In Health Affairs Forefront, Paul Shafer, Michal Horny, Stacie Dusetzina and I published a short blog post on the challenges of commercial plans requiring monthly deductible resets instead of annual resets. Paul, Michal and Stacie have been playing with these ideas for a couple of years and I had been in the peanut gallery heckling the authors on pragmatic considerations. So we tried to work out what we’re all thinking together.
We’re in an era of substantial first dollar cost sharing. People have big deductibles. The median American does not have the liquid assets to pay off their deductible. We have fragmented policies that address some of the affordability challenges for some situations and some diseases.
For years, proponents of value-based insurance design have tried to make patients’ out-of-pocket costs more directly related to the value of care—with higher-value care costing less. For example, the Affordable Care Act (ACA) made certain high-value preventive services free to patients, although this policy is currently under threat in Braidwood v. Becerra. Another example is the monthly copayment cap on insulin costs for Medicare beneficiaries in the Inflation Reduction Act, which has helped nearly four million Americans. The White House is pushing Congress to make this policy applicable to all insured individuals, and nearly half of all states have passed insulin copayment caps to date.
Deductibles are intended to make individuals far more cost and value conscious users of healthcare. This is problematic on a pragmatic basis as people are bad shoppers. When faced with a deductible, people just stop using services without considering the value of those services. Additionally, there are substantial information gaps between what people think they are paying and what they actually are paying. Finally, there is a simple problem. Most people don’t use much if any healthcare services in a year. Deductibles barely do anything to change incentives for folks in the bottom half of the spending distribution. Deductibles also don’t bind or change incentives for people in the last quartile as their spending is often too damn high. Deductibles may influence spending for people in the 3rd quartile of spending but there is not a ton of money there. And most of this spending is likely to occur in a single event:
In a prior study of commercially insured US patients, we found that a hypothetical $500 monthly cap on in-network services would lower in-network out-of-pocket costs for nearly a quarter (24.1 percent) of commercially insured Americans, with those affected seeing their median annual out-of-pocket costs cut almost in half (-45.5 percent). For those in high-deductible health plans, the benefits would be even greater.
Monthly caps are simpler. A number resets at the end of the month. We also think it improves the incentive features as right now, people have a bad event early in the year that maxes out their deductible and then they schedule a lot of services for December at no marginal cost. Monthly caps could change this dynamic. It also improves equity as the current patchwork and caps rewards some conditions and diseases while a monthly cap treats all conditions the same.
We think that this makes the most sense in the commercial, self-insured market which is mostly large group employers. These plans are regulated by ERISA so there is substantial benefit design flexibility. They also don’t have to worry about risk adjustment or actuarial value. We are worried that if we hold actuarial value constant, maximum out of pocket expenses for individuals with chronic conditions could plausibly increase. If we hold maximum out of pocket limits constant, premiums likely increase as actuarial value increases. This is a tough trade-off.
We’re not sure if this is the way forward. We think that this could be a way forward.
WaterGirl
I have to say, at first blush this looks and feels like a way to screw the consumer.
And you say this like it’s a bad thing:
No one is going to the doctor for fun, or having procedures for fun, or getting preventive services for fun. What you have described is possibly the only good thing that comes out of a shitty health event
You’re not going over to the dark side, are you? :-)
Yarrow
I don’t understand how it would work. Is it $500 every month until you hit your annual deductible? Or $500/month no matter what?
As far as I can tell a lot of people do this because doctors are fully booked in December. I know I have. I’ve rushed to fit in visits before December 31 to take advantage of having met a deductible. I bet you’d find support among doctors who are STRESSED at the end of the year because patients do this sort of thing.
While we’re discussing deductibles, has anyone looked at portable deductibles/oop max if you have to change insurance in the middle of the year? You think meeting one deductible is bad, two is worse especially since you get no credit for the first one.
Brad F
David
Read the piece. You highlight the additional cost to MCOs with the monthly caps. Why not have a cost-neutral policy whereby you either keep your open $2k deductible yearly or choose a $167/mos cap? The route you suggest in the blog forces the patient to pick A or B depending on their expected use, i.e., they have a chronic condition with high costs that will blow through the cap, or they are in a healthy state looking to protect ICU stays from MVAs. Both A and B options rack up different costs to the insurer. You still help the patient with a cost-neutral path: predictable monthly OOP costs.
