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You are here: Home / Anderson On Health Insurance / Deductibles, incentives and the chronically costly

Deductibles, incentives and the chronically costly

by David Anderson|  January 22, 20189:08 am| 19 Comments

This post is in: Anderson On Health Insurance

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Fastest Clinic Day EVER! We are headed home!!!

3 hours. 3 clinics. Probably about $6,000+.

But that means we hit our deductible today!

— isTrumpCareDead? (@IsTrumpCareDead) January 17, 2018

That Tweeter is the mother of Savannah, an adorable four year old, whose internal plumbing is a bit off.

But she’s ONLY alive because of the Affordable Care Act.

Her medical bills, at age 4, top $2,000,000.

Her list of preexisting conditions is extensive.

She’s the poster child for high risk. pic.twitter.com/9idbzgCyJ3

— isTrumpCareDead? (@IsTrumpCareDead) January 15, 2018

They are insured primarily through a private policy with a $6,000 individual deductible and Medicaid picks up some of the rest. Her daughter is guaranteed to have significant medical needs for the rest of her life.

Deductibles, for most people in reasonable health, are an incentive against getting care. I have a deductible for my insurance at work which means I am paying the first $1,000 dollars for non-Primary Care. For little things a deductible is supposed to give me an incentive to say that I’ll take Motrin and drink some more tea instead of going to the doctors to get it checked out or that I will go to an off-site MRI facility instead of getting my knee scanned at the hospital. A deductible chops off a lot of the risk on the left hand side of the spending distribution for an insurance company.

High deductible health plans are effective at reducing service utilization.  They are currently ineffective at making people good shoppers.  However the incentive effect goes away once the deductible is reached.  Here there are two scenarios.  If someone is in reasonably good health and has a one time spike claim that maxes out the deductible, then there is a short term incentive for that individual to pull medical utilization forward from the future to the current low cost sharing time period.  Someone may know that they need a knee replacement at some point in the future.  They had been deferring it because of the cost sharing.  If they had an unrelated two night hospital stay for the flu in January, they may decide to get their knee done in April because the marginal cost is much lower than it otherwise would have been.

Again, that is the more common scenario as most people most of the time are reasonably healthy.

However the incentive function of a deductible falls apart for people like Savannah.

No matter what the family does, they will blow through the deductible every policy year.  They may control whether they exceed the deductible in the first half of January or the second half of January.  The deductible has no incentive on their behavior because the expected medical costs for a non-crisis year are still huge and the costs for a crisis year is massive.

Instead, a deductible for a family that has someone with expensive, persistent high cost conditions is merely a tax.  It is saying that being sick means an annual levy of $6,000 that is collected every January for the rest of their lives.

Policy that works for 95% of the population because they don’t have persistent conditions that require a lot of expensive care fails miserably in the outliers.  Large deductibles may be an appropriate tool to hold down utilization and potentially prices for the cohort of people who are primarily worried about one-off events and have years of reserves to draw-down and then years to rebuild those reserves after the single bad year.  It fails miserably for people who never can accumulate or rebuild those reserves.

 

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Reader Interactions

19Comments

  1. 1.

    Xantar

    January 22, 2018 at 9:29 am

    How does this child have coverage through a private policy and has Medicaid picking up the rest? Does she live in Arkansas or one of those states with alternative Medicaid expansion?

  2. 2.

    David Anderson

    January 22, 2018 at 9:47 am

    @Xantar: It is pretty common for Medicaid to be the secondary insurer for certain types of illnesses and scenarios in many states.

  3. 3.

    Mathguy

    January 22, 2018 at 9:53 am

    I was having a somewhat less depressing morning (the news of the anti-shitgibbon rallies, nice snowy day here), and you had to remind me of what a travesty our health care system is.

  4. 4.

