An extra $100 deductible does not buy much

I was curious. What does $100 more in deductible buy in terms of actuarial value?

It depends but the short answer is not much.

The graph below shows how much a $100 increase in deductible buys in terms of actuarial value. I used the 2019 CMS AV calculator with the Bronze tables. Deductible is combined and embedded with no other cost sharing. This is a bare bones plan.

This is because health care costs are so skewed to the right. Half of the population barely touches the system so the first $100 of deductible captures most of their health care spending and the first $500 of deductible is almost entirely their annual spend. The declining marginal purchase of AV per $100 spent on deductible is real and big.

By the time the deductible is going from $3,000 to $3,100, very few people are actually running up charges to that level. It buys half a point of actuarial value for this jump. By the time the last $100 is added to deductible for the skinniest plan possible with a $7,900 out of pocket maximum, the AV bought is .22 points.

The trade-off to buy an extra AV point at the tail end of the distribution is an extra $400 to $500 in deductible. This implies that a Copper plan with a 50% AV could probably see a $12,000 to $13,000 deductible.

My data is here again:

6 replies
  1. 1
    dnfree says:

    I am always appreciative of these posts that describe the complexity of health care financing behind the scenes. Thank you again.

  2. 2
    Yarrow says:

    The trade-off to buy an extra AV point at the tail end of the distribution is an extra $400 to $500 in deductible. This implies that a Copper plan with a 50% AV could probably see a $12,000 to $13,000 deductible.

    A $13,000 deductible is just insane. I guess people who buy that do it because either they are young and invincible or they simply can’t afford anything better?

  3. 3
    mere mortal says:

    So, is there a universe where an insurance plan could create a ‘donut’, such that the first 1,000 dollars of care are covered, then the next 6,000 are the deductible? Maybe for an extra fifty bucks a month premium or something?

    It seems that something like that would make the vast majority of health care non-consumers willing to visit a doctor before conditions become really serious, and give them assurance that unexpected cost-sharing bills don’t show up.

  4. 4
    ProfDamatu says:

    I know this is slightly off-topic, but $7900 as the OOP max…just, wow. I really hope that adjusting that downward is on the radar of politicians. I understand why the stautorily allowed OOP max has increased, but we’re rapidly getting to the point where, for most people who purchase on the Exchanges, that OOP max is going to make the insurance worthless for keeping them out of bankruptcy should the meteor strike, to say nothing of being a potential death sentence for people with chronic conditions, who will hit their max every year. (And fewer and fewer plans, at least in my area, are offered at less than the maximum allowed.) I mean, at almost $8k, that OOP max is going to be at least a sixth of pre-tax income for those who qualify for subsidies, and that doesn’t even take into account their premiums, which will cost another 9.65%.

    I guess I’m just salty because although the OOP max keeps going up, my income hasn’t – and even if it had, I doubt it would have increased enough to offset the rise. Had my health crises occurred just a few years later than they did, I’d be in a substantially worse financial position than I am – I’d have been on the hook for over $7k each cancer year, instead of $2-3.5k.

  5. 5

    @mere mortal: There are plenty of plans like that where generic drugs and the first 3 or 5 PCP visits are free.

    @ProfDamatu: Yep, the mechanics are clean, the implications aren’t

  6. 6
    mere mortal says:

    Thanks, Mr. Mayhew. Sorry that I missed the last Balloon Juice meet-up in the Triangle area.

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