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.