurance companies, in the past, have always been behind the times in understanding what reduces long term costs. At one time, for example, my insurance required, prior to a CT scan being authorized, that my wife spend a night in the hospital, although purely from a common sense point of view, this increased the overall cost factor immensely.

    Additionally, they would not cover any new treatment formats until they had been proven to be effectivwe, which, in their minds, might take several years.

    One thing the ACA has done is make insurance companies re-evaluate some of their philosophies. One of the things people are beginning to recognize is that more visits early on erduce long term costs. Plus, that sense that we don’t have to worry because in a couple years this patient will be someone else’s concern is also be seen as rather, to put it nicely, stupid. After all, the patients of other insurance companies are going to be their problem a few years down the line.

    Like Richard, I work for an insurance company. Japa21 insurance can be short sighted at times, looking at what is most financially beneficial for now, rather than long term. However, I have seen a shift, slowly, in that mind set. Policies are being put in place with the recognition that looking at the long term weel-being of the insured, ours and others, is in everybody’s best interest.

    Quick comment about the Medicaid posting upthread. I have always felt that one of the problems with Medicare expenditures has been, simply, that many things that require approval from private insurance, do not require it from Medicare. When I was in the utilization review position, somewhere between 2-5% of procedures where not approved for coverage, and, despite all the horror stories, almost all of them were rightfully refused. The same thing was true of hospital stays which were overly long. Medicare does an awful job of controlling costs of these types, plus they overspend for some benefits while not paying for others.

    For example, when my mother in law got out of the nursing home, she had to go on Medicaid to get in home services, without which we would have been in big trouble. Many people stay in nursing home up to their Medicare limit simply because they don’t qualify for Medicaid and can’t afford the in home services that cost less than nursing home and are just as effective.

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    Karen in GA says:

    @RaflW: I don’t disagree with you, but my point is that while some diagnoses don’t lead to expensive outcomes, some do. And some doctor’s visits don’t lead to diagnoses at all — you’re perfectly fine and you go on with your life. But you don’t know which outcome you’ll face until/unless you go to the doctor.

    I’m on blood pressure medication too, and you’re right, it’s cheap. But I’m thinking more in terms of what I was dealing with a couple of years ago — a mammogram led to “inconclusive” results, which led to a second mammogram, which led to an ultrasound, which led to two biopsies. Fortunately none of that led to a cancer diagnosis, but it could have led to radiation, surgery, and/or chemo. Do you even go for the cancer screening if you don’t know how you would pay for cancer treatment? Or do you just put the thought out of your mind and avoid the screening? When you have a four- or five-figure deductible and you’re living paycheck to paycheck, it’s awfully easy to go into denial.

    As far as I can tell, high deductible plans give a lot of people incentive to avoid doctors altogether. (Which can also lead to undiagnosed hypertension and high cholesterol causing all sorts of more expensive problems, which goes back to Richard’s point about whether there would really be any systemic savings if everyone were on high deductible plans.)

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    Richard Mayhew says:

    @japa21: Bastard — I have a very nice big post almost done talking about the incentive structure of the shift on perspective and you stole a decent chunk of it.


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    Snarki, child of Loki says:

    It’s that damned “gravity” thing that causes all the problems.

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    japa21 says:

    @Richard Mayhew: I am sure yours will be far more literate than mine.

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    Karen in GA says:

    @catclub: That’s the thing, though — most of my adult life I haven’t had to pay that $6,000 out of pocket. That was the whole point of having coverage. There might be a co-pay, but you weren’t paying $1,000 of your own money for a thyroid scan (like I had to a few months ago, before I got this job).

    My current job has a $350 deductible, then 80/20 coverage up to a point. It’s fine for middle-aged appointments and tests throughout the year. Now, if I get sideswiped on the interstate on January 1st I’m still paying the four-figure out-of-pocket max for the year all in one shot, but what can you do. I’m sure there are people who’d kill for an employer who provides that kind of coverage now.

    The funny thing is, when my husband got his current job only a few years ago, we looked over his health coverage options for about five seconds before deciding he’d go on my coverage — because his options sucked that bad. But when I got this job, he went on his job’s coverage and I went on mine — not only because the coverage at my new job was no better his, but because now they’re both considered pretty decent compared to a lot of the other shit that’s out there.

    It wasn’t that long ago that health coverage used to actually cover people’s medical expenses. Now it’s all about cost shifting and profit, and covering as little as possible.

    Used to be able to exchange two bees for a quarter, too. Get off my lawn.

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    TAPX486 says:

    Richard, I have a question that is sorta relevant to this thread. It seems to be an article of faith among conservatives that the reason why our heath care costs are out of control is because health insurance shields people from the full impact of their healthcare choices. That most people do not know what their health care costs are so they go the doctor/ER for every little sniffle or splinter. If you stick them with a high deductible then they will use less health care because they are ‘wiser shoppers’ rather than simply can’t afford the deductible.

