The “Burden” of High Deductibles
The folks at Harvard really, really hate cost sharing (i.e., deductibles, coinsurance and co-pays) in health care. They are much less concerned about high premiums or taxes. At least that is the conclusion one might draw from a new article in Health Affairs.
The authors examined the fate of 393 families enrolled in high-deductible plans through Massachusetts’ Commonwealth Connector. The families were well off enough to be unsubsidized and enrolled in a Harvard Pilgrim health plan. These were compared to similar families in plans with no deductible. They were looking for –
…respondents’ reports of any financial burden, higher-than-expected out-of-pocket costs, or discussions of costs with doctors. To measure financial burden, we asked enrollees whether, in the prior twelve months in the Connector plan, they or a family member had had problems paying or had been unable to pay medical bills; had had to set up a payment plan with a hospital or doctor’s office; or had had trouble paying for other basic needs such as food, heat, and rent because of medical costs. An affirmative answer to any of these three questions was considered an indication of financial burden.
So right off the bat, the authors are judging that any discussion of costs with a doctor is a bad thing, and any “payment plan” is a “burden.” You can see where this is going. One might think that discussing costs with a doctor would be a good thing, but not to the folks at Harvard. And, by golly, using these criteria the researchers found that lots of folks are “burdened.” They write –
Among families in such plans, those with lower incomes, worse health, and more children were at greater risk for financial burden and higher-than-expected out-of-pocket costs. Families in high-deductible plans were also more likely to have higher-than-expected costs than were families in plans with no deductible.
The authors are remarkably unconcerned about what it would have cost these unsubsidized families to avoid such burdens. But they include a table that provides a hint ― if you compare the difference in annual premium to the annual deductible, as I do below. Gold plans have zero deductibles.
| Bronze Plan Premium | Gold Plan Premium | Difference | Maximum Bronze Deductible | |
| Individual | 2,700 | 4,680 | 1,980 | 1,750 |
| Family | 9,526 | 16,716 | 7,190 | 3,500 |
So families with “high deductibles” of $3,500 or less are “burdened” even though they would have to pay $7,190 in higher premiums to avoid the deductible. Keep in mind that the premium is lost money. The family would have to pay that every year no matter how little health care they consume. The deductible may not be paid at all in a given year, or a family may have to pay only a portion of it.
But our friends at Harvard have no trouble burdening families with very high premiums (or taxes) provided they don’t have to pay for any of the health care they actually consume or (heaven forbid) have a discussion with the doctor about the cost of the care he or she is providing.
That Gold Plan really has too high of a premium!
“Families in high-deductible plans were also more likely to have higher-than-expected costs than were families in plans with no deductible.”
Whaa…?
Reading this.. I immediately get the impression that this is the line of reasoning Congress followed.
Medical costs are just like any other service. People make good and bad decisions — decisions that are theirs to make. Using discretionary income to see a doctor is no more noble than using the spending money taking out a boat on the weekend with a keg full of beer and a boatload of friends. We all are going to die of something. We speed that process along by ignoring good advice like 1) eat healthy foods, 2) get some exercise and 3) see the doctor once in a while. If we hasten our own demise by ignoring the two earlier pieces of advice, we are thought to lack health literacy, something the Harvard folds believe could have been averted if only we committed more of society’s funds to the latter advice. It just doesn’t make sense. There’s nothing wrong with people dying as the result of choices they made. Neither is there anything wrong with asking the doctor what the price of a service is – and if we really need it.
What this really shows is that people really can’t accurately evaluate their risks. They pick a plan that appears cheaper but they have no way to account for their actual risk and it ends up costing them more. That’s the flaw in John Goodman’s HSA/High Deductible concept. I never understood his dedication to that until I looked at the NCPA tax return that’s posted on the site. He and his wife have an annual compensation of some 900,000 a year. No wonder he isn’t concerned with out of pocket.
“people really can’t accurately evaluate their risks”
Now that you mention it, it’s a bleedin’ wonder we can evaluate the cost/benefit of anything we might think we want to buy.
How many people in the study would consider paying for a tank of gasoline to be a financial burden? This entire discussion has nothing to do with health care, and everything to do with either welfare or the economy.
So, diogenes, you think it is a good idea to pay $7,100 more in premium to avoid a $3,500 deductible? I would say you are the one who isn’t very good at evaluating risk.
It is not just the high deductible that is a concern. It is also the maximum out-of-pocket on top of that. HSA plans are nothing more than a tax shelter for wealthy people who are not burdened by actual costs and a cost saving vehicle for insurance companies because they have “Less Skin in the Game” as people like to say.
