Last week, my son had an asthma exacerbation. We tried to drown it in albuterol but that was not working as well as he needed so we took him to the urgent care where he got a COVID test, a chest x-ray to check for pneumonia and then a scrip for some good generic drugs that have significant reduced the inflammation to the point where he could go to school this morning with just a case of the Mondays. That night, after I dropped him off at home and while I was waiting at the pharmacy for the prescription to be filled, I thought about health insurance and incurred but not reported claims (IBNR) as this is what I do. We’ve talked about IBNR before and I’m thinking about this for a potential project.
When I was working full time at Duke, the family was covered under my employer’s insurance. It was damn good insurance on a narrow network (anything with “DUKE” in its name was in network, anything else, YOLO) with very low cost-sharing. The entire episode would eventually cost me $75 in co-pays. When I became a student, my insurance switched to the student plan while my wife and kids went to her employers’ insurance. They now are covered by a national PPO high deductible health plan (HDHP) with a Health Savings Account (HSA). This means that the entire contract rate for the visit and services will be paid by us until we hit a deductible. The fundamental concept is that lower actuarial value plans with significant first dollar spending requirements will make us better and more discerning shoppers that reduce utilization for unneeded care and drive down prices for needed care. Yeah, my son likes to breathe. We like him to breathe.
As I was waiting at the pharmacy, I knew that I would get told exactly what I owed at the point of sale (~$15). That is information I can theoretically use to think about my incentives for the rest of the year. My family’s functional deductible is BIG NUMBER – $15. There was just enough lag in the system for me to convince myself that I really wanted the big bag of peanut butter M&Ms.
I have no idea what the actual visit will cost. I’m not worried, we have money in the HSA and given the procedures and location, it won’t be tooooo expensive (this is privileged as fuck, I know). But my family’s functional deductible at this moment is BIG NUMBER – $15 – [some unknown number centered on a distribution of $250 with a distribution skewed to the right]. Given that I think about insurance way too much, I am very confident that this equation produces a number well above zero. However, there is a slight chance (<1%) that my family will hit their deductible for the year.
I think that we can effectively act as if we still have a significant deductible left, but I am not certain. I am not certain if that deductible is big enough to make us be 100% responsible for an uncomplicated broken wrist or if it is small enough that another PCP visit or two for school yard crud diseases would eat it up. Given that it resets on January 1, I am assuming that the deductible’s incentive effects are going to be a near constant. If one of my kids or my wife needs medical services in the next thirty three days, we could face a shadow price that differs from the actual price if our deductible is fully met. I don’t think that is the case, but there is a possibility that is the case.
But we are in a world of uncertainty due to IBNR. We know the claims are out there from both a personal, experienced level, and from a societal collective statistical level. We know that the claims will eventually be paid. We just don’t know when any particular claim will be submitted. This creates a moment of fuzz and uncertainty as some of the incentive shaping structures fundamentally assume rapid claims payment or at least fully transparent and coherent pricing information that integrates very nicely with accumulators of previous claims payments. Price transparency rules are likely to not be harmful to this problem. But even full price transparency at the point of service without immediate claims submission and claims processing in the amount of time needed to impulse buy something with both chocolate and peanut butter in it only does so much. Even in a much lower friction universe, there is significant IBNR challenges.
dnfree
Back when I was still working, early 2000s, my employer went to one of those high-deductible insurance plans. You were on your own for the first several thousand. I was able to switch to my husband’s plan—he worked at a small local health network. I had a co-worker with three young children, one of whom broke his arm in early January. On top of Christmas bills, she suddenly had to pay the entire cost of his broken arm. As with you, it wasn’t an optional expense.
A few years later, the health network stopped accepting spouses if they had access to insurance from their own employer. Didn’t matter how good the spouse’s plan was, they had to take it. I was “grandfathered” in because I was already on the plan.
I am now retired and have Part D for drugs. I now take two expensive drugs (if you see them on TV, they’re expensive) and my out of pocket for those two is over $2000 a year. My generic drugs are all either low cost or no cost, but I am often grateful I can afford those medications and I worry about those who can’t.