    Due to my wife’s MS we have used a lot of healthcare over the past 20+ years, most of it covered by good employer plans. Now maybe I’m jus odd but I’m very much aware of what her care costs since I read the EOB stmt as well as any doctor bills when they arrive. All of the cost information is there. Sometimes you have to look at it a bit to get all of the information but it really isn’t that hard to read.

    The claim is also made that a ‘wise shopper’ will question (second guess?) the doctor before agreeing to a recommended procedure. Now I’m a bit of a science bug but certainly do not have the years of medical training that my doctor has. In fact if your going to second guess and refuse treatment why even go to see him?

    Are these really legitimate real world behaviors by most people or just one more scare tactic by the right. I’ve seen them use the example of if your employer paid 80% or your grocery bill you would eat prime rib every night therefore by paying 80% of your medical bills you are overusing the system. Now if the bank paid for 80% of my groceries I probably would have prime rib every night, but I can’t imagine people going in for heart surgery just because they pay so little. I wouldn’t care if they threw in a round the world cruise on the Queen Mary II. People LIKE to eat, they don’t like to be sick.

    Does that make sense what I’m asking?

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    catclub says:

    @Karen in GA: Yes, I think there is a reason that employee based insurance policies seem to cost more like $20k for a family. And they are disappearing.

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    aimai says:

    I’m late to this thread but I wanted to add a point which I think is embedded in the original Post Scenario but needs to be teased out. Pediatric care is a very special area in which high deductibles which aim to discourage use of physician services or ERs are especially problematic and should be eliminated–that is: I don’t think we should ever ask parents or guardians to have to do a cost/benefit analysis in treating children.

    Why? For two reasons: one–the long term effects of any untreated injury or illness are likely to be very severe in a child. While they heal faster, the impact of an injury or illness can be devastating if it interferes with normal growth. Two–children, especially pre-verbal children–can’t really participate in the diagnostic process. Children (like adults) have varying degrees of tolerance for pain and discomfort and they may not know, or show, that they are injured in the same way an adult would. If they are pre-verbal there may be few, if any, clear signs that they are in need of medical attention and just appear sleepy or lethargic (for example). Three (well, ok, three reasons) very often new parents just simply don’t know what normal or abnormal development or syndromes look like. You really don’t want to rush your child to the ER for nothing, but you don’t have enough experience to judge and very often your child’s primary care physician doesn’t want to take the chance either.

    So any system ought to expect that kids are going to need to be checked out at a higher rate than kids really need to be treated but for the sake of avoiding greater costs down the line you’d want to reduce the parental fear/cost of the original screening.

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    Cervantes says:

    Richard, only you could get so gracefully from “Eaches, dada, dada, eaches….open dada” to high-deductible plans in three paragraphs or fewer.

  54. 54
    Chris T. says:


    But I don’t think people will freak out that all corporations and all retailers are utterly incompetent, or that this breach shows that businesses are useless and should stay out of selling things or using customer’s credit cards.

    Every time there’s a “business screw-up” story on the news, announce loudly to your wingnut friends / relatives / acquaintences / co-workers: “bah, see, this shows that corporations can never get anything right!”

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    Richard Mayhew says:

    @TAPX486: It makes sense what you are asking. Right now the evidence is that higher co-insurance and deductibles does make some people reduce low value care. That population tends to be people with low average medical needs and sufficient financial cushion to absorb a low probability but high cost shock. Now if you’re in a chronic condition requiring medical care shifting costs onto the patient is just that, cost shifting, and since it is chronic, it is not a one off, unpredictable event. This leads to a lower standard of living and the temptation to become much more non-compliant from optimal care plans.

    The prime-rib analogy only makes sense if you strongly believe that people really enjoy going to the doctor, bending over, and coughing before getting hooked up to a complicated machine that restricts your mobility for half a morning as it filters your blood before you go for your three hour physical therapy session with a bunch of professional sadists.

    Someone probably does enjoy that (rule 34 and all) but most people don’t want to be in the hospital.

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    jl says:

    Thanks for post, and especially for noting an aspect of the Rand Health Insurance Experiment that has been neglected by pundits. The principal investigator of the study, Newhouse, said that high deductible policies in the experiment (which were designed to be much more flexible than any counterpart available in the real insurance world) may have increased mortality in poor subjects by 10%. Newhouse has also done extensive research on the problem of using deductibles and copays in providing cost-effective health care in the real world, he calls them an unacceptably blunt instrument.

    I don’t have time to get the references, but most of the bottom line results are published in a journal called Health Affairs by Newhouse, and I think that journal provides its contents to general public for free.

    Edit: And people who work on human research committees have told me that the main reason it will be difficult to do another randomized controlled experiment in health insurance benefit design is precisely because there was so much evidence from the Rand HIE that some insurance designs harmed the subjects. This part of the HIE results has been ignored by supposed wonks like Ezra Klein.

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