My Duke University and Margolis Center colleague, Peter Ubel, wrote in his regular column at Forbes about the long standing trend of private insurance switching to high deductible designs this week:
Less than 10 years ago, only 1 in 8 Americans working for large companies enrolled in high deductible insurance plans. According to a Kaiser Family Foundation study, that number is now closer to 1 in 2. And among Americans working for small firms, with less than 200 workers, 2 out of 3 have high deductible plans….
These plans are not always great bargains for workers. On average, the annual premiums are about $1,000 cheaper than other plans, but workers only pick up $300 of those savings, with the employer saving $700 of its contribution towards the premiums. It’s hard to receive any kind of medical care without spending $300.
I found this really interesting on the distribution of the benefits. It is first part of the great risk shift that the American political economy has been in over my entire life time. More risk is being shifted to the individual instead of larger entities with actuarial and financial depth.
Secondly, and for the purposes of my regular writing, the distributional benefits of the shift towards high deductible plans is interesting. The Health Care Cost Institute had a recent blog (2/21) and Tableau (below the fold) that looked at what percentage of the commercially insured population had at least X amount of spending in a single year (2013) or at any point in a two or three year period.
Most low deductible plans always had some sort of deductible. The lowest deductible plan that I was covered under since I got out of grad school had a $500 individual deductible. A high deductible plan in 2018 has at least a $1,350 deductible and it could be much more.
We need to think about the distributional consequences of the shift towards high deductible plans. Let’s assume that most low deductible plans have a deductible of some sort. The incremental shift in risk is not the increase in cost sharing from $0 to the new deductible but the additional exposure by the individual to more cost sharing from the old deductible to the new, higher deductible.
In 2013, 36% of the commercially insured population spent less than $500 on healthcare in the year. These folks would have paid most if not all of that spending in either deductible or cost sharing free services so the shift to a high deductible plan would not have negative, short term impacts. Instead they would be better off as they would be paying $300 less in premiums which would be a net win for them. Ideally, that money would go into an HSA to help pay for a one-off bad year, but it is probably going to the mortgage instead.
The winners vary by age and gender as 29% of women and 43% of men fall into the under $500 in claims for 2013 bucket. 43% of all 25-34 year-olds had less than $500 in claims while only 20% of 55-64 year olds have such an inexpensive claim year.
The people who are hurt are those who have claim years where the difference in deductible is greater than the decrease in premiums. For instance, if the original plan had a $500 deductible and the new plan has a $2,000 deductible, someone who has Type 1 Diabetes is paying an extra $1,500 out of pocket with only a corresponding $300 decrease in premiums. They would be in the hole for $1,200.
As we decrease actuarial value of plans, the cross subsidy from the healthy/lucky to the unhealthy or the unlucky decreases significantly. These plan designs are a permanent income tax for people with chronic conditions and an excise tax on the occasionally unlucky.
Feathers
When I worked at a University, the insurance plan had deductibles and copays, but if you spent X higher amount on copays, you could put in for reimbursement at the end of the year. One way to handle the chronic illnesses.
Thursday
I have a burning hatred of high deductible plans.
Our workplace had a high deductible plan bundled with an HSA available for a few years. It was basically free compared to the real insurance, so it was taken by the young and healthy, but if you had any medical needs at all you’d skip it.
Skip ahead to four years ago. My wife and I had finally decided to have a kid, and she was due in January. So when the annual enrollment period came around, I was fully intending to pick up the best insurance plan we had available. Well, unknown to us, the high deductible plans had previously been available to get us used to the idea. And since this was the year Obamacare went into affect, the company saw their chance. They scrapped every traditional insurance plan we had available, and now only high deductible plans would be available. Moreover, those plans had gone from their basically free price, to the same price as our previous good insurance. And coupled with this, they used several statement that did not say, but were meant to imply, that the price increase and everything else was due to Obamacare.
So I went from a $500 deductible, very good healthcare plan, to a $4000 deductible plan with an HSA the month my daughter was born. Our HR person was so goddamn cheerful about explaining how we’d all be so much better off in the long term, and how these plans were actually quite good! So I explained exactly what my situation was, and how I was supposed to be better off.
