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The Effects of High Deductibles

By October 26, 2015Commentary

High deductible plans continue to irresistibly gain members, largely because for employers they have delivered lower costs.  Concerns, however, have been expressed about whether they truly guide employees to make wiser health decisions or whether they lead to reductions in use of both appropriate and inappropriate services.  Research published by the National Bureau of Economic Research delves into the subject.   (NBER Paper)   The authors used a large self-insured employer (52,000 employees and 105,000 dependents, all relatively very highly paid) that moved all employees from a very rich benefit plan (basically completely free care) to a high-deductible plan, with the same benefits covered and the same providers available, and with an HSA to which the employer contributed average expected out-of-pocket expenses.  The researchers looked at spending and utilization data from before and after the switch.  This change was associated with a spending reduction of 11.1% to 15.4% in the first year (depends on your assumptions about anticipatory use of services just before the change), or about $97 million at the midpoint (now you see the attraction for employers!).  In the second year the reduction compared to the year before the switch was 12.5%.

The reduction occurred across all categories of care, with ER and drug use most affected and preventive care the least  (most preventive care should not have a cost-share anyway, so interesting that it is affected).  The sickest fourth of members reduced spending by 18% to 22%, which is bizarre because they are most likely to reach the deductible and thereafter have less cost sharing, so their average price throughout the year is probably lower than for healthier people.  But this reflects an important point the authors make, which is that the study suggests that most consumers are incapable of understanding the underlying economics of their coverage.  Essentially all the reductions in spending were in the form of pure quantity of service reductions, not price shopping for lower cost providers and not substitution of lower-cost treatments for more expensive ones.  The lack of apparent price shopping persisted in the second year of the switch, and this despite free availability of a cost comparison tool.

And what is the value or appropriateness of the care consumers are foregoing?  The reductions occurred across almost all of the top 30 procedures, suggesting lack of distinction between high and low value services.  On the potentially positive side, imaging use dropped.  On the not so positive side, so did colonoscopy use.  On the whole the research suggests that consumers are not reducing their spending in a targeted, thoughtful way.  And this group had much-higher than average income, so presumably also are better educated and the increased cost is less meaningful to them, and yet they were not capable of a thoroughly rational response to their new benefit plan.  They also had access to an HSA with employer contributions, which can obviate a lot of the deductible.  How would lower educated, lower-income workers cope?  Making consumers sensitive to the cost of their care is a good thing, but only if they respond rationally.  Making service-shopping tools available is apparently not enough, more active training and coaching may be needed.   This is an extremely well-done and important paper, one worth understanding in detail for what it tells us about what likely will be the predominant form of commercial health insurance in the very near future.

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