Brad F
You lost me on this one, David.
Translation: “Predicting remaining deductible balance, in real-time, is difficult. You cant predict claims, and as such, you cant predict your future costs and spending.”
Is that what you are saying?
Brad
Immanentize
I am on a high deductible PPO plan where I work. The annual is 3k. But my university pays 1,500 into my HSA. I’ve had years in which my son and I definitely made the deductible and years like this one where I will not reach the 1500 my Uni kicked in. The cost difference between a regular PPO and the HD plus HSA is about 2000, so all told, the HDPPO plan is a better deal (given the subsidy).
Zelma
The health insurance system is a total mess. I have a very expensive Medicare supplement plan. Every year I think I ought to find something cheaper. And every year the complexity of the process leads me to decide to stay where I am. I have no deductibles and I can go to any doctor I choose. Fortunately, I can afford the high premiums. I guess I’m paying for peace of mind.
Central Planning
We have a HDHP. The first $3k is on us, then we pay 10% of the next $15k ($1500) for a max outlay per year of $4500. The company contributes almost $1k into the HSA for us.
My wife still doesn’t get how this works and tries to minimize healthcare costs at the beginning of the year. This year, I had my annual MRI to verify I still don’t have cancer (still don’t!) back in January. That covered almost the entire first $3k making us responsible for 10% of services for the rest of this year.
I’ve gotten to the point where I don’t worry about deductibles, because there’s nothing I can really do about it. The problem with the up front deductible payments is that it makes everyone try to schedule things in November/December when they have maxed out their plan. It’s nearly impossible to get appointments for things now (but it’s almost always like that now due to the pandemic)
Also, too, I think when you get a large bill, providers generally are happy to work out a payment plan with you (and I haven’t seen interest charges). I think they’re just happy to get their money.
Lobo
David
First, I am sorry to hear about your son. I hope everything is better now.
Second, I don’t mind high deductible plans if have a HSA supplemented in part or whole, e.g., by an employer or government, so the actual outlay is really low. I loved our high deductible plan because it was simple and predictable. We owed the first X amount(supplemented halfway by the employer). After that, everything was covered. I liked this plan. Also the HSA balance carried over so it allowed a somewhat smoothing function for the variability in healthcare needs. The administrative friction of the high deductible plan was very low.
Yarrow
Hi, David. Your post on changing insurance plans mid-year as you went back to school reminded me of a problem/question I’m dealing with at the moment. I’m helping a friend navigate healthcare.gov as I’ve done it before and they have not. Problem is, their income for next year is uncertain as they are waiting for a work contract to potentially come in. They will not know for sure until first quarter 2022 at the earliest.
This past year their income has been low so they qualify for a cheap low income health insurance plan. If the contract comes through their income might go above $50k, which seems to put them in the most expensive plans. Have talked to various people including multiple insurance agents and several calls to healthcare.gov. No one seems to have a definitive answer to what happens when you go in mid-year to update your income (which my friend would need to go if this contract comes through) and you are forced to change to a more expensive plan. From what we can tell the cheaper plan would no longer be available to them at that time and they would have to change to the more expensive plan.
The thing no one can really confirm for us is if any money already spent prior to the change would carry forward to the new plan and go against the new deductible/out-of-pocket. Or, if the plan changes mid-year then deductible/out-of-pocket starts over again. One healthcare.gov person recommended updating income quarterly. That potentially would mean four different plans for the year and possibly starting over with deductible/OOP every time. That would be awful.
Several people have said that if they visit a doctor under the cheap plan and have, say, a $10 co-pay that once they update their income and the new plan has, say, a $30 co-pay, the company won’t go back and say, “Give us the $20 difference.” Seems that any medical costs incurred on the cheap plan go in under that plan and the new prices take effect once the income is updated. But even that doesn’t seem certain.
Do you have any idea about any of this? It’s super confusing and, as I said, we’ve had multiple phone calls with both healthcare.gov and insurance agents and haven’t been given a definitive response. So my friend is unsure what sort of plan to get. They don’t want to guess wrong and have to start over with deductible/OOP when they change plans. They also don’t want to be stuck with a high-income plan if the contract doesn’t come through and they can’t afford any of the medical charges, let alone the premium. Nor do they want to guess too low of an income and possibly be accused of insurance fraud. It’s very, very confusing.
Seems like my friend can’t be the only person dealing with this situation, especially with Covid upending work. It’s been a real surprise that no one seems to be able to answer this question. Thank you for any thoughts and insights you might have.
Lobo
SpongeBobtheBuilder
We are coming off of 3.5 years with a fantastic HMO with very predictable co-pays. A new job meant switching to a high-deductible plan and we have NO IDEA how much to put into an HSA, especially since it has to be spent before the end of the year. We’ve tried to calculate the tax savings vs. throwing away money on extra glasses we don’t need at the end of the year if we don’t need any of the HSA money. What a ridiculous “system”.
ATLRobert
@SpongeBobtheBuilder: Is it an HSA of an FSA. With FSA you have to spend it, with the HSA it rolls over, there’s basically no time limit.
For FSA – these (IMO) suck in general unless you have a well known need that you can budget for.
For HSA – these work more like limited savings accounts and in general they won’t expire at the end of the year. In mine, after the money’s been there long enough I can even roll it over to some type of IRA I think. So double check on yours.
My company has a HDHP plus HSA with a decent employeer contribution. This year they introduced the 10% “cost sharing” which makes predicting individual costs trickier (as well as potentially more costly). So far this arrangement works ok for my family; not sure how well this works for someone on expensive meds, especially with the HSA contributions.
narya
We are allowed to roll over $500 for our FSA. We have to enroll in benefits by this week. I’m seeing an oncologist NEXT week to find out if I will need to see them more than once. Needless to say, my decision-making has been a bit fraught. I pick up about half the cost of my expensive PPO, employer picks up the rest; not changing horses in midstream there. But what will my out of pocket be? No clue. I’ve upped my FSA contribution a little, and am rolling over $500 . . . and if I am lucky and do not need the oncologist, I will get a pair of glasses. (My glasses are very expensive, AND I wear contacts, so . . . I’m not worried about too much money in the FSA.) I am, like you, fortunate AF, and still think this doesn’t need to be so difficult.
Central Planning
@narya: Our plan has the HSA (which ATLRobert mentioned) and one other one, a limited purpose FSA (i.e. LPFSA)
The only restriction on the HSA is how much you can put in during a given year. The HSA plan has investments too, so you can really grow your HSA tax free.
The LPFSA is use it or lose it (or you can roll over $500). There are more restrictions on the LPFSA – it’s basically dental and orthodontia, and there aren’t any investment options. LPFSA is also nice because you can use the entire amount before you make all the contributions for the year. With the HSA, I believe you can only withdraw what is in there.
It’s important to understand the differences between FSA, LPFSA, and HSA. It sounds like they might have different meanings/features if you have a PPO, HMO, or high deductible plan.
David Anderson
@Yarrow: If you get a low premium, low deductible plan because of low income, you keep that plan for the entire year even if your income goes higher than anticipated. The Biden Administration is taking good faith estimates of income as reasonable.
Yarrow
@David Anderson: Thanks. That doesn’t seem to fit with what we were told this year or what I experienced last year when updating to get the new premium support. When you update something with healthcare.gov you essentially have to go through the whole application process again. At that point, if it’s an income change, the plans offered to you are not the same. At least that’s the impression I have from talking to various people including agents.
One agent told us that you stay with the same company (he said you are not allowed to change insurance companies mid-year) but go up or down in some “plan silo” to reflect the new income. Example – if low income person chose a low income Silver plan, let’s say Silver A-100 and then their income changes, they stay in the “A” category but get pushed to Silver A-200 or Silver A-300, etc. depending on the new income level. They can’t go to Silver B-400 or Gold C-250 or whatever.
Your response is about the fifth different answer I’ve had. It’s really confusing! I trust your expertise more than some of the random people I’ve talked to. Appreciate your help.