She strained to keep the smile, and admitted that maybe this was bad timing for me.
So anecdotally: Fuck high deductible plans forever and always.
Also too: The guy at work with a diabetic wife eats a $4000 bill every January and February, and there’s not a thing he can do about it.
God I hate these stupid plans.
Thursday
Sorry, just wanted to add – part of my anger is that the company had apparently been planning the forced switch for some time, but didn’t tell us because they knew we’d be angry. But if they’d just been honest with us, I would have switched the year before and started pumping money into the HSA. Just a tiny bit of actual honest would have made the situation so much better, but they were too cowardly and scummy to do that.
Another Scott
@Thursday: Funny how that works, huh. :-(
I had high hopes, back in olden times, that when GM was arguing that their health care costs were adding $2000 to the cost of every car they made, while Toyota and Honda didn’t have to pay those costs, that there would finally be enough of a realization that the only way to get costs under control – and improve quality, service, efficiency, outcomes, and reduce the waste of bad incentives – was to increase coverage via national legislation. And Obamacare is a step along the right path.
But with Trumpism and Teabaggerism, we see that those gains are not secure. And people like you are paying the price.
Complain to your elected representatives. Things will only change if people demand it.
Hang in there.
Cheers,
Scott.
Villago Delenda Est
Until there is a Democratic Congress and President, these trends will continue, because the fundamental nature of the society has moved from “we’re all in this together!” (WWII/Cold War) to “fuck anyone who’s not in the 1%.” Our health care financing mechanisms are fundamentally flawed as a consequence of that underlying issue.
These motherfuckers seem to long to be given tumbrel rides.
MobiusKlein
@Villago Delenda Est: Can we instead give them higher tax rates? It would prolong their suffering while subsidizing something useful.
artem1s
HSAs are really a great tool for encouraging some significant savings. Even if you expect to have some health costs that will mean you have to cap out your deductable and copay, it’s worth being on a high deductable plan so you can keep an HSA. Any funds you put in your HSA are essentially tax free, whether you use them for your medical bills or they sit until you retire. It’s the HSA that gives individuals access to a savings instrument that has all the tax benefits of a 403b or 401k. If I had had access to an HSA program in my 20s and 30s I would have been able to put away a significant amount of FDIC insured savings. If I’m going to have to spend $4k a year in health care, I’d rather it go first into my HSA then to my health care provider, rather than to my insurance company in premiums. The former means a pretty decent tax break. the latter is a black hole that repeats itself ad infinitum. And if I have less than the $4,450 in bills each year, the money stays in my HSA until I need it or retire.
HSAs are a great savings tool. You need to start looking at them separately from the whole high deductable/copay issue. If we really want a good universal health care policy, we would allow everyone to have HSAs even if they don’t have a high deductable plan.
gene108
That came about in the early 00’s, as premiums started sky rocketing. When I started dealing g with medical insurance for my employer, 20, years ago, you could pretty easily get a plan with no deductible. Typical plan was $10 or $15 co-pay for doctor’s visits. Hospital stays 100% covered and a co-pay for Rx.
I don’t know what choice employers hav other than going with high deductible plans. At this point, nothing else’s is affordable.
The plan above, from 20 years ago, in 1998 dollars was 100.83 per month for single, which included dental and a 50k life insurance plocy.
Currently we are paying about $350 per month for a single in a high deductible plan, with the $3500 deductible and insurance paying after that is met.*
If some genius can figure out how to get providers to charge less, we could get costs under control. As it is employers, insurers, and us the consumers are all price takers, with minimal ability t impact the cost curve.
Edit: * Does not include dental or life insurance.
dr. bloor
@artem1s: This is all true if you like a savings tool that has typically has usurious fees attached and gives you absolutely no control over how the money is invested.
Hard pass.
