"Deductibles Fuel New Worries Of Health-Law Sticker Shock," headlines the WSJ today. Indeed. Here is a High Deductible Health Plan article I wrote one year ago - if only I could get published once in a while! I write well, think well, and publicize poorly. Oh, well.
Health Plans – An Argument Against
HDHPs are attractive to employers because of lower premium
prices, as costs are shifted to employees. With “skin in the game” for primary care, patients use fewer
services and overall health costs are shifted downward. Nonetheless, HDHPs might not be a good
answer to the American healthcare puzzle.
Patients often make poor medical decisions when they try to be their own
primary care doctors. HDHPs weaken
primary care in several ways, lead to adverse selection, and exacerbate
economic discrimination in access to care. If HDHPs are to be retained, they will need to be profoundly
revised to remedy these weaknesses.
In our search for ways to cut health care costs, we thrash
about. There is no shortage of
strategies and plans, but as everyone knows, one person’s inefficiency is
another’s paycheck. Power is
diffuse. Most reforms require
multiple players to cooperate in complex plans, and many need to legislation to
enact. In our inclusive system of
government, “stakeholders,” composed mostly of those with paychecks emanating
from somewhere in the industry, have great ability to block reforms that would
gore their ox. Therefore, for many
years before PPACA reforms, few serious efforts emerged.
The end-purchaser of health insurance is most often an
employer. What was the employer to
do as increasing policy premiums continually presented themselves? What could the employer’s health
insurance agent produce to preserve the account? What could an insurance company devise, acting on its own?
One prominent answer was the High Deductible Health Plan
(HDHP). Its attraction to
insurance companies was obvious – HDHPs are supremely simple to devise, needing
the cooperation of virtually no other participant in the industry. Patients are already familiar with
deductibles, copayments, and coinsurance, and raising the limit would represent
just continuation of a trend.
Raising the deductible would satisfy the purchaser’s need for cost
reduction by lower premium cost by transferring costs for initial care to the
employee – a stakeholder with little power.
So attractive have HDHPs been to purchasers that they were
offered by 15% of employers in 2010 and 23% in 2011, and 40% of workers who are
offered coverage were offered HDHPs in 2011.[i]
Recently there has been particularly
vigorous growth in HDHPs in small businesses with relatively low paid workers.[ii]
Further growth seems inevitable, since
HDHP’s will be offered on the Health Insurance Exchanges mandated by the PPACA.
Not only have HDHPs been successful commercially, but, since
they increase the price of initial care, consumers have reacted as economic
theory predicts they would: HDHP patients have sought less care than patients
with conventional health insurance, and thus overall health care costs for this
group have been reduced. Indeed,
Haviland and colleagues have projected that if half of the country had HDHPs,
the total cost savings to the system would be $XXX, an astounding amount.
Despite the fact that HDHPs were adopted because there were
so few politically practical alternatives, one has to ask, are HDHPs the
answer? Should we as a
country want them to be widely adopted as an important component to our fight
for lower health care costs?
To answer this question it is not enough simply to observe
that they lower costs. One has to
ask, do they preserve access to care, do they foster high quality health care,
do they comport with the direction in which we want the health care system to
go, and (perhaps most importantly) does it represent a philosophy of health
care that the country should endorse?
DESCRIPTION AND THEORY
Although readers of these pages will be familiar with HDHPs,
the basic outline needs to be mentioned.
Sanctioned by the federal government in the Medicare Prescription Drug
Improvement and Modernization Act of 2003,[iii]
HDHPs must currently have a deductible of at least $1,200 for individuals or
$2,400 for families, and a total annual out-of-pocket maximum, including
deductible, copays, and other cost-sharing, not to exceed $6,050 for
individuals and $12,100 for families.[iv]
Because pure HDHP policies could dampen
use of preventive services, HDHPs have been required to provide basic
prevention – well patient visits, immunizations, screening tests – with no
deductibles and no copays.
In addition, employers may provide a Health Reimbursement
Arrangement (HRA) or a Health Savings Account (HSA). While they differ from each other in details, both consist
of tax-free funds, contributed by the employer (HRA), the subscriber (HSA), or
both (HSA), to pay out of pocket costs not covered by the HDHP. The hope of these accounts would be for
patients to be rewarded for not using services by having funds available to
cushion the effects of future expenditures – rainy day funds, in effect.
Besides lowering premium cost, the theory of involving the
consumer in making a cost-conscious choice is attractive to market advocates.
The theory is that with “skin in the game,” patients will think twice before
seeking care, might price shop for less expensive options, and might take
better care of their health by exercising, avoiding obesity, not smoking,
etc. Thus, the plans are “consumer
driven health plans (CDHPs).”
