Problems with high deductible health plans

From a loyal reader, I was pointed to this story down in Georgia concerning state employees getting a slightly better health insurance plan mid-year.  I want to highlight the problem with the original health plan.

This year has brought on an onslaught of changes, which included one form of insurance from Blue Cross Blue Shield of Georgia – a high-deductible HRA (Health Reimbursement Arrangement) – and no additional selections to choose from. It is no secret that an HRA is not a one-size-fits-all medical plan for every family, particularly individuals with long-term illnesses….In late December, our family was notified that our daughter’s occupational therapy would increase from a $25 co-pay to $127 per one hour session. We are facing $1,000 per month in medical bills between insurance premiums and four hours of therapy….

Health reimbursement arrangements/health savings accounts/high deductible health plans are designed to do one basic thing.  That thing is to shift costs onto the individual for anything that could vaguely look like a “day-to-day” expense.  The theory of change is that the individual will be much more price sensitive and thus a much better price shopper as well as being much more not consume any medical service in a marginal situation.  From here, costs will stabilize and eventually decline.  That is the theory of change.

It is a theory of change that is built on the Rand Insurance Experiment.  The Rand Insurance Experiment showed that making people pay out of pocket reduced health care consumption and expenditure.  However the Rand Insurance Experiment also showed that people are not perfectly rational, infinitely discounting, amazingly discerning health care shoppers; people are human with the limitations of bounded rationality that is shaped by information processing costs and competing priorities.  People being people instead of perfectly rationalizing agents means high deductible cost sharing plan designs don’t guarantee that people get the care that they actually need which leads to worse health outcomes including death in some cases.

High deductible plans are appropriate choices for some people.  They are not appropriate for everyone if we value appropriate as a means of providing effective, efficient care that meets the medical needs of an individual without bankrupting them or their family. 

If I was the health insurance dictator in this country, I would allow high deductible plans to be sold.  They would only be sold to individuals and families who are reasonably young (age is a pre-exisiting condition) without any signifcant claims history.  The policies would not be automatically renewed until the most recent claims and medical history was reviewed.  Furthermore, the potential buyer pool would be limited to people who have the ability to absorb a one-time shock of several thousand dollars without it being a crisis.  This sub-population is fairly small, and can absorb the risk shifting that is inherent in a high deductible plan design.  Anyone with chronic conditions or recurring health maitenance problems should not be a plan designed like this if the goal is to effectively manage health.

25 replies
  1. 1
    Baud says:

    The Rand Insurance Experiment showed that making people pay out of pocket reduced health care consumption and expenditure.

    You know what else reduces health care consumption and expenditure?

    Death.

  2. 2
    Cervantes says:

    @Baud: And Rand was all over that death strategy, too, in the ’50s and ’60s, especially of Vietnamese and such.

  3. 3
    maximiliano furtive, formerly known as dr. bloor says:

    Depends on the medical condition(s) at issue and what your plan looks like after the deductible has been met, Richard. My family killed our annual deductible on January 18th (on a credit card, but it is what it is), and we have a zero copay situation the rest of the year for medical insurance. We’ll pay the usual copay for specialty pharmacy, but that’s a walk in the park. We’re looking at cutting $6-9K off our out-of-pocket this year.

    But don’t get me started on the massive scam that is the “Health Savings Account.” A skim operation for the banksters, nothing more, nothing less.

  4. 4
    Richard Mayhew says:

    @Baud: Which I noted three sentences later.

  5. 5
    Baud says:

    @Richard Mayhew:

    You’re good.

  6. 6
    Rob in CT says:

    The theory of change is that the individual will be much more price sensitive and thus a much better price shopper as well as being much more not consume any medical service in a marginal situation.

    This cannot possibly work without government-mandated price transparancy. Which, to be fair, is apparently in the new GOP plan.

    I still wonder, even with prices being clear & upfront (or as much as they can be in the medical world, which ain’t exactly the same as, say, auto repair), whether people can really be expected to “shop around.” Which you addressed (bounded rationality and all that).

  7. 7
    Helen says:

    Hi Richard,

    Your last paragraph hit home. I have a high deductable plan; I think it’s $3,000 in network and $6,000 out of network. I got it for two reasons: I am relatively financially secure; I have money, but I don’t have cancer money or hit-by-a-car money. Also, I am employed by a large non-profit and my contribution is $60 a month and theirs is $600. Lastly, now that the ACA requires mammagrams and an annual OB/GYN visit, I have virtually no out-of pocket expenses.

    It works for me, but I totally understand why it would not work for others.

  8. 8
    patrick II says:

    I would discourage high deductible for the same reason we discourage not having insurance at all. People who perceive themselves as healthy will buy the high deductible, the remaining pool will contain those those with chronic diseases driving those prices up. The big advantage for young people in the new insurance environment is that pre-existing conditions cannot stop you from buying insurance. That right has value. The value of that is enough to expect younger healthier people with money to chip in to the general pool. Letting them get by on the cheap is not much better than letting them get by with no cost at all until they find they have some health issue (as we nearly all will eventuall) and only then would they have to buy more insurance. That is bad policy.