In our patented plan design, we are providing first dollar coverage, but pricing the premiums AS IF they have a higher deductible.
So, even though they could THEORETICALLY claim first dollar benefits, by denying those benefits, they build more paid-up insurance to fund increasing benefits (and deductibles) every month.
Doing so saves them premium dollars every month in which a claim is not made.
Don Levit
GREG, I take a more cynical tact in trying to make sense of the Harvard conclusions. 100% coverage encourages more dependency (entitlement mentality) regardless of the quality of care, and of course that goal is at the top of the liberal agenda. We have already seen this scenario play out over the last 20 years with the damage done by the proliferation of “office copays”.
Erik, so are we to assume that you believe the non “wealthy” people can’t be trusted to manage their funds and spend healthcare dollars to their best advantage?
Greg, all your points on insurance are valid.
However, virtually all societies (not just America) do not want a patient choosing their treatment options based on price. The relationship between a patient and their doctor is not the same as between a customer at the Apple store and the college kid who is waiting on them.
The college kid cannot put his hands inside of you, to put it bluntly.
Mine is not a liberal insight. Arnold Kling the libertarian wrote a very good piece on this.
Also, to put it a little coyly, most Americans are not affluent. Especially outside Massachusetts. A $3500 deductible in New Mexico might as well be no inssurance at all.
In fact when the public finds out that the bronze plans in Obamacare have a $2500 deducible, there will be great anger.
An additional premium of $1980.00 for one person to avoid the maybe of $1750.00 deductible??? Sure there are co-pays, coinsurance ect.. for maximum out of pocket, but that is IF… and afterwards. The $1980.00 is a for sure expense before. The folks at Harvard do not mention what these people have to pay for housing, food, transportation, education, ect… should all those thing be subsidized as well. The fact is, all the plans are exactually the same, gold bronze, silver and the rest. They all have unlimited lifetime benefits and there is a choice of paying more premiums for less out of pocket, or less premium and more out of pocket if you have claims. The providers are the same, the discounts are the same, the claims adjustment are the same, the items covered are the same. Buy an auto insurance policy with a $1750.00 deductible for $1980.00 saving over a zero deductible. Let’s see what the folks at Harvard say about that???
Massachusetts is one of the wealthiest states in the nation, with one of the highest per capita incomes. By definition, to be in the unsubsidized (Commonwealth Choice) programs, the members must have incomes in excess of 3X Federal Poverty, i.e. a minimum income of $58,591 for a family (in 2013). It seems to me the bigger issue is why a family should be forced to pay $9,526 for bronze coverage without an opportunity to seek alternative, cheaper coverage. Interestingly, according to Massachusetts’ own affordability schedule the family does not have to buy coverage if the only available coverage has a minimum premium in excess of 7.8% of income ($4,570). Assuming this minimum income, I dont know why the family has purchased coverage at all, with or without an “unaffordable” deductible. Given the 7.8% minimum and a $9,526 premium, the family income must be at least $122,000 which seems adequate to afford a $3,500 deductible.
There is a difference between simply protecting against catastrophic financial loss (admittedly an important function) and providing health care through a prepayment program in which deductibles and other cost sharing barriers to care are not utilized. Under a prepayment program, not only is catastrophic financial loss eliminated, decisions to access care are made on the basis of perceived health care need. Some of us really do believe that if a person needs health care, they should have it.
Other nations have been much more effective in containing costs without imposing financial barriers to care. CDHPs (high deductibles) are certainly not the only method of controlling spending, and they are of little benefit in slowing the greater costs of care – the 80 percent of care that is utilized by the 20 percent of people with greater health care needs.
Bob Hertz said… A $3500 deductible in New Mexico might as well be no insurance at all.
In fact when the public finds out that the bronze plans in Obamacare have a $2500 deducible, there will be great anger.
My deductible is nearly 50% higher than $3500. But I wouldn’t consider it no insurance at all. It means that if I have a heart attack, am diagnosed with cancer, get “hit by a bus,” or need major surgery, I won’t have hospitals and doctors trying to avoid me as though I have the plague. It also means I will have to budget for my out-of-pocket medical care, which as Greg points out, is often possible using the premiums saved by enrolling in a higher-deductible plan. There is a difference between health insurance and pre-paid medical care. The above items are by their nature unlikely events, and are easily insured against.
I don’t mean to trivialize the out-of-pocket costs to someone for whom $300 a month is a major budget hit ($3,500/12). But at the same time I don’t understand the argument that the poor should buy far more coverage than they need so cost never influences their choice of medical care. In light of the RAND HI Experiment, and numerous other studies; and keeping in mind that disposable income is in short supply, I would argue the poor are the most in need of an innovative way to save on their health care spending.