    Capri

    January 22, 2018 at 9:58 am

    Many(if not all) states have a special fund that helps out really sick kids. Not sure if that’s an outgrowth of medicaid or stand alone funds.
    My grand daughter has cystic fibrosis, and her doctors helped get her enrolled in Nevada’s version. The enzymes she will need to take before every meal for her entire life cost $450 a bottle. They would be $20 out of pocket with regular insurance and are free due to the plan.

  5. 5.

    Julia Grey

    January 22, 2018 at 10:00 am

    Yeah, my daughter had a cervical cancer scare and South Carolina Medicaid picked up all the bills relating to further diagnostics (biopsy, etc.) and would have paid for treatment as well.

    But even during that period of coverage there would have been nothing for any medical care unrelated to that diagnosis.

  6. 6.

    gene108

    January 22, 2018 at 10:14 am

    Hard to comparison shop, when no one knows what the insurance will pay until after you see the doctor.

  7. 7.

    elm

    January 22, 2018 at 11:06 am

    @gene108: Even the billing specialists at the hospital can easily need a month or more to put together a bill after you’ve been treated. There is no realistic way to get an estimate for anything that can’t be done with a single clinic visit to a single provider.

  8. 8.

    Chris T.

    January 22, 2018 at 11:07 am

    @gene108: I actually did comparison shop once. I called several places and asked how much a scan was. I had COBRA on my old plan and was about to switch to a new plan via new job, so that was the other key question. Turned out that the one lab that was cheapest, cost more overall under the new insurance (about $30 or $50 more if I remember right) but the cost to me, personally was lower. So I went with them and waited until I switched insurances. It also took them several days to figure this out and get back to me with the cost information. Good thing this wasn’t an emergency…

  9. 9.

    Ohio Mom

    January 22, 2018 at 11:12 am

    Where did the idea for co-pays and deductibles come from anyway? Wasn’t it that Rand Corporation think tank? For all the reasons listed in the post, deductibles have always seemed a very sadistic idea to me. And cynical. The well-being of the patient is last.

    And don’t get me started on the whole comparison-shopping thing. I’m supposed to say, take a less effective med because it is cheaper?

    What us the logic in that? Everything you take has side effects. At least when you are taking the right med, the trade-off is worth it.

  10. 10.

    Victor Matheson

    January 22, 2018 at 11:39 am

    @Ohio Mom: I don’t think I agree with you that deductibles are inherently bad.

    Including a deductible reduces the cost of the insurance by a significant amount. Basically a deductible means you have to self-insure for the the first $X of your health care. An insurance executive once told me, anytime you can self-insure, you should do it. Otherwise you are just making the exec rich.

    That being said, once deductibles get too big, it becomes hard to do that self-insurance. But for a family with household income of $100K or more, some decent savings, and access to a tax-advantaged health saving account that roll over year, a catastrophic insurance plan with high deductibles and a nice network if you do need serious care, could be a pretty sensible product.

    And yes, there should be a some tradeoffs between effectiveness and cost. The ACA was supposed to include review boards designed to do efficacy testing and apply some cost benefit analysis. If we have one drug that costs $100 and another drug that is 10% more effective but costs $1,000, it is worth thinking about which drug we want to use as a society. OF course, if the cheap drug saves a person’s life 50% of the time and the expensive one saves lives 55% of the time, the extra $900 is almost certainly worth it for 5% of a life. Probably not worth it for, say, a 5% less bad hangover (again depending on how big a Vikings or Jacksonville fan you were yesterday).

  11. 11.

    Kelly

    January 22, 2018 at 11:50 am

    The annoying thing for me about deductibles is the fixed start date, usually Jan 1. Twice we’ve had stuff happen in December thru January that would have bumped us over our deductible but the costs split across the two years.

  12. 12.

    trollhattan

    January 22, 2018 at 12:03 pm

    Friday’s annual reminder that Republicans only care about conception to birth needs to be highlighted whenever their “privatize, privatize, privatize–World’s Best Healthcare” philosophy is on display. They know no shame but anybody not wearing blinders will see the contradiction.