Central Planning
@artem1s: You know who the high deductible plans are not good for? Poor people. If you can’t afford the high deductible plan in the first place, you certainly can’t afford to squirrel money away in an HSA. The HSA is a gift to the increasingly smaller percent of the population that can actually afford them.
Ohio Mom
@artem1s: Everyone doesn’t have extra money to save, Mr. Obviously Rolling in Privilege.
I’m not go to goggle it but you can: the number of Americans without any savings, who live paycheck to paycheck. It’s stunning.
A “really good universal health care policy” wouldn’t require people to save up for high deductible plans, let alone include high deductible plans. But now I am repeating myself.
Another Scott
@artem1s: 46% of Americans couldn’t come up with $400 in an emergency in 2015.
HSAs are indeed a way to shield money from taxes. For those who can afford to save money.
For too many Americans, it’s not a solution to problems they have.
And it’s a stupid way to improve the health and welfare of the population.
IMHO, of course.
Cheers,
Scott.
Old Scold
Agree with all the High Deductible / HSA hatred. All done in the Chicago School myth of consumer sovereignty. You’re supposed to shop around to get the best deal when you’re sick!
Ohio Mom
@dr. bloor: “If you like a savings plan you have no control over” reminds me of Ohio Dad’s 401k, where his contribution is matched in part by company stock.
Talk about all your eggs in one basket! Paycheck and savings both dependent the same corporation’s financial well-being. Somewhat fortunately, he is able to roll it into other funds he wouldn’t necessarily choose.
Steve in the ATL
Our benefits people said they did the math and most employees end up paying less out of pocket with the high deductible plan, even though it’s scary at first.
I don’t think they’re lying to me, but I’m on my wife’s PPO nonetheless.
Esc
My husband’s company started offering a high deductible plan for the first time this year. The brochure they sent home with examples of how things could work out was ridiculous. They had a family where the mom had a baby, the dad was a diabetic who also needed minor surgery and PT, and the son had ADHD saving money with the new high deductible plan.
Somehow the diabetic guy only saw a doctor twice and never had to see a specialist for the injury. I guess he just teleported from the ER into out patient surgery. There were other things too, but I think I already got rid of it.
KithKanan
@Central Planning: Not only can the poor not afford the higher deductible, but they’re often in a low enough tax bracket to get very little benefit from the above-the-line deductibility of HSA contributions. Someone rich in the right state might save 40+% on their contributions, while someone poor in the wrong state might only save 0-10%. It’s incredibly regressive, providing the most help to the people with the least need.
Thursday
@Steve in the ATL: Yes, you do save money! For instance, since I can’t afford $500 for an ER visit, I just really, really hope the problem isn’t as bad as I fear and stay home. Nor do I see the heart specialist I’m really overdue for. So much savings!
Steeplejack
@artem1s:
The problem is that a lot of people don’t make enough money to put any into an HSA. They’re scraping by paycheck to paycheck.
Almost half of Americans wouldn’t be able to cover an unexpected expense of $500.
ETA: Memo to self—refresh the page to see all the intervening comments. D’oh!
Steeplejack
@Another Scott:
Thanks for the info the other night on increasing the size of the House of Representatives. I got back to that thread late, but I read and appreciated it.
Another Scott
@Steeplejack: Hey, glad to help.
Cheers,
Scott.
wmd
High deductible plan made sense for me. Old PPO had $1500 deductible and $2380 max OOP, with me paying $73 semimonthly or $1752 in my premium cost. High deductible has a $2000 deductible, $2280 OOP and zero premium. Since my annual costs are over the OOP it’s a no brainer decision – premium savings goes to HSA, I kick in a bit more than the amo
unt needed to pay OOP and end up with a tax deferred savings vehicle for eventual Medicare expense.
Ohio Mom
@Steve in the ATL: We ordinary, everyday folk have no chance when it comes to outsmarting the insurance company’s actuaries.
It isn’t even meant to be a fair fight, the insurance company sets the rules in their favor.
So yeah, “most” people might come out ahead with a high deductible plan, but enough someones aren’t going to — and I surance company has a pretty good idea how many unlucky saps there are going to be.