Some HDHP proponents also justify the plans on a more
general philosophical basis. They
argue that it is a political and economic virtue to give people the freedom to
choose an insurance plan that fits their own individual dispositions. If patients feel that they can navigate
the system of care well by themselves and make good choices, and that they can
sustain the hazard of large, unforeseen expenditures, these people should have
the freedom not to obtain more comprehensive coverage if they don’t want
it. Others assert that citizens
who achieve wealth in their lives deserve the fruits of their labor. If there is inequality of access to
primary care because some families can better afford that care than others,
this is a justified inequality because of achievement.
The actual effects of HDHPs have just begun to be studied,
so only limited information is available.
From what we know, it does appear that patients with HDHP’s make fewer
visits to clinicians for episodes of illness, make fewer visits within an
illness episode, are prescribed generic drugs more often than other patients,
make fewer specialist visits, and are less frequently hospitalized.[v]
Overall costs appear to be lowered for
these patients, at least in the short run.[vii]
A DEEPER LOOK
A deeper look at HDHPs, however, brings the deleterious
effects of HDHPs to light. Objections
focus on the nature of the market for medical care, the wisdom of targeting primary
care for cost savings, the untoward effects of HDHPs on primary care, the
connection between HDHPs and the national strategy on health care organization
and policy, the effects of adverse selection in the insurance market, the
effects of HDHP on quality of care, and the implications of HDHPs for the
social philosophy of medical care.
Appropriateness of using the market mechanism
Using the market mechanism is appealing because the market
functions automatically and without the need for conscious regulation and
But for a market to
function well, consumers need adequate knowledge and information to make
requires so much special knowledge and education that many doubt the
applicability of the market for medical care.[viii]
Indeed, studies show that some sets of patients consistently
make misjudgments in their medical choices.
For instance, while HDHP patients incur fewer medical costs
for illness care, they also have lower rates of well visits, immunizations, and
preventive screens than those in traditional plans, despite the absence of out
of pocket costs.[ix]
Patients are notoriously poor at
judging quality; for instance, they frequently equate high cost care with high
One of the most important functions of
the primary care practitioner, in fact, is to guide the patient and to help the
Thus, it seems
counterintuitive to encourage lay people not to use the professional knowledge and judgment of a primary care
practitioner, particularly when a primary care visit is perhaps the least
expensive encounter in the entire spectrum of health care services.
HDHPs probably affect different categories of patients
and/or more sophisticated patients might well be able to make simple decisions
for health care in a skillful manner despite their lack of medical
will be less affected by high deductibles and copays than the less wealthy for
It is no
surprise, then, when patients have a choice, it is the better-educated and
higher-income patients who are the most likely to enroll in HDHPs.[xi]
It is dismaying, then, to see that recent trends are for lower income workers
to be offered the HDHPs by their employers.
Fuchs reflects the opinions of many when he states that “the
idea of sick patients shopping for the lowest-price medical care … is a
Likewise, there is no evidence
that HDHP patients adopt better health habits.
Appropriateness of targeting primary care for cost
savings and use reduction
It is well known that the United States suffers from too
little primary care.[xiii]
American medical manpower distribution is already dysfunctionally skewed toward
specialties and becoming more so.[xiv]
Two prime reasons for this skew are the imbalance of specialty/primary incomes
and the difficulty of running primary care offices.
By targeting primary care for economies and reduction of
HDHPs will only exacerbate
Appropriateness of targeting primary care for cost
Just as the best fishermen go where the fish are,
cost-reducers need to search where costs are most excessive. Although no doubt savings can be found
in every aspect of health care, primary care is probably the source where there
is the least excessive costs to be found, and the least significant
overuse. Primary care visits are
relatively inexpensive; some lead to treatment, others to early detection of
significant disease, and even those that don’t reveal pathology provide worried
patients the benefit of a caring clinician, the value of which no one doubts.
It makes more sense to find cost reduction by fishing in the
high cost ocean of high tech medical interventions and hospitals than targeting
As Emanuel states:
“Nearly two-thirds of health care costs are concentrated in 10% of patients, so
to control costs, the focus needs to be on these patients, not the 50% of the
population that is relatively healthy, and uses just 3% of the health care
These patients need more primary care,
Innovations in care delivery around the
hospital setting could save from 20%-35% of current expenditures.[xvii]
Changes in pricing competition and
larger scale organization would also be a better focus for savings.[xviii]
In fact, one important cost savings effort would be to increase the use of primary care through the Patient Centered
Medical Home (PCMH). The PCMH is
essentially a strengthened office with highly personal care, more nurse
outreach, an emphasis on prevention and patient registries, attention to
self-care, and guidance through the medical care system.[xix] The PCMH can target the high utilizers
and prevent ER visits and hospitalizations through enhanced interventions. If the idea of PCMH is correct, then
the idea of HDHPs, which would discourage visits and economize at the expense
of primary care offices, must be incorrect.