Brad
Old School
@Yarrow:
My current insurance plan has a $3,000 annual deductible for individuals. Changing it to $500 per month would still have an annual $3,000 total for me if I had monthly medical expenses.
Yarrow
@Old School: Okay, but if you had a $1500 annual deductible then $500/month would be more. And if you had a $6k annual deductible then $500/month would save you money, assuming you spend $3k/year, or the $500/month.
catothedog
When this is the premise, what else can one expect? Garbage in, garbage out.
People don’t like going to the doctor or the hospital. And when they do those things, they are in dire need. No-one is going to do a cost-benefit analysis at that time
Other than planned medical services – vaccines, eyeglass, dentals, annual physicals there is no shopping. This idea that someone in dire need is shopping around is nonsensical
Even for stuff like knee replacement or hip replacement which potentially can be shopped around, people will go with whom their physician recommends.
This whole idea that ordinary people should gain enough expertise in medical care to shop around and optimize, needs to be put to rest.
This whole thing reminds me of Homo Economicus in economic theory
Yarrow
David, one thing I always ran into is that the first of the year is EXPENSIVE. Holiday bills are coming in, health insurance deductibles start over, and, if you work for a place with a 401K and max out contributions before year end then it’s like you get a little bonus money in, say, October. That reverts back January 1, so your take home pay is less. All of that hits in January and some holiday bills even roll into February. The first quarter always seems really expensive to me, which is why I’d avoid medical stuff unless I had to.
Edit: I’m not sure how those issues affect your analysis but they’re real world stuff so I thought I’d mention them.
Old School
@Yarrow: I assume there would be variations by plan.
My family plan has a $6,000 annual deductible. (Did the math wrong in my previous reply. That’s the one equivalent to $500 per month.)
Yarrow
@Old School: I think the $500/month is just an example. It could be $200/month or $700/month depending on the plan. But I still don’t understand how it works.
Anonymous At Work
David,
Where my mind is circling is a few procedures I have had, including dental (“rich people bones”) where I could put it off for a while, but not a year. I rushed one to get it in before my deductible reset. Separately I put off another procedure to a more convenient time. I could do that since I knew I was getting hosed by insurance and hadn’t met my deductible. For a lot of “elective” items, you’d see massive gaming of the system. Schedule early in month, then a lot of follow-on care late in the month, and nothing the next month that wasn’t follow-up to the bigger tickets.
Is this how insurance companies would fear consumers would act? I would think the “year” is long enough to avoid gaming except at the margins and the shorter the intervals, the more you could game (or the bigger the margins become for gaming).
Lee
@catothedog: All of which is correct and on top of that is that the insurance company doesn’t actually let you shop around. They have in-network and out-of-network. If you go out-of-network, you’re screwed. Staying in-network means going to the providers that they have contracts with. Some insurers (particularly larger ones) do have a fairly broad range of in-network providers and services but most don’t.
Plus, there’s almost no way to even shop intelligently. For example, if you are planning on having a screening colonoscopy, your fees will vary wildly depending on if a polyp is found or not (pathology now involved), if you are obese or have some other condition that requires the procedure be done in hospital (rather than a cheaper outpatient setting), whether you’ve had a colonoscopy in the past that had findings or not, etc (screening benefits no longer apply if you had findings).
The whole idea that a deductible will somehow encourage more sensible shopping around from consumers is laughable.
Kelly
Between us Mrs Kelly and I have had expensive medical events happen which split expense across December and January neatly keeping us just under our deductible. Getting sick January, February would have saved us a few thousand dollars.
Yarrow
@Lee:
It is. Insurers may try to sell deductibles as something that encourages shopping around but in reality they work to keep people from going to the doctors because they have to pay so much out of pocket. That’s what they’re really intended to do and they work great at that.
Old School
@Yarrow:
As I understand it, it would benefit the individual as not everyone has medical expenses every month. Sometimes it seems like the family is constantly going to the doctor, but it’s six times per year. Even if that’s six different months and we hit the deductible each time, that’s $3,000 annually rather than $6,000.