@Don McCanne
“Some of us really do believe that if a person needs health care, they should have it.”
Don, I think all of us believe that. The difference is that some of us are willing to let the person that “needs the healthcare” decide when, where and from whom that healthcare is obtained. You may say such a decision is made “for them” in some cases by the unavailability or availability of money to pay for that healthcare. But if the “money” problem is alleviated by the government, the government will automatically negate the previously mentioned right of the individual to choose “when, where and from whom”. IMHO, that is too much of a price to pay except in cases of the truly indigent.
To Frank Timmins,
We agree that patients should be able to choose “when, where and from whom” they receive health care. The traditional Medicare program allows that choice whereas most of the private Medicare Advantage plans restrict choices to their networks.
We believe that under a single payer model – an improved Medicare for all – this right to choose should be protected. That choice may include integrated healthcare delivery systems such as Kaiser or Group Health, but that should be the patient’s choice, not the government’s choice, nor provider choices made by private insurers.
@Don McCanne
Don, I don’t agree that traditional Medicare allows the choice of healthcare providers. In fact, that freedom is going to be eroded even more in the future as doctors continue to abandon Medicare. The only fix for that phenomenon is for the government to “force” doctors to accept Medicare pricing and regulations. Few of us want to go there.
I agree that people can (and should be able to) “choose” to participate in the various “managed” plan options. They should also be able to choose not to do so.
Frank, I am an insurance agent in California. Non-Wealthy people cannot afford to put aside the deductible monies in an HSA account so they go without. Wealthy people do use them as an additional retirement account. It is just the nature of the beast.
Devon notes that a person could theoretically budget for his discretionary, office visit care by banking the savings from enrolling in a high deductible plan.
Well, I was an insurance agent too during the last decade.
I met all too many workers whose premium for the high-deductible plan was STILL too high for them to save any money.
I had a high deductible plan myself from ages 61-64.
By the time I hit age 64, I was paying $624 a month for a plan with a $4000 deductible. I was making about
$3500 a month after taxes.
The high deductible health insurance was killing me!
I saw so many workers who had the HSA type of insurance but no HSA.
When high-deductible insurance plans were first discussed about 10 years ago, the promoters talked about how you could drop your insurance premium to
$200 a month and save the difference.
Maybe if you were 30 years old!
The ACA has many flaws, but it did make some effort to tie health insurance premiums to income.
Otherwise, people lapse their insurance right at the time they need it most. And the insurance companies know this.
Erik and Bob,
C’mon, guys. I cited (from the study) the actual premium and the actual deductible for the bronze plan in Massachusetts. Your experience in your location may be different, but in that state going from a zero deductible to a $3,500 deductible saved the family $7,100 in premiums. Are you saying you would not recommend that to your clients? If so, to what extent is your recommendation based on your reduced commissions?
Greg, you were making a solid point about deductibles and I was reacting to the ‘whole scene,’ not to your observation.
The whole scene is that how have we come to the point where a family must pay almost $10,000 a year for health insurance with a high deductible?
Maybe salaries are a lot higher in Massachusetts, but in northern MN a middle class family makes about $36,000-$50,000 a year after taxes.
This family might pay $2500 a year for car insurance on two cars, $1,500 for term life insurance, and $2,000 a year for fire and home insurance. All of these are vital coverages.
The sheer price of the health insurance gnaws at me.
In Canada and northern Europe(I can hear the groans already, but bear with me), a family probably does pay at least 15% of its income for health benefits.
And for that 15%, they get financial protection PLUS
prepaid care with low deductibles.
In America, they must pay 20% of their income for financial protection only.
We are doing something wrong, not you and not this blog. But the entire health insurance enterprise.
Bob Hetrz says “We are doing something wrong, not you and not this blog. But the entire health insurance enterprise.”
Health insurance? Bob Hertz, I think you are overlooking something very fundamental.
The primary barrier to medical care is not the cost of medical insurance; it’s the cost of medical care in the first place.
If medical care were not expensive, medical insurance would not be expensive. If the cost of medical care were not rising, the cost of medical insurance would not be rising.
It’s clearly a mistake to focus attention on insurance rather than the underlying medical cost. That’s where ACA goes wrong, and why it will fail. There’s no denying the ACA implementation is a “train wreck”. But ACA will not fail because of that. ACA will fail because it is an insurance solution but the problem we have is high medical cost. Even the most economical insurance will be high cost when the underlying medical care is high cost.
For the past 50 years tinkering around with insurance has not produced a solution to the cost of medical care OR the cost of medical insurance. Continuing to tinkeri around with insurance still won’t produce solutions now, or 10 years from now, or 50 years from now.