  9. 9
    Violet says:

    Switched to a high deductible plan this year. Costed it out and it made sense financially. But because everything is out of pocket until deductible is met, I’m delaying some doctor visits and an ultrasound to spread out the costs. They are not urgent but if they were all that out of pocket expense in January would be awful.

  10. 10
    gene108 says:

    It is a theory of change that is built on the Rand Insurance Experiment. The Rand Insurance Experiment showed that making people pay out of pocket reduced health care consumption and expenditure. However the Rand Insurance Experiment also showed that people are not perfectly rational, infinitely discounting, amazingly discerning health care shoppers; people are human with the limitations of bounded rationality that is shaped by information processing costs and competing priorities.

    The bigger issue is the fact MEDICAL PRICING IS IRRATIONAL.

    People are what the are when services or goods are deemed either elastic or inelastic, but who the fuck knows what a visit to the doctor is going cost?

    Doctor’s cash price is $250. Insurance discounts something and you get that bill in the mail.

    You cannot price compare, when you do not know what your actual price is going to be until the doctor bills the insurance and the insurance discounts get applied.

  11. 11
    Botsplainer says:

    What if we abandon the term “insurance” entirely when it comes to health plans, and recognize the need for what it is?

    Let me explain:

    1. Property, casualty, and liability insurance insure risk of a chance event. Many policies that are issued will never be paid on. The majority do wind up being acted on to some extent over the lifetime of the contract and the renewals. Unlike those, medical plans inevitably get used, whether for accident or illness early in the life of the plan, or later, as age brings the inevitable collapse of the human system.

    2. I tend to view the issuer of a health plan as a fiduciary in a greater sense than I do those issuers of property, casualty and liability lines, as the payment of health insurance premiums really represents the forward payment toward future costs that are inevitable. Sadly, the overbroad application of ERISA to health plans renders accountability even more difficult due to the “clear and convincing” standard of proof, particularly on denials of certain procedures. This climate also led to further rent takings when it came to cherrypicking nonrenewals on individual plans as well as recissions for failure to list tenuously related childhood conditions on applications.

    3. At some point, somebody really needs to talk about and advocate the scalability of routine medical care – health and wellness physicals, first aid, vaccinations and first line testing and treatment of minor communicable diseases, minor surgeries (stitches for moderate wounds, casts on simple fractures, wraps for sprains, and the pain management that is needed). There is simply no excuse for a visit due to bronchitis to an immediate care center to run from $300-$500. We have too few doctors, and their lobby chokes back the licensing of an adequate number of nurse practitioners.

    4. Something else will have to be done regarding the mass marketing of prescription pharmaceuticals. It keeps costs artificially high.

  12. 12
    Tata says:

    Why should any plan have a deductible at all? There really are zero-deductible plans, lots of people have them and everyone should have one, too. If you’re paying premiums, why shouldn’t insurance cover your healthcare?

    Seriously, why shouldn’t we all demand the insurance companies, if they have to be involved in our healthcare, actually cover it completely?

  13. 13
    evodevo says:

    Feature, not bug …

  14. 14
    Rob in CT says:

    @Tata:

    The premium would be higher, of course. This is true whether the insurance is private or public. 100% coverage means more payouts, which means you need more in premium to cover them. Whether you fund it via premium payments to private for-profit insurers or taxation to fund a governmental system, the result is the same. More payout = more premium.

    I think it makes sense to have variation, allowing some folks to pay less up front but chance taking a hit on a deductible and coinsurance. But Richard’s right that high-deductible plans really only make sense for a fairly small portion of the population.

  15. 15
    Ruckus says:

    @Botsplainer:
    This is a good and very valid point.
    I have high deductible auto insurance because although I have made clams before the time separating them is long, and not necessarily a forgone conclusion. I save far more in cash outlay over time than the high deductible costs. But health is something different, especially as we age. But I have had some significant health issues over my entire life, starting as an infant.
    High deductibles would have broken me financially, let alone medically.

  16. 16
    Tata says:

    @Rob in CT: Thank you, but you misunderstand. Large groups like state workers can negotiate insurance plans with zero deductible and reasonable premiums. If a sizable group can do well, why can’t the entire pool do better in negotiations with BCBS, for example?

  17. 17
    Rob in CT says:

    3. At some point, somebody really needs to talk about and advocate the scalability of routine medical care – health and wellness physicals, first aid, vaccinations and first line testing and treatment of minor communicable diseases, minor surgeries (stitches for moderate wounds, casts on simple fractures, wraps for sprains, and the pain management that is needed). There is simply no excuse for a visit due to bronchitis to an immediate care center to run from $300-$500. We have too few doctors, and their lobby chokes back the licensing of an adequate number of nurse practitioners.

    This is an issue that does get discussed, but the actual policy solutions so far have been very small bore. IIRC, the ACA does funnel some more money to primary care docs as opposed to specialists, which is nice and all, but I’m not sure if it does much on the overall supply issue (including nurse practitioners and physician’s assisstants).