    Poor kid, hope she hangs in there.

  13. 13.

    Gin & Tonic

    January 22, 2018 at 12:07 pm

    @Victor Matheson:

    Basically a deductible means you have to self-insure for the the first $X of your health care.

    Which might be a half-decent plan if you had any fucking idea at all what anything would cost. As our system is structured, nobody can give you that information.

    I had an unfortunate event last year that put me well over my deductible early in the year, and I didn’t have a lot of opportunity to “shop around” because you can’t do much of that in an ER, but even after everything was over, and I had reams of paperwork, there still appears to be no known relationship between “list price” and real price of anything I had done. And my insurance company still pressured me very hard to have certain procedures done at lower-cost providers, even after months of looking at my deductible in the rear-view mirror.

  14. 14.

    trollhattan

    January 22, 2018 at 12:32 pm

    @Gin & Tonic:
    Yup. If, say, the radiologist working at your in-network imaging lab the day you get xrayed is out-of-network, your annual deductable can vanish in an eyeblink. Happened to me last year, in January as luck would have it.

  15. 15.

    Ruckus

    January 22, 2018 at 1:07 pm

    @Gin & Tonic:
    You spend all of your time trying to figure out who, how much and for what to do and you probably have no medical training so your only real idea is how to do it cheaper. All the while you are hurting, and temporarily disabled or even attempting to die. Then comes after the whatever and that’s the bills. A 1 1/2 hr visit to the ER, during which you are the only patient, during which you saw an xray tech who took one picture, his time was less than 10 minutes, you talked to one Dr for less than a minute and the bills total over $3,500., with one of them being for $5.00 bill for a consult with a different Dr, who you never saw. Yeah, our medical system is the best. At what, other than someone figuring out how to get people to pay hugely inappropriate costs for a whole lot of nothing?

  16. 16.

    RealityBites

    January 22, 2018 at 1:51 pm

    This might be a dead thread by now, but I have a question. When the tax bill passed, I saw, in more than one place, information that one result of the Medicare cuts is that therapy after a medical event such as hip surgery or a stroke would be limited to one month. Now I can’t find this information anywhere. Did I dream it? Did I misread or misinterpret something? Thanks to anyone who can help.

  17. 17.

    wmd

    January 22, 2018 at 2:46 pm

    Out of pocket maximum also matters. When it was time for post treatment scans I chose to stay with Stanford radiology rather than go to my normal primary caregiver’s facilities since it made no difference to me (and it meant oncologist had faster access). Probably cost an extra $1k or so, but it wasn’t me paying it.

  18. 18.

    Bob Hertz

    January 22, 2018 at 8:25 pm

    Quite a few hospitals and drug companies appear to have gotten rich off this child.
    I guess I must be partly British at heart, because my first reaction is that this is way too much to spend on any person, young or old.
    I have no hope of convincing other Americans, but I would suggest two steps:

    a. All medical bills for such a person should be slashed by 75%.

    b. If a Mayo or Cleveland Clinic wants to preserve such a life, let them pay the bills.

    Please note that I have been close to a multimillion dollar child liver transplant case through close friends of mine. The case has destroyed the parents’ marriage, and their finances, and subjected hundreds of other Minnesotans to grotesque premiums because they worked at the same companies as the boy’s father.

    Let Mayo pay for the care if it is that precious to them. I mean it.

  19. 19.

    Daddio7

    January 23, 2018 at 4:21 am

    @Bob Hertz: My wife is a pediatric home care nurse. One of her clients is on his second liver. He is other wise healthy and in a few years will age out of pediatric care. His parents are divorced as are all the mothers of her clients save one, an immigrant couple. Her current client has many of the poster child’s conditions but is now three times that age and will probably not make it to see another president. One of the children in the mothers support lost their battle last week. But there are successes, a previous client, the three year old of the immigrant couple improved enough to no longer need 84 hours of nursing care each week.

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