Monday, December 9, 2013

High Deductible Health Plans

"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.

High Deductible 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?


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] [vi]  Overall costs appear to be lowered for these patients, at least in the short run.[vii] 


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 design.  But for a market to function well, consumers need adequate knowledge and information to make intelligent choices.  Medicine 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 quality care.[x]  One of the most important functions of the primary care practitioner, in fact, is to guide the patient and to help the patient choose.  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 differently.  Better-educated 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 training.  Higher-income patients will be less affected by high deductibles and copays than the less wealthy for obvious reasons.  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 fantasy.” [xii]   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 use.  HDHPs will only exacerbate this skew.

Appropriateness of targeting primary care for cost reduction

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 primary care.  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 dollar.”[xv]  These patients need more primary care, not less.[xvi]  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 pool.

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.


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 seeking care.  It is one thing to embrace a philosophy of rewarding merit; it is quite another to embrace one of rewarding luck.

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.

[i] Employer Health Benefits 2011 Annual Survey, Kaiser Family Foundation – accessed at on August 13, 2012
[ii] recent article of growth of HDHPs in Kaiser Family Foundation 2012 health insurance survey, New Release Sept 12, 2012
[iii] ibid.   
[iv] Mulvey J. Health Savings Accounts: Overview of Rules for 2012;  December 20, 2011, Congressional Research Service 7-5700,  RL33257   
[v] Haviland AM, Sood N. McDevitt RD, Marquis MS. The effects of consumer-directed health plans on episodes of health care; Forum for Health Economics & Policy 2011:14:issue 2, Article 9:1-26.
[vi] Haviland AM, Sood N. McDevitt RD, Marquis MS. How do consumer-directed health plans affect vulnerable populations?; Forum for Health Economics & Policy 2011;14:issue 2, Article 3:1-23.
[vii] Haviland AM, Marquis MS, McDevitt RD, Sood N. Growth of consumer-directed health plans to one-half of all employer-sponsored insurance could save $57 billion annually: Health Affairs 2012; 31:1009-1014.
[viii]Retchin SM. Overcoming information asymmetry in consumer-directed health plans, American Journal of Managed Care 13: 173-176, 2007.
[ix] Haviland et al. Health Affairs.
[x] Hibbard JH, Green J, Sofaer S. et al. An experiment shows that a well-designed report on costs and quality can help consumers choose high-value health care. Health Affairs. 2012. 31: 560-568/
[xi] Haviland et al., Health Affairs, op. cit.
[xii] Fuchs VR.  Eliminating “Waste” in health care.  JAMA 2012;302:2481-2.
[xiii] Starfield et al.
[xiv] Iglehart JK.  Primary care: light at the end of the tunnel?  N Engl J Med 2012; 366:2144-2146.
[xv] Emanuel EJ.  Why Accountable Care Organizations are not 1990’s managed care redux.  JAMA.  2012; 307 (21):2263-2264.
[xvi] Gawande A.  The hot spotters.  The New Yorker.  January 24, 2011.
[xvii] Milstein A, Shortell S.  Innovations in care delivery to slow growth of US health spending.  JAMA 2012;308 (14):1439-1340.
[xviii] Robinson JC, MacPherson K.  Payers test reference pricing and centers of excellence to steer patients to low-price and high-quality providers.  Health Affairs 2012;31:2028-2035.
[xix] Braddock CH, Snyder L, Neubauer RL, Fischer GS.  The patient-centered medical home: an ethical analysis of principles and practice. J Gen Intern Med, published online: 25 July, 2012.
[xx] Zakaria F.  The downward path of upward mobility.  November 9, 2011, The Washington Post.


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  2. Nicely done! Clear and compelling.
    This should be required reading for institutions considering offering a HDHP.