From the insurers point of view, the consumer knowing that they’ll have to pay something discourages extra unnecessary annual medical expenses taken because, “Well, I’ve hit the deductible, might as well.”
RaflW
All of this is moot (I want to use angrier words but it’s not David’s fault our system is fetid ball sweat). It’s ridiculous because health care costs are the most opaque and abusive pricing system on earth.
Do deductibles deter spending on care? Probably. Some. Except that deferred care is often more expensive care — unless the patient conveniently dies before starting the needed care.
But any effort to force ‘consumer’ behavior that doesn’t start with transparent and coherent pricing from the suppliers is f-*^ng doomed. If the exact same MRI from the exact same hospital costs $600/$2000/$5000 depending on well insured/badly insured or out of network/uninsured, how in bloody hell can anyone ‘shop’ for care!
And who doesn’t love a surprise bill from a specialist who pops by while you’re unconscious and ‘checks on you’ for something you’re not even there for? I’m beyond apoplectic because tinkering around the edges of insurance spending & deductibles won’t fix a g.d. thing. (Again, sorry David. I know you want to make things better. Keep tilting at windmills! I’m a cynical old grouch … at the age of 57.)
RaflW
@Kelly: To this point, one thing that monthly deductibles would do is it would smooth out this very unfortunate, but not very rare, annual event.
It would also help with job changes or other ‘qualifying events’. One reason we went ahead and dropped my BF’s COBRA at the end of last calendar year was because he’d have two annual deductibles this year, since Cobra is an 18 month program.
Ksmiami
@WaterGirl: Health Insurance has metastasized into a cancerous three card Monty scam. It really should only be for emergent situations and pricing and bridge policies should fill in the gaps.
Betsy
Always evaluate these barriers through the lens of American Puritanism. We like to put a burden on people because sometimes they will fail to overcome it and then we can blame them for their problems. Also, there should be suffering. There should be barriers to people getting what they need, because Americans don’t deserve to get what the French or Swiss taken for granted.
We love suffering, punishment, and blame. The copays and deductibles and nasty paperwork hoops help us award each of those three required features to more people.
It’s really that simple.
Ksmiami
@RaflW: the entire system is unworkable.
Ksmiami
@Betsy: hmm – actually I think it’s about money and greed mostly and the more opaque a system is the more that means a system or an investment scam designed to take your money.
Ohio Mom
I mean to read this over when I am not as distracted as I am now but also know that if I wait too long, this thread will be dead.
For me, the most important question is not price (as if that is knowable in advance) it is, Can I trust this doctor? Is she/he any good?
Ohio Family has dropped a number of doctors who have disappointed us in one way or another. We also drop tradesmen who screw up their repairs. Why would we be cavalier about our very lives?
The only example of price dictating medical care I can think of is at this point theoretical. If a certain tooth of mine ever needs to be pulled (looking you, number 3), I will opt for a partial plate rather than an implant. And that is only half sbout price, it is also wanting to avoid more dental surgery.
Somehow, patients in the rest of the civilized world manage to take good care of their health and not overuse their medical systems without deductibles entering in.
David Anderson
@Brad F:
we went back and forth a lot on precisely this question — annual deductible or annual deductible/12 . That was about 2 months of writing time.
Basically, that type of solution invites massive selection if we hold sum MOOP constant.
WeimarGerman
Slightly off topic, but still health policy, have you read “Association Between New 340B Program Participation and Commercial Insurance Spending on Outpatient Biologic Oncology Drugs” https://jamanetwork.com/journals/jama-health-forum/fullarticle/2806517
From the paper, “We found that both spending for outpatient oncological biologic drug episodes and volume of episodes treated with these drugs increased after 340B program participation.”
It would seem that the savings received from the reduction in RX acquisition costs were not passed on to the patients. It may be the case that cash rich non-profit hospitals spent that cash on growth by acquisition and obtained greater market power (pure speculation, post-hoc story telling by me).
In any event, it is an interesting finding about this aspect of the 340B program and hopefully sparks other investigations.
Betsy
@Ksmiami: Yes, but the reason “we” put up with that and the Swiss don’t, is that “we” think Americans deserve this shit AT SOME LEVEL. And that’s our Puritanism and “meritocracy” fallacy in action.