Friday’s New York Times had an excellent piece about the major changes occurring in the type of policies gaining traction in the group health insurance market – consumer-directed health plans with high deductibles. According to the NYT’s Milt Freudenheim, more than a hundred large companies, including Nissan and Delta Airlines are now offering one plan – a high deductible one. The corporate types interviewed for the article claimed their employers had changed from other options to the single high-deductible one because
While Nissan and Delta are contributing to the deductible account, they are the exception rather than the rule. Only a quarter of employee HSA accounts actually have any funds in them. If, or more accurately when, the worker or a family member gets care, they will have to pay for that care with post-tax funds from their regular cash flow – if not, it likely goes on the credit card, where it not only is paid with post-tax dollars, but it may well add to the family’s debt burden.
Although consumer-directed health plans have struggled to gain traction, it looks like we can expect more and more employers to adopt them – gaining a significant reduction in costs in the first year, with some, albeit unconvincing, evidence of slightly lower costs in subsequent years. I’d note that the evidence is rather thin, and the cost savings may well be due more to adverse selection (healthier folks choose HSA plans when they have a choice, with their less-healthy coworkers sticking with HMO or other richer plans).
While I’d like to believe the benefits folks from Nissan and Delta are doing this to encourage better spending habits and healthy behaviors, the real reason they’re dumping their richer plans is cost. Both companies have been and will likely continue to be hammered by the recession, high energy costs, and declining demand. Health care plans cost $13,000 per family – it’s no wonder employers are switching to lower cost alternatives.
No, companies changing to consumer-directed health plans are doing it to cut costs. But they may well find their efforts backfire.
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.
Nov
17
What we are seeing is a continuation of the shell game – make it complicated enough, move the costs around somewhat, and you continue to preserve the status quo in terms of the insurance companies continuing to make money at the expense of everything else. Instead, I posit the theory that we can get costs down by actually moving to consumerism in a much more tangible way – cut the complexity! Forget copays and deductibles, and do away with insurance company networks. Instead, have providers of care post the prices for providing that care, and have insurers post what they will pay for that care. The patient sits in the middle with the option to either utilize care from providers whose charges line up with what insurers pay, or choose care from more expensive providers and pay the difference out of pocket. Removing networks will unburden providers from the run-away administrative costs associated with plan participation and allow them the opportunity to reduce prices an move to a cost plus-based structure of providing care. Having insurers post payment pricing means that they will need to compete or employer and patient buiness on the basis of vaue-added programs (diabetes management and preventive care programs for example).
Instead, CDHP models are simply managing to hold the line on costs, initially, due to underutilization of services (as you’ve pointed out) rather than better management of services.
“Why would anyone want to subject themselves to surgery or hospitalization if there were an option to avoid it and just go fishing instead?”
Joe – This isn’t the real issue. Suppose a patient needs to go into the hospital for routine childbirth, a common surgery that can be done at most community hospitals perfectly well, or a standard outpatient procedure. The patient prefers to go to the big name Academic Medical Center (MGH in Boston, for example) even though their outcomes are no better and often worse than their regional competitors. Yet, because of their market power, they are paid 15%-40% more than their competitors for the same work. If there were significant incremental co-pays for going to the big name hospital for the routine procedure, the patient and the referring doctor might be more inclined to choose the more cost-effective provider. It’s not a matter of high deductible vs. low but rather the potential benefits of tiering for hospitals like we already use for prescription drugs in order to encourage the use of generics and more cost-effective brand name drugs within a therapeutic class.
Complicated is an understatement. I believe the word “Co-insurance” should be eliminated from our vocabulary (unless perhaps a consumer happens to have another form of insurance also covering the same treatment as their original insurance.) Co-insurance is not insurance at all, but rather more out of pocket expenses for the employee/patient/consumer.
I agree with Joe and the various studies suggesting use of care is impacted by whether an employee has coverage and how much out of pocket they pay and that they will forgo necessary care to save money even it ends up with negative health outcomes in the long run. I hear this from patients all the time.
I agree with the concept that CDHPs are a ridiculous option for anyone other than a young healthy single person only rarely using their health plan. At one company, the premiums for the CDHP are actually higher than the traditional HMO (and to confuse matters even more for all stakeholders, they’ve relabeled the HMO as an EPO- plus it has another plan name unrelated to anything – yet still identical to an HMO in every aspect and no “exclusive providers” as implied by the acronym. Just repackaging the same old list trying to spin it better.)
In addition to the CDHP plan being more expensive than the HMO, the family deductible is $3500 with a small employer contribution. They’ve also added a deductible to the HMO plan.
So now there’s co-payments, co-insurance, deductibles, limits and exclusions, maximum out of pocket expenses, blah, blah, blah…how much more confusing can they make it??? Who is benefiting by adding to the confusion – likely no-one.
Everyone stop! Make it simple. Let’s think out of the box. (I like Susan’s suggestion of displaying provider costs with insurance coverage to select providers – hopefully their patient outcomes are also displayed.)
The industry needs to be simplified for end users across the board. End users don’t just include patients, but the college student receptionists sitting in doctors’ offices and hospital waiting areas trying to properly apply health plan coverage, as well as providers and the people answering the phone at the health plans, confused by their own rules. Thank goodness states are gradually passing legislation requiring certain types of documentation to be at a specific grade level allegedly to facilitate health literacy. It’s too confusing as it stands in today’s environment even for highly educated people.
As Joe notes, family coverage is in excess of $13,000 – how many families are actually spending and receiving that much in actual health care? Yet there are the few sick outliers spending half a million for an illness that the rest of the employees need to cover.
Finally, Bush suggests we need to rein in health care spending? What about reining in health care costs?? Why do we just accept providers charging exorbitant rates to spend 5-7 minutes with you at an office visit? Have they really earned $250 for this? (Granted, they have to pay their staff and overhead expenses (and perhaps med school loans too). Similar for hospitals’ exorbitant mark ups) but why do we accept this?
There’s got to be a better way.