Few people would knowingly keep seeing a physician who treated their symptoms and ignored their disease. Yet when it comes to the cost of medical care, the public prefers to believe politicians and other so-called thought-leaders who prescribe insurance medicine for a medical cost disease. Go figure.
Well stated John.
Good point, John, but not all aspects of medical care are terribly expensive. All the products in drug stores and eyewear stores are part of medical care, and they are as cheap here as anywhere in the world.
Hospital care and life saving surgery and drugs without substitutes are what drives the need for health insurance, and the price of health insurance.
Let me put it this way. If five persons out of a hundred need a cancer or heart treatment that costs
$100,000 for each of them, then all 100 people will pay a high premium for their health insurance.
My personal crusade is that the cancer and heart treatments do not really cost that much — there is price gouging by drug and device companies all the time, and sometimes by hospitals too.
So I basically agree with you, that high priced medical care creates expensive insurance.
I just want to add that we should not take the price of medical care for granted.
Unfortunately, the disagreement surrounding share of cost has never been about the underlying facts, it has always been political/ ideological.
Folks who want government-run “free” stuff will use any means of disinformation possible to prevent migration to increased share of cost and personal financial responsibility. Can’t really blame them, as 100 million people financially vested in their own health care and retirement futures thru increasing HSA balances represent a nail in the coffin for single-payer – the ultimate goal.
Dr. Knight,
Our concerns about cost sharing are based on facts.
Paying deductibles or funding HSAs has become much more difficult with disposable income vanishing for too many of America’s workers. High deductible plans are selected for the same reason – no disposable income to pay for higher premiums. Even for employer-sponsored plans, the employer’s role is merely as a proxy for the employee.
Health care has become too expensive for workers to bear their proportionate share. We need progressive financing. HSAs and HDHPs only make the problem worse.
We could have a single payer-social insurance program for hospital care, call it Part A for Anyone.
This would be funded by income and payroll taxes.
Then we could have HSA’s for office visits, diagnostic tests, and discretionary care in general.
This is a combination that could satisfy both left and right.
Avik Roy of Forbes magazine suggested exactly this approach in the Atlantic a few months ago. So it is not a radical-left specialty.
Bob Hertz
The Health Care Crusade
@Bob Hertz
Re: Part A for everyone
Strangely enough, IMHO we have something to talk about here. This is not to suggest that universal “Medicare” for the majority of healthcare dollars spent (hospital related) is a good idea. However, the notion of segregating in-patient hospital encounters from all other medical encounters is always an intriguing notion.
As opposed to the Medicare model, which is clearly a breeding ground for corruption and gaming, why could we not develop a private insurance model with government back up (an FDIC of healthcare insurance if you will) specifically designed to protect against the seldom used but financially devastating hospital encounter?
As you suggest Bob, “everything else” could be left to free market innovation, including day surgeries and any elective procedures. I’m just scatter shooting a bit, but it would be nice if this concept were explored a bit.
Greg, nice post. However, I find it stunning, just stunning, that when I clicked the link to the Health Affairs article, the names Himmelstein and Woolhandler were not on it. I guess their efforts at infecting Harvard with wrongheadedness is paying dividends.
Don McCanne says “Health care has become too expensive for workers to bear their proportionate share. We need progressive financing.”
Seems to me you and I agree, that the basic problem is unaffordable medical care.
But then why do you advocate “progressive financing” as your solution? It appears you suggest more spending is needed. Do you feel there no room to consider first whether Americans are getting our money’s worth from what we are already spending?
It seems to me basic economics – law of demand – that subsidizing the cost of medical care results in higher medical spending. In fact, the history of the past 50 years supports this view. So I wonder how a strategy to pour even more money into the present medical delivery system is likely to make the next 50 years different from the past 50 years.
David —
I think they are at NYU these days.
Frank, what would you think of the following method to be sure that everyone has catastrophic insurance:
a. The Medicare payroll tax is raised by 2% on employees and 2% on employers.
b. Anyone who pays for health insurance on their own can offset the tax dollar for dollar.
c. Any business which buys health insurance for their employees (i.e. pays for it, not just offers it) can
offset the tax dollar for dollar.
d. The end result is that persons who do not have health insurance will pay slightly higher Medicare taxes.
These monies will go into Medicare Part A, which then operates as the insurer of last resort for non-discretionary hospital care.
This is VERY much like some proposals by John Goodman 15 years ago.
It also protects against the free rider problem, at least among people who pay taxes. Those who work for cash would still be free riders.
My position has always been that most hospital care is involuntary, like having a fire. We collect taxes for fire protection, and we should collect taxes for hospitals.