Effects on the primary care office functioning
HDHPs harm the primary care office in other ways that are
frequently overlooked. To avoid
the cost of a visit, patients often seek to replace visits with telephone
calls, thus increasing practice overhead, decreasing practice income, and
decreasing the quality of the patient-clinician relationship. Patients also tend to save up all their
ills to be addressed at the “free” well visits, thus compromising the quality
of the visit – well-care requires a lot of time and effort, and one cannot
easily wedge illness issues into the visit without compromising one or the
other -- and curtailing office income.
HDHPs also confound primary care offices from the sheer
complexity of the billing process.
Collection of the fee at the time of the office visit is impossible,
since neither the office nor the patients will know the state of the patient’s
deductible. Thus, a bill is sent
to the insurance company, a denial of payment is sent to the practitioner’s
billing office with the discount indicated, then another bill is sent to the
patient, who will frequently be reluctant to pay, the patient and/or the
clinical office can find tapping into the HRAs and HSAs mysterious, payment is
thus further delayed. As a result
of this process, both office overhead and bad debt are increased. Many offices view HDHPs as a nightmare.
Effect on primary care/specialty investment
Another overlooked possible effect of HDHPs is on
innovation. While we are all used
to and welcome high tech innovations for procedures, innovations in primary
care could benefit from innovations as well. Innovations, however, migrate to where the money is, and the
effect of HDHPs is to curtail expenditures in primary care but not in higher
end care. While many high tech
innovations lead to better care, others do not; it is certain, however, that
most of these high tech innovations lead to higher costs. Innovations in primary care, however,
could well lead to lower costs – as with the PCMH, for example.
Effect on other patients not choosing HDHPs
HDHPs are a virtual recipe for averse selection. When given a choice, patients who think
they will not be using services, because of good health prospects or a
disinclination toward prevention, will be the ones to choose HDHPs. HDHP’s will also attract patients who
could weather a surprising yearly bill of $6,000 or $12,000. That leaves those with chronic diseases,
those fearful of impending poor health, those who believe in prevention, and
those with fewer means to withstand a large health care bill, for the non-HDHP
policies. As a result, the latter
pay higher premiums since the former will not be contributing to the common
Quality of care with HDHPs
Many aspects of the discussion above have implications for
health care quality under HDHPs.
Patient decisions in a medical care marketplace are often not well
informed. Continuity of care and
the doctor/patient relationship suffer as primary care visits are
discouraged. HDHPs could well lead
to delays in diagnosis and treatment of illnesses, although this question has
not been studied.
SOCIAL PHILOSOPHY AND FAIRNESS
In the end, a country needs to choose among
alternatives. It is seductive to
believe that the concept of freedom compels us to allow the healthy, well
educated, and financially stable to forego excess insurance contributions, even
if it harms those who are less healthy and less financially stable.
It is increasingly clear, however, that to be well and
well-off is highly related to the luck of one’s birth and genetic makeup,
rather than entirely a result of specific merit.[xx]
Of course, luck is not always at work –
obese smokers and heavy drinkers, for instance, cannot attribute their bad
health experience entirely to “bad luck.”
Nonetheless, good or ill fortune is often at the root of illness and
It is one thing to
embrace a philosophy of rewarding merit; it is quite another to embrace one of
To what extent are we as a nation willing to endorse unequal
access to health care? We might
well countenance financial resources dictating the choice of a semi-private vs.
a private hospital room. But it is
very different to decide that a worried high-income family with a sick child
can seek care with little financial impediment, a poor family on Medicaid can
do the same, but a middle-income family will face a significant financial
barrier for that very same primary care visit. And it is yet another unpalatable decision to require a
family with a chronic illness to pay higher premiums and/or more out of pocket
than a family blessed with good health.
These are clearly the philosophic stakes as we imbed HDHPs
more deeply into our medical lives.
HDHPs can lower costs for purchasers, lead subscribers to be
more abstemious consumers of care, and even lower costs for the health care
system as a whole. Nonetheless, by
targeting primary care, HDHPs look for savings in the wrong places. HDHPs undercut the strength of primary
care; penalize the less-well, the less-well educated, and the less-well off by
increased costs and adverse selection; and likely lead to lower quality of
care. HDHPs are policies that
contribute irrationally to the further discrimination of access to care on the
basis of wealth.
With all these negatives, the nation would be well advised
to examine the proliferation of HDHPs more critically, and adopt instead
alternative cost-savings approaches that strike at the highest cost areas. If HDHPs are to be kept on the menu of
alternative plans, they need to be wholly revised so that adverse selection
does not occur, that the advantaged are not favored over the disadvantaged, and
that primary care does not bear the brunt of the cost reduction effort. How to revise HDHPs to decrease their
negatives to a tolerable level would be a major challenge.
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