Friday’s New York Times had an excellent piece about the major changes occurring in the type of policies gaining traction in the group health insurance market – consumer-directed health plans with high deductibles. According to the NYT’s Milt Freudenheim, more than a hundred large companies, including Nissan and Delta Airlines are now offering one plan – a high deductible one. The corporate types interviewed for the article claimed their employers had changed from other options to the single high-deductible one because
While Nissan and Delta are contributing to the deductible account, they are the exception rather than the rule. Only a quarter of employee HSA accounts actually have any funds in them. If, or more accurately when, the worker or a family member gets care, they will have to pay for that care with post-tax funds from their regular cash flow – if not, it likely goes on the credit card, where it not only is paid with post-tax dollars, but it may well add to the family’s debt burden.
Although consumer-directed health plans have struggled to gain traction, it looks like we can expect more and more employers to adopt them – gaining a significant reduction in costs in the first year, with some, albeit unconvincing, evidence of slightly lower costs in subsequent years. I’d note that the evidence is rather thin, and the cost savings may well be due more to adverse selection (healthier folks choose HSA plans when they have a choice, with their less-healthy coworkers sticking with HMO or other richer plans).
While I’d like to believe the benefits folks from Nissan and Delta are doing this to encourage better spending habits and healthy behaviors, the real reason they’re dumping their richer plans is cost. Both companies have been and will likely continue to be hammered by the recession, high energy costs, and declining demand. Health care plans cost $13,000 per family – it’s no wonder employers are switching to lower cost alternatives.
No, companies changing to consumer-directed health plans are doing it to cut costs. But they may well find their efforts backfire.
The underpinnings of CDHPs lie in the economic theory of “Moral Hazard.” Journalist-author Malcolm Gladwell describes this as the belief that “insurance can change the behavior of the person being insured” and notes that it is popular among many economists and think-tank types and, consequently, has been influential in shaping health care delivery systems. The idea is that if insurance covers the bills, people are more likely to seek care and run up unnecessary costs.
The Moral Hazard theory falls short when confronted by the rather uncomfortable reality of actually having health care services rendered to one’s own person. Why would anyone want to subject themselves to surgery or hospitalization if there were an option to avoid it and just go fishing instead?
But on the surface, the concept makes some sense. Most people would be careful about getting an MRI if they knew they had to foot the bill, but perhaps too careful. People will not simply avoid discretionary care; they will avoid necessary care, as several studies indicate. One Rand Corporation study concludes that when individuals are required to pay more for prescription drugs, they don’t take them as they should. This leads to nasty physical and financial problems, such as more strokes, which cause lots of pain and cost lots of money to fix when a few blood-pressure pills might have sufficed. As far as drug copays go, increasing consumers’ costs actually drives up total medical expenses. It’s not a great leap to think individuals with high deductibles will likely wait before scheduling an appointment with their physician to see if a problem just goes away on its own. In a time when the Centers for Disease Control describe diabetes as “a runaway train,” is it economically wise to foster measures that discourage preventive care?
The coup de gras for CDHP is its old nemesis, the real world. CDHP’s fatal flaw is that the “consumer” part is directed at the wrong people. Half of U.S. health care costs are spent on five percent of the population. A deductible has little impact on the purchasing behavior of these folks; they’ll blow through a few thousand bucks in a couple of months
Conversely, over two-thirds of Americans spend less than a thousand dollars a year on health care. The only effect a high deductible will have on these folks is to discourage the use of preventive care.
Consumerism is not all bad – health care shouldn’t be “free” for anyone. Requiring people to share in the cost of their care should be a part of any serious reform effort. The fix for CDHP is relatively simple – get rid of high deductibles, which are unaffordable for many and may well discourage preventive care, and replace them with coinsurance per service to ensure patients have some financial skin in the game. Insurance companies should keep an income-indexed out-of pocket-maximum, while covering preventive services and maintenance medications at very low copays to encourage their use.
I”d add that employers really interested in reducing costs over the long term do have another alternative – buy a CDHP plan, and then fund the deductibles. One company has saved their clients significant dollars with this hybrid approach.
