In Health Affairs Forefront, Paul Shafer, Michal Horny, Stacie Dusetzina and I published a short blog post on the challenges of commercial plans requiring monthly deductible resets instead of annual resets. Paul, Michal and Stacie have been playing with these ideas for a couple of years and I had been in the peanut gallery heckling the authors on pragmatic considerations. So we tried to work out what we’re all thinking together.
We’re in an era of substantial first dollar cost sharing. People have big deductibles. The median American does not have the liquid assets to pay off their deductible. We have fragmented policies that address some of the affordability challenges for some situations and some diseases.
For years, proponents of value-based insurance design have tried to make patients’ out-of-pocket costs more directly related to the value of care—with higher-value care costing less. For example, the Affordable Care Act (ACA) made certain high-value preventive services free to patients, although this policy is currently under threat in Braidwood v. Becerra. Another example is the monthly copayment cap on insulin costs for Medicare beneficiaries in the Inflation Reduction Act, which has helped nearly four million Americans. The White House is pushing Congress to make this policy applicable to all insured individuals, and nearly half of all states have passed insulin copayment caps to date.
Deductibles are intended to make individuals far more cost and value conscious users of healthcare. This is problematic on a pragmatic basis as people are bad shoppers. When faced with a deductible, people just stop using services without considering the value of those services. Additionally, there are substantial information gaps between what people think they are paying and what they actually are paying. Finally, there is a simple problem. Most people don’t use much if any healthcare services in a year. Deductibles barely do anything to change incentives for folks in the bottom half of the spending distribution. Deductibles also don’t bind or change incentives for people in the last quartile as their spending is often too damn high. Deductibles may influence spending for people in the 3rd quartile of spending but there is not a ton of money there. And most of this spending is likely to occur in a single event:
In a prior study of commercially insured US patients, we found that a hypothetical $500 monthly cap on in-network services would lower in-network out-of-pocket costs for nearly a quarter (24.1 percent) of commercially insured Americans, with those affected seeing their median annual out-of-pocket costs cut almost in half (-45.5 percent). For those in high-deductible health plans, the benefits would be even greater.
Monthly caps are simpler. A number resets at the end of the month. We also think it improves the incentive features as right now, people have a bad event early in the year that maxes out their deductible and then they schedule a lot of services for December at no marginal cost. Monthly caps could change this dynamic. It also improves equity as the current patchwork and caps rewards some conditions and diseases while a monthly cap treats all conditions the same.
We think that this makes the most sense in the commercial, self-insured market which is mostly large group employers. These plans are regulated by ERISA so there is substantial benefit design flexibility. They also don’t have to worry about risk adjustment or actuarial value. We are worried that if we hold actuarial value constant, maximum out of pocket expenses for individuals with chronic conditions could plausibly increase. If we hold maximum out of pocket limits constant, premiums likely increase as actuarial value increases. This is a tough trade-off.
We’re not sure if this is the way forward. We think that this could be a way forward.