    Given that we have an unemployment crisis and the healthcare sector is one of the few that looks (hah) healthy, perhaps what’s needed is more effort at training people to work in that sector (lots more NPs, PAs, Respiratory Therapists, etc, etc).

  18. 18
    Rob in CT says:

    @Tata:

    Ah, ok, I did misunderstand. Sorta, anyway. Even in a single-payer system, the choice between zero out of pocket costs @ point of delivery and some out of pocket costs is also a choice between higher premiums (taxes) up front and slightly lower ones.

  19. 19
    Mnemosyne says:

    @Helen:

    I made the opposite decision, because I have medication I have to take everyday despite being (relatively) young and Express Scripts was estimating that it was going to cost me $400 for a 90-day supply on the high-deductible plan, or $8 for the co-pay plan. Since the no-deductible plan is about $100 out of pocket for me every month, it was an easy decision (though the offer of an HSA and the fact that the Giant Evil Corporation would give me money to cover 2/3rds of the deductible was a bit tempting).

  20. 20
    Avi says:

    I have a zero-deductible, copay-only plan (which, as I’ve said ad nauseam, has a premium that’s half what I paid pre-PPACA). I also have a half-dozen pre-existing conditions that require frequent labs and lots of prescriptions. The thing is that I can swing the higher premium month-to-month (it’s about $80/month more than the high-deductible plan that includes my doctor), but having to make a giant lump-sum payment for care would break me.

    My old plan had a $1,500 deductible and 20% coinsurance. Even that was too much. I put off a (non-routine) colonoscopy because it cost—wait for it—about $1,500 and I’d have to pay out of pocket. The hospital where my doctor has privileges doesn’t do payment plans; they want you to get a “medical credit card” with terms that make my Sallie Mae grad school loans look downright decent by comparison. Et cetera. On my new plan, a colonoscopy is a $150 copay. I can manage that.

    I’m just glad that now I have options.

  21. 21
    JMS says:

    In the current climate it pays to do the research, including math.so I have coverage through my employer. we have gold silver and bronze plans with bronze being high deductible and gold as lowest deductible (no copay only options). A fellow employee put together a spreadsheet showing that the bronze plan was the cheapest choice until you had racked up about 5k in bills because the premiums are so much lower. I have multiple chronic but not terribly serious conditions and couldn’t spend enough last year to even get to the deductible on the lower deductibe gold plan so we went with the bronze plan and hsa this year and even though I’m putting a reasonable amount in the hsa I’m still getting 200/month more in take home pay vs the gold plan, which is more than my last raise. it’s not for everyone but you don’t have to be super healthy either to come out ahead.

  22. 22
    Pseudonymous Bosch says:

    My experience is similar to Maximiliano Furtive’s — hit the OOP cap early in the year and it’s pretty good insurance from then on. Two type 1 diabetics in the family of four — IIRC, we hit the cap in April. It’s a BCBS of TN high deductible PPO w/HSA.

  23. 23
    David M says:

    I don’t get the hate for the high deductible / HSA plans, especially if we’re talking about people who have chronic health care conditions and significant medical bills. I’ve looked at every WA plan and if you’re going to hit the out of pocket max, it’s an HSA plan that ends up costing the least. Silver plans are also eligible for cost sharing, and the HSA deduction can be used to qualify for subsidies as well.

    If the max cost for a year is the premium cost + the out of pocket maximum. Here in WA, a reasonably affordable Gold plan might cost $287 / mo with a $750 deductible and a $6350 max out of pocket, so the highest possible yearly cost is $9800. Another gold plan costs $346 / mo with a $1000 deductible and a $3300 max out of pocket cost, so the highest possible yearly cost is $7450. Compare that to a silver HSA plan that costs $265 / mo with $2500 deductible and a $4100 max out of pocket, where the highest possible yearly cost is $7300 before counting a $3000 deduction in taxable income.

    Sure there might be some scenarios where it’s possible to use enough health care to hit one deductible but not the other and save money with a lower deductible plan, and funding an HSA requires some liquidity, but they aren’t obviously bad options. Especially now that they are required to cover more preventative services.

  24. 24
    Mnemosyne says:

    @David M:

    It’s the prescriptions — read the fine print and you’ll see that prescriptions often have a separate deductible. When you’re paying out-of-pocket for both doctor visits and prescriptions, that adds up really, really fast.

    Also, it’s the fact that a lot of people don’t have $7,000+ in cash sitting around, especially right after the holidays, so they’ll put off getting care for a month or two until they can save up the money. Depending on what their health issues are, that can be a valid decision or a really bad one, and most people are not good at deciding which is which.

  25. 25
    David M says:

    @Mnemosyne:

    It’s the prescriptions — read the fine print and you’ll see that prescriptions often have a separate deductible

    I’m fairly sure that’s not the case for exchange policies, which were the only ones I was looking at. And I’m not sure the $7000 example is valid, as the premiums are already paid at that point. Deductibles shouldn’t be as important as max out of pocket costs for people with chronic conditions that are expecting significant medical bills.

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