Health Policy$ense

Health Care Spending and High Insurance Deductibles – A High Stakes Gamble

"Consumers Are Wondering If They Are Really Insured."

An edited version of this post appeared on The Field Clinic

The Obama administration recently announced that they expect new Obamacare sign ups over the next year to be well below original projections. According to the Administration, some of the slow-down of enrollment on the state and federal insurance exchanges is because the remaining uninsured are simply harder to reach.  But the announcement also comes amid speculation that the cost of health insurance, including the amount individuals are forced to spend “out-of-pocket” for care, may be too high to attract many of the people that still do not have insurance.    

The affordability question is a challenging one. Making health insurance plans more generous (meaning less cost sharing or out-of-pocket spending) means higher premiums.  When individuals choose a plan, they face the question of whether they want to pay more up front in the form of higher premiums or risk having to pay more out-of-pocket when they need care through high cost sharing and deductibles.

Ironically, when Obamacare was first rolled out, many complained that the coverage - graded on actuarial value by the Olympic medal system of gold, silver and bronze - was too generous and would cause people to buy coverage they didn’t need.  There were even calls for skimpier “copper” plans which would cover on average just half of all health care expenses.  Now the conversation has swung the other way.  Many are struggling with the high deductibles and cost sharing that accompany the plans with the lowest premiums. Consumers are wondering if they are really insured. 

High deductibles have become a popular way to try to slow down health care spending. The idea is that having a high deductible incentivizes consumers to cut back on care that offers less benefit. The other hope is that when forced to pay out-of-pocket for care, consumers will be more aware of cost and shop around, find lower-cost providers, and that higher-cost providers will lower their prices to attract consumers.

It’s not just the Obamacare plans offered on the exchanges that are using high deductibles to hold down premiums. Nearly one quarter of workers are now signed up for these plans through their employer. While high deductibles may hold down premiums, the question is whether they are good for health and cut out wasteful spending. 

A new study helps answer this question. Researchers studied employees of a large company that were switched from a generous insurance plan (with zero cost-sharing) to a plan with a higher deductible ($1,500 for an individual and $3,750 for a family).  After the switch, employees spent less on health care – a little more than 10% less.  But why did spending go down? Did they use less health care? Did they cut out unnecessary care? Did they shop around for better prices?

The employees at this large company (who on average earn more than $100,000 per year) used less of everything. They cut back on MRIs where there is a lot of waste.  They also cut back on preventive care like mammograms. They cut back across the board. They cut back even though their employer deposited money in a health savings account for them – funds they could use for out-of-pocket costs. 

So while policymakers and HR managers hope these higher deductibles act like a scalpel and cut out the waste, they seem to act more like a hammer and cut some of everything.  And even when facing higher prices, these employees didn’t shop around. They didn’t switch to lower-cost providers. They just used less. 

The takeaway – high levels of cost-sharing mean consumers use less health care. That has been known for a long time. But this new study calls into question the basic premise of high deductible health plans – that by having more “skin in the game” – consumers will be savvy shoppers of health care.  Perhaps over time, consumers will change their behavior and begin to scrutinize the price and effectiveness (what policymakers refer to as value) of health care, shop around for care, and force high-cost providers to lower their prices to compete.  But the early results of this experiment show we are a long way from achieving this goal.   

If the objective of health insurance is to make and keep people healthier at a reasonable cost, insurers and HR managers will need to play a much more active role in helping consumers shop for lower prices and separate out high value and low value health care.  Until then – it appears high deductibles, although a seductive solution to keeping insurance premiums lower, may just be a blunt way to lower spending at the expense of better health.