We now know one of – if not the – major reasons health care cost trends have moderated – people aren’t getting care.
– Physician visits were down 8% year over year
– 77% of people delayed visits to the dentist due to cost
– a quarter didn’t get prescriptions filled due to cost.
All this didn’t happen last year, but the trends seem pretty clear.
As we noted last month, this has been good great news for health insurers, who’ve seen profits soar as medical costs for 2010 came in lower than projections, and that trend continued into this year. That said, at least one – UnitedHealth, is forecasting a return to somewhat higher utilization in the current quarter.
I’m not sure that’s going to happen.
Other than an obvious driver of utilization – fewer people with insurance means more people putting off care of all types – there’s one other factor that is almost certainly contributing to the drop off in demand for services – high deductible accounts. More accurately, accounts that don’t have any funds in them.
According to a report released in January by the Employee Benefit Research Institute, at the end of last year the average balance in HSA accounts dropped to $1355. With the number of accounts increasing about 14% from 2009 to 5.7 million, it’s not surprising that the average balance would drop as new accounts would probably have lower balances than older accounts.
But remember that these accounts are meant to fund care up to the deductible, which can range from a thousand dollars to well over five thousand dollars. If there isn’t enough money in the account to cover the deductible, people may be putting off care to save their dollars for when they really need them.

It was all over the news yesterday and this morning- health insurance premiums are going up at near-double-digits. Front page in the NYTimes, and a top story in hundreds of other media outlets.
Premiums were up nine percent, yet health care costs (for commercial insurers) had increased less than two percent in 2010.
What gives?
The bad news was triggered by another in the never-ending series of great research from the Kaiser Family Foundation on all things health care related. This latest report contains much in the way of valuable information, but we’re going to focus on the biggie – insurance premiums increased 9 percent this year, and now top $15,000.
Premiums increased 113% over ten years; if this rate persists, and there’s no reason to think it won’t, we’re looking at family premiums above thirty thousand dollars in less than a decade.
But just a couple days ago, Mark Farrah and Associates reported commercial health plans’ medical trend rates were at a historical low.
So, how can premiums go up nine percent while underlying costs only increased two percent? How does that work? Premiums go up more than four times as fast as the cost of goods sold?
According to the piece in the NYTimes,

“Aetna and United Health/Oxford said their requested rate increases in New York largely reflected actual hospital, physician and pharmacy costs. “Our rate requests are simply keeping pace,” said Maria Gordon Shydlo, a spokeswoman for United Health Group/Oxford.”

Yet MFA’s research indicates that those costs didn’t increase anywhere near nine percent in 2010. Health plans are saying that costs will increase faster this year for myriad reasons, and therefore they have to stay in front of those increases. That may be true, and it also may well be true that health plans are looking to sock away as much cash as possible for the investments they’re making to prepare for the post-reform world.
But that’s beside the point. Which is, could your business operate this way?

Austin Frakt’s piece discussing the latest research findings tells us what we’ve long suspected – high deductible plans don’t seem to reduce cost trends.
Frakt highlights an analysis by Katherine Swartz of the Robert Wood Johnson Foundation, an analysis that reads in part:

the CDHP [consumer directed health plan, which uses a very high deductible] was not able to controlmedical expenditures over time and it appears that the enrollees in the CDHP spent more on hospital care than enrollees in the traditional plans…The findings from these three studies are consistent with expectations about deductibles — once the deductible has been met, there are no longer strong incentives for an enrollee to be concerned about further health care expenditures. […]
Health plans with high deductibles and uniformly applied co-payments or coinsurance rates are oftenreferred to as “blunt instruments” for reducing unnecessary health care expenditures because evidenceis mounting that people reduce both essential and nonessential care…uniformly applied cost-sharing particularly causes people to reduce their use of prescription drugs, which in turn seems to lead to use of more expensive types of care that are indicative of adverse events and poor health outcomes. [emphasis added]

Those who’ve been watching the evolution of CDHPs for some time are not surprised. In fact, we knew as long as five years ago that CDHPs = lower drug costs = more hospitalization
. There are several other problems w CDHPs – chief among them the fact that the people who spend the most dollars on health care will not alter their spending habits on iota due to a CDHP.
Here’s a discussion from a previous post.
The underpinnings of CDHPs lie in the economic theory of “Moral Hazard.” Journalist-author Malcolm Gladwell describes this as the belief that “insurance can change the behavior of the person being insured” and notes that it is popular among many economists and think-tank types and, consequently, has been influential in shaping health care delivery systems. The idea is that if insurance covers the bills, people are more likely to seek care and run up unnecessary costs.
The Moral Hazard theory falls short when confronted by the rather uncomfortable reality of actually having health care services rendered to one’s own person. Why would anyone want to subject themselves to surgery or hospitalization if there were an option to avoid it and just go fishing instead?
But on the surface, the concept makes some sense. Most people would be careful about getting an MRI if they knew they had to foot the bill, but perhaps too careful. People will not simply avoid discretionary care; they will avoid necessary care, as several studies indicate. One Rand Corporation study concludes that when individuals are required to pay more for prescription drugs, they don’t take them as they should. This leads to nasty physical and financial problems, such as more strokes, which cause lots of pain and cost lots of money to fix when a few blood-pressure pills might have sufficed. As far as drug copays go, increasing consumers’ costs actually drives up total medical expenses. It’s not a great leap to think individuals with high deductibles will likely wait before scheduling an appointment with their physician to see if a problem just goes away on its own. In a time when the Centers for Disease Control describe diabetes as “a runaway train,” is it economically wise to foster measures that discourage preventive care?
The coup de gras for CDHP is its old nemesis, the real world. CDHP’s fatal flaw is that the “consumer” part is directed at the wrong people. Half of U.S. health care costs are spent on five percent of the population. A deductible has little impact on the purchasing behavior of these folks; they’ll blow through a few thousand bucks in a couple of months
Conversely, over two-thirds of Americans spend less than a thousand dollars a year on health care. The only effect a high deductible will have on these folks is to discourage the use of preventive care.
Consumerism is not all bad – health care shouldn’t be “free” for anyone. Requiring people to share in the cost of their care should be a part of any serious reform effort. The fix for CDHP is relatively simple – get rid of high deductibles, which are unaffordable for many and may well discourage preventive care, and replace them with coinsurance per service to ensure patients have some financial skin in the game. Insurance companies should keep an income-indexed out-of pocket-maximum, while covering preventive services and maintenance medications at very low copays to encourage their use.
I”d add that employers really interested in reducing costs over the long term do have another alternative – buy a CDHP plan, and then fund the deductibles. One company has saved their clients significant dollars with this